Exelon Bets Heavily on Wind with Deere Acquisition

Largest nuclear power operator buys wind power business for $860 million.

The largest nuclear power operator in the U.S. is about to assert a significant presence in the wind industry, as Exelon Corp. purchased the renewable energy unit of Deere & Co. for an estimated $860 million.

The acquisition gives Exelon, which is the largest U.S. utility owner, 735 megawatts (MW) of wind capacity to add to its clean energy portfolio. The Deere wind farms, which are spread over 36 projects across eight states, have an operating capacity large enough to power 160,000 to 220,000 households.

The deal includes a provision for $860 million for existing turbines and $40 million if Deere starts construction of 230 MW of projects in advanced development before the deal closes at the end of 2010.

At a time when the clean energy industry has grown ever more uncertain, the purchase highlights where two powerful players are hedging their bets, says Matthew Kaplan, a senior analyst at Emerging Energy Research.

Deere is taking a little more risk aversion and focusing on its core business, says Kaplan. At heart, Deere is really focused on its machinery and its wind business was a nice complement to that. Exelon, by comparison, has always been in power generation, but never been in wind. This is a major step forward for Exelon into renewable technology.

That doesnt mean its not a gamble. The long-term strength of Exelons investment will be driven in large part by whether some form of U.S. legislation to address carbon dioxide passes Congress. A proposal that would have introduced emission limits on a national level was quashed in the Senate earlier this summer. Senator John Kerry (D-Mass.) recently expressed hope to address the issue again following the midterm elections.

The value of turbines has dropped precipitously in 2010, says Kaplan, due to government stimulus money running out, along with a saturation of availability, as foreign manufacturers have hit the domestic market. Though the economic recovery has been slower than anticipated, those conditions, Exelon believes, create a ripe opportunity.

We expect to see increasing demand for clean, efficient wind power at a national level, said Exelon CEO John W. Rowe in a statement. "Whether harmful emissions are priced or regulated, our combined capacity of nearly 19,000 megawatts of zero-emission wind, solar, hydro, landfill gas and nuclear power remains a clear competitive advantage that will only become more valuable.

Nearly three-quarters of Deeres wind farms are already under long-term power purchase arrangements with utilities, which Kaplan says provides cost-certainty for Exelon at a time when power arrangements are difficult to come by.

Deere, which saw its profit margin which drop 57% last fiscal year, hired Goldman Sachs in February as a financial adviser to help sell its wind business, for which it invested over $1 billion over the past five years in the financing, development and ownership of wind energy projects.
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