Refurbished Wind Turbines to Power the Developing World at a Profit

The rise of the developing world was a recurring theme at this year's Abu Dhabi Sustainability Week. The event's opening ceremony featured a panel on development in Africa, where Dr. Sultan Ahmed Al Jaber, Minister of State in the United Arab Emirates, and three African heads of state predicted rapid urbanization and economic growth across the continent in the coming decade.

The need is great as more than 1.3 billion people around the world currently live without access to electricity. Two-thirds of those that have access to electricity get it from fossil fuels. With fossil fuel prices fluctuating and demand on the rise, energy costs are sent soaring in large swaths of the developing world - meaning those who can't foot the bill are often left behind.

As energy demands increase to keep pace with forthcoming economic booms, devising a solution that meets these needs sustainably may prove not only an environmental win, but also a sound business decision for organizations that get in on the ground floor.

Formally announced in a panel discussion at the World Future Energy Summit in Abu Dhabi last week, the commercially-based Wind for Prosperity initiative claims to have devised just such a solution. Launched by wind energy powerhouse Vestas, Masdar and a number of other partners, the initiative seeks to refurbish V-27 and V-47 wind turbines from Europe and re-deploy them in the developing world - providing clean and affordable power where it's needed most.

Perhaps the most interesting aspect of Wind for Prosperity is its decidedly for-profit model. Panelists made it clear that the initiative is not about aid, philanthropy or even corporate social responsibility, but rather its underlying goals center around proving that expanding renewable energy markets in a socially conscious way can also bolster bottom lines.

"Wind for Prosperity is not about charity," asserted Vestas CEO Anders Runevad in front of a small room of media, pundits and energy buffs. "It is about business."

The problem

Seven out of every 10 people living in sub-Saharan Africa do not have access to electricity (that's almost twice the U.S. population living in the dark). Hundred of millions more across South America and Asia also have limited or inconsistent access to energy. Some live in remote rural areas, hundreds of miles away from the established grid, while others are simply priced out of the market.

In the Caribbean and South America, energy costs range from 35 cents to 60 cents per kilowatt-hour. A reporter from Chad, who spoke during the question-and-answer portion of the panel, said he pays $1 per kilowatt-hour for electricity. In comparison, the average cost per kWh in the U.S. is 12 cents, according to the Energy Information Administration.

Jose Maria Figueres Olsen, former president of Costa Rica and current president of The Carbon War Room, rightfully pointed out that, "Energy poverty is where poverty begins." In areas with inconsistent access to electricity, even essential structures like schools and hospitals go without - posing obvious challenges and barriers to prosperity.

"It's a tough equation selling energy to some of the world's poorest people," observed panelist Evan Scandling, head of communications for Sunlabob Renewable Energy - a Laos-based company specializing in renewable energy and clean water solutions in the developing world. "So that in itself is challenging."

The solution

Utilizing its vast processing capabilities, Vestas compiled a data map that identifies countries where large rural populations live without electricity access, have high infant mortality rates and yet have abundant wind resources - defined as regions with wind speeds above 7 meters per second, explained Morten Albaek, group senior vice president of Vestas Wind Systems A/S.

Between 50 to 100 million people without access to electricity are living in such areas, spanning across 80 countries, according to the data.

"Furthermore, if we focus on people who are living so far away from the established grid, they will never be connected to the grids in their own lifetimes," Albaek continued. "So out there we have 50 to 100 million people who are living with strong wind resources and so far away from the grids that they will not get access to electricity if we do not find a solution for them, and that solution is Wind for Prosperity."

By combining decommissioned wind turbines - which are virtually free save for refurbishment costs - with advanced diesel power generation, Vestas can create affordable hybrid systems that are well-suited for operation on mini-grids in remote locations with limited infrastructure.

Wind for Prosperity will pilot its project with 13 communities in Kenya over the next 18 months - reaching more than 200,000 people and reducing the need for diesel by 2,000 tons annually, Albaek said. For obvious reasons, boosting access to electricity also has known positive effects on a nation's economic prosperity. A 1 percent increase in electricity generation is estimated to cause a 1 percent rise in a nation's GDP index, according to 2007 data from the UN Industrial Development Organization.

