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Investors Are Tilting Toward Windmills by Claudia H. Deutsch The New York Times, February 15, 2006

It's hard to be in a business where you literally - as well as figuratively - are tilting at windmills. But that business may have just gotten its biggest tail wind yet.

When President Bush called last month for more effort in alternative energies, a business that last year attracted only about $7 billion in investment nationwide, the 300 engineers and financiers at GE Energy Financial Services were already in the game. But that does not mean they were not happy that the White House acknowledged the sector.

"The president's speech changed zero for us; it was simply