One rainy morning last month, United Wind’s founder and chief executive, Russell Tencer, stepped into a coffee shop across the street from his company’s Brooklyn headquarters with some coy news. “We have a new investment,” Tencer said, without disclosing the investor’s identity.
News, yes, but not exactly surprising. Since United Wind received a $13.5 million growth investment from US Bank and New York Green Bank last October, the company that is pioneering the distributed wind-leasing model has raked in investments (see A history of commitments table).
Oil company Total’s $2 million investment is small compared to private equity firm Forum Equity Partners’ $200 million commitment in January, but it is also further validation of United Wind’s business model. Thanks to prior experience analysing wind data across the country, Tencer and his company are poised to bring a distributed revolution similar to what happened to solar to the wind industry.
Tencer says the solar industry’s distributed generation model – installing rooftop solar panels for no upfront costs and receiving payments from money saved on an energy bill – “laid out the blueprint” for how United Wind would work.
“You had the pioneers of distributed solar trying out the optimal project finance structures,” Tencer explains. “There was significant cost and time investment that was made by the solar industry to figure these things out and make them more and more mainstream in the investment community.”
United Wind’s iteration of this business model is its WindLease programme. The company installs and maintains up to 100KW turbines for qualified customers through a fixed-rate, 20-year lease for no money in advance. The turbines range from 120 to 150 feet tall with bases between 10 sq ft to 15 sq ft. United Wind’s strongest customer market so far is rural residential property owners and agriculture operations.
Its geographic reach was first limited to the northeast, but the company is moving out west where there are ample farms and some of the highest wind speeds in the US. United Wind is aiming to build 1,000 turbines by 2017 and has opened field offices in Colorado and Kansas.
The draw to rural areas is “primarily driven by the permitting process”, Tencer says, recalling a grant United Wind received from New York City to develop a test turbine. According to Tencer, the process was too complicated and expensive to ever get off the ground.
“The lesson learned was if we were going to do distributed wind with any scale and repeatability, it had to be in places where the wind was easy,” he recalls. “That’s why it always made sense for us to focus on rural markets and then, in there, farmers who are using the most electricity.”
‘I CREATED THE CUSTOMER’
United Wind’s customer base and knowledge of the market is no accident. Tencer, whose career began in investment banking and venture finance, started a business studying wind resources before United Wind’s launch in 2013.
He says what he learned through this business, Wind Analytics, was “critical” to creating United Wind. His company was attempting to provide for distributed wind what already existed for utility-scale developers – reliable weather data.
Wind Analytics found there were “very crude tools” for mapping wind resources for distributed wind. Small-scale turbines are much lower to the ground and available data did not take into account local vegetation or structures that could drastically alter production.
Tencer says small-scale developers were faced with a choice. They could use “really coarse data and maps” that were often unreliable or they could use expensive resource assessment providers that can cost more than the project itself. “It just wasn’t a really good kind of product or offering that would accurately but still cost effectively tell a customer what the turbine would produce.”
So Wind Analytics developed its own software, using long-term weather data gathered from local airports and professionally managed weather stations to compile reports about a location’s wind resources.
Tencer says Wind Analytics was a success, and in five years it became a leading provider of distributed wind data with offices in the US, Europe and Africa. But there was something else Tencer learned from Wind Analytics. Distributed wind was a “very fragmented, nascent market”, he explains, lacking a lead developer to use the data his company had been collecting.
“That’s how the light bulb went off. We were sitting there [thinking]: ‘We have this data. We know where the market is, and no one is out there going after it. So let’s stop selling data and get into the business ourselves,’” Tencer recalls.
“I created the customer, and the customer took on its own life.”
Tencer merged Wind Analytics into United Wind. It is this knowledge of wind resources and the customers needing these resources that makes Tencer unsurprised at United Wind’s rapid growth.
“Look, we’ve put in a considerable amount of work upfront,” he says. “You have to get to that inflection point where it’s an acceptable product and transaction on all sides. Once you get there, it should take off.”
ONE BIG MILESTONE
Proving the business model was important for United Wind early on. Before the US Bank and New York Green Bank investment, United Wind had raised funds from two well-known equipment leasing companies, Tencer says, but nothing from mainstream renewable energy investors.
Tencer argues it was a big milestone for United Wind when the two banks came through, because the broader investment community started paying attention. “That brought larger investors to the table.”
Three months later, Forum made its $200 million project equity commitment. “United Wind brings a unique and innovative solution to wind power delivery,” Forum’s chief executive, Richard Abboud, said at the time.
“Today’s investment in United Wind secures early entry in the company driving the growth of the distributed wind market in the United States,” Gareth Burns, a vice-president at Statoil, said when the company invested $3 million in March, the first commitment from its new clean energy fund.
Despite its quick growth, Tencer believes United Wind is flying under utilities’ radar, a reason why the company has yet to encounter the opposition on net metering rules the solar industry has.
“Solar has been a victim of its own success,” he says. “It’s proven the success of the model by getting these utilities to stand up and take notice. We’re at the very early stages of our deployment […] we expect to become a factor in these areas.”
For now, United Wind is focused on its US growth, but Tencer does have an eye toward foreign markets. He believes United Wind’s model would be successful in parts of Europe, where regulatory and legal structures are similar to the US. Again, following solar’s lead, Tencer says there is room for growth in developing markets as well.
“There are many countries throughout the world that have a significant wind resource, a similar demographic of farmers and other rural potential customers where we think we can be the provider of choice for distributed generation wind options,” Tencer concludes.