Ted Turner Taking Coal Funds to Create Solar Odd Couple: Energy
They’re unlikely business partners: a billionaire environmentalist and one of the largest coal-burners in the U.S.
Yet Atlanta businessman Ted Turner, a climate-change crusader, and Southern Co. (SO), the second-largest utility in the U.S. by market value, have found a common interest developing giant solar farms, mostly in southwestern U.S. deserts. As investment costs collapse, they have jointly purchased five projects to make Southern one of the largest U.S. utility owners of solar energy.
Turner gains funding for his solar ambitions, while Atlanta-based Southern hedges against the risk of clean power biting into a business based largely on burning fossil fuels across its four-state region. Solar technology poses the greatest threat to the $371-billion U.S. power industry because it turns homes and businesses into mini-generators that can sell electricity to utilities rather than buying it from them.
“Every element of strategy has aspects of offense and defense,” said Tom Fanning, Southern’s chairman and chief executive officer in an interview. “If you let it, it’s a threat. If you play offense, it can become a growth strategy.”
The partnership, initiated by Turner’s camp, is all the more surprising given Southern’s campaigns in Washington and Georgia to thwart laws requiring utilities to buy renewable energy, a cause passionately supported by the CNN television network founder.
While Turner has vowed not to “leave a burned-out hothouse world” for his grandchildren, Southern-owned coal plants are among the top U.S. emitters of greenhouse gases. Turner declined a request for interview.
“We needed a partner like Southern because they brought a great understanding of the utility business, they brought a lot of the technical expertise that we didn’t have. They were credit-worthy,” said Taylor Glover, CEO of Turner Enterprises Inc., in a phone interview. “We brought reputation and land and desire. So it made for a good partnership, and it has been a great partnership.”
Solar investments gained allure as panel prices plunged more than 60 percent in the past two years, especially among consumers seeking a hedge against future spikes in power prices.
While cheaper power and restrictions on installation financing have discouraged rooftop development in Southern’s southeastern U.S. region, it’s studying commercializing thin-film panels there to “get ahead of the trend,” Fanning said in a phone interview.
“It’s going to come whether you like it or not,” John Gornall, an Atlanta-based attorney and co-chairman of the renewable energy practice at Arnall Golden Gregory, said in a phone interview.
Southern, NRG Energy Inc. (NRG), Duke Energy Corp. (DUK), Edison International (EIX), Exelon Corp. (EXC) are among the power companies mulling whether to sell services linked to energy conservation, panel installation and financing to replace any power sales they’ll lose as solar expands. The trend’s market-rocking potential has been compared to mobile phones’ effect on telecommunications.
“It would be silly for us to say that this will never happen, because cellphones happened,” Mike Morris, chairman of Columbus, Ohio-based American Electric Power Company Inc. (AEP), said at a Las Vegas conference last month. “So, you figure out how am I going to make money out of it?”
The threat to Southern’s business model remains well in the distance in Georgia, its largest market. Statewide solar capacity totals about 22 megawatts -- enough for 3,300 homes -- and the largest single installation is atop an Ikea warehouse in Savannah, said Shan Arora, project manager with Atlanta-based Southface Energy Institute.
The risk is that energy-savvy customers will fall away as they install their own solar electricity generators, fuel cells and micro-turbines, depriving utilities of the steady returns that historically appealed to investors, according to a January report by the Edison Electric Institute, a trade group representing publicly traded power companies.
The phenomenon poses the “largest near-term threat” to U.S. utilities, the report said, by leaving poorer consumers -- such as renters who don’t own their roofs -- to pay for the multi-billion-dollar power plants and high-voltage lines that form the heart of the nation’s grid.
The exodus from the grid is still small: about 310,000 U.S. consumers, mostly in sunny states with higher-than-average power prices such as California, Hawaii, Arizona and New Jersey. But the number is growing by about 60 percent a year, Mike Taylor, director of research for the Solar Electric Power Association, a trade group, said in a phone interview.
Residential and commercial-scale solar capacity is expected to more than triple in the U.S. to nearly 18,000 megawatts from 4,900 megawatts at the end of 2012, Stefan Linder, a New York-based analyst with Bloomberg New Energy Finance, said in an email.
Southern CEO Fanning, formerly a skeptic of the commercial potential of renewable energy, has made four solar acquisitions with Turner over the past year, including a 139-megawatt farm in California announced on April 23. Combined with predecessor David Ratcliffe’s 2010 deal with Turner, the projects when completed will place Southern among the 10 largest U.S. utility owners of solar, according to Bloomberg New Energy Finance data.
“What I’m trying to do right now is take some relatively prudent steps in getting into those technologies,” Fanning said. “We’re doing it where it makes sense: the Southwest, New Mexico and a tiny little deal in North Carolina.”
Retired Southern CEO David Ratcliffe declined interview requests.
Southern executives agreed to that first investment, a 30-megawatt solar farm on Turner property in New Mexico, after debating solar’s merits for about two years with Turner and Glover. The Turner Enterprises CEO, a retired banker, manages diverse investments including Ted’s Montana Grill restaurant chain, 55,000 bison and two million acres of land, the second-largest individual holding in North America.
Turner and Glover already had an installation business and saw potential in utility-scale solar farms, yet financing them was tough as banks retreated during Wall Street’s 2008 crash, Glover said. They decided to find a utility partner.
The détente with Southern was Glover’s idea, tapping the Atlanta connections that had made him the top-producing broker within Merrill Lynch. Glover has hunted and golfed with Ratcliffe for decades and counts Fanning as a golfing buddy.
It’s not unusual that Southern would look within Atlanta’s tight-knit business community to review a potential opportunity like solar, said former Atlanta mayor Sam Massell in a phone interview.
“Ted Turner is welcome in any doorway,” added Massell, who is president of the Buckhead Coalition, a civic and economic booster.
Glover invited Ratcliffe, then Southern’s CEO, over to Turner’s offices. “I felt they didn’t really understand each other’s concerns and problems, but both were great debaters,” he said. “I just invited David to come down and asked Ted to meet with him.”
There was no “eureka moment” as the Southern and Turner executives discussed energy, just a growing agreement that thin-panel solar made economic sense as prices fell, Glover said.
In 2010, Turner’s team successfully pitched Southern on buying the 364-acre Cimarron Solar facility in New Mexico from First Solar Inc. (FSLR) It was a low-risk deal, with the plant guaranteed a steady revenue stream by a 25-year contract with a wholesale power supplier to electric cooperatives in New Mexico and neighboring states. Southern agreed to pay 90 percent of acquisition costs.
From Cimarron, “we found our model,” Glover said. “We looked at and purchased several other projects. We’ve looked at many, many, many projects that we haven’t purchased. Stay tuned for more.”
Turner’s influence can be seen in recent contracts by Southern’s Alabama and Georgia utilities to import 654 megawatts of wind from Oklahoma and Kansas, said Stephen Smith, executive director of the Southern Alliance for Clean Energy, environmental advocates partially funded by Turner. Its Georgia Power unit last year commissioned 210 megawatts of solar power in the state, the largest such purchase by a utility not subject to state mandates to invest in renewable energy, said Linder, the solar analyst.
Still, some clean-energy advocates are frustrated with Southern for not developing solar in its own territory and for its support of Georgia laws that discouraged installers.
“Right now, Georgia Power is playing catch up,” said Gornall, the Atlanta renewable energy attorney
Fanning doesn’t see solar making sense for Southern’s customers yet. “But if it does down the road, we’d better find a way to get ahead of it,” he said.
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