"There are two wars we need to win," former Costa Rican President Figueres Olsen said. "One is a war on poverty, and the other is the war against climate change. This program gives us the ability to win both with the same instruments."

The business model

Vestas and other backers will establish Wind for Prosperity companies in every country they enter. Ideally, these proposed micro-companies will be public-private partnerships between investors, local governments and utility companies. If all goes as planned, this would manifest in a private company owning the wind turbines and selling the output to a local utility or governmental energy agency that, in turn, distributes to the end user. Shareholders, who are expected include residents of each deployment region, will be the first to reap returns financially in the form of dividends - followed by the company and its investors over the long-term power purchase agreement.

The project is targeting fast and widespread deployment of refurbished turbines - with a goal of reaching 100 communities and more than 1 billion people over the next three years. Other regions being explored for deployment include Ethiopia, Tanzania, Yemen, Pakistan, Vietnam and Nicaragua, but Africa was selected as the first deployment area for the project. The region has the lowest per-capita access to and the highest cost of electricity generation, but, at the same time, the continent has what Wind for Prosperity partners deem "exceptional wind resources" - meaning better results for communities and higher profits for stakeholders.

"Making profits is the most important thing here," Albaek said. "If we can prove through Wind for Prosperity, which we are positive that we can, that you can actually turn pretty good returns-on-investment by reducing CO2 emissions and unlocking people from poverty, there's no excuse not to do it."

The return on investment

While making energy more affordable for residents and lifting them out of poverty is the primary goal of the initiative, forging a presence in developing markets makes sense for established alternative energy companies - especially in the long-term, as current energy demand in these markets is likely a fraction of what it will be in 10 years.

It certainly isn't tough to beat today's energy prices in large parts of the developing world, and consistent, sustainable forms of energy more than compete. In Kenya, the wind hybrid system will supply electricity at least 30 percent below the current cost, based on diesel generation, according Wind for Prosperity estimates.

Investors are also poised to receive high rates of return on the project. Citing financial data he received as president of The Carbon War Room, a Wind for Prosperity investor, Figueres Olsen said projections quote an internal rate of return of more than 15 percent over the 30-year power purchase agreement. "You don't get that rate of return in the world of today," he asserted with a smile.

Specific investor information is not readily available due to the relative newness of the project. But the former president's excitement was palpable and drew applause from an audience of skeptics and optimists alike - which bodes well for the financial soundness of the project, or at least one investor's perspective on it.

For a company like Vestas, which currently holds a substantial share in the wind energy market (roughly one out of every four wind turbines in the world is a Vestas turbine), expanding its reach to the developing world makes sense in light of forecasted economic growth. If the company chooses not to lead the charge, an unavoidable risk is that, in all odds, someone else will. When asked how Vestas will profit from the initiative, Albaek said:

We have installed close to 60 gigawatts of wind turbines across the planet … So, as part of our revenue and our bottom line, this is going to be insignificant. But what will not be insignificant is how Wind for Prosperity can help open up new boundaries for wind energy - rather than just sit passively and wait for, say, gravity to bring wind energy to the frontier markets of the word.

So in that regard, it is a business development strategy that is self-funding because it also has a return."

The program was just devised in November and is still in its infancy. So, success from both the community and investment perspectives will likely remain unclear until the first pilot begins in the coming months, but investor interest appears to be building.

Beginning with three investors late last year (Vestas, Masdar and Danish equity-fund manager Frontier Investment Management), the project has since attracted other significant players like Sundog Pictures, DI Frontier Carbon & Energy Fund and Econet Wireless. With the rise of developing nations set to have a big impact on global climate change mitigation moving forward, Wind for Prosperity is surely a project to watch.

Images courtesy of Wind for Prosperity

Based in Philadelphia, Mary Mazzoni is an editor at TriplePundit. She is also a freelance journalist who frequently writes about sustainability, corporate social responsibility and clean tech. Her work has appeared on the Huffington Post, Sustainable Brands, Earth911 and The Daily Meal. You can follow her on Twitter @mary_mazzoni.

Ed note: Travel expenses to Abu Dhabi were provided by Masdar, the main organizer of the World Future Energy Summit and Abu Dhabi Sustainability Week.