I though Dirk Andreas of Navigant Consulting had some interesting observations on merchant wind and ethanol in this SNL Energy interview regarding Renewables.
“If you’re rate-based, wind is great because it’s high capital. You’re essentially prepaying for fuel, so from a shareholder’s viewpoint it’s a great investment if you’re a utility”
“[ethanol is] a lot riskier than power but the returns right now are very good; we think that that return reflects that risk,” said Andreas. Currently, the range of returns on ethanol facilities, unlevered, is between 20% to 30%; investors are likely to make their money back within three years of the plant’s launch.
But a report Navigant has just released has this intriguing conclusion:
“Navigant Consulting sees opportunities to capture market share in the rapidly growing biofuels market. However, market share by itself does not translate into profitability. Profitability requires an understanding of the range of outcomes that are driven by the inherent risk profile of an ethanol investment.
The prospective investor must be able to identify signposts relevant to the decision-making process, and develop a dynamic business strategy that optimally incorporates both opportunities and risks.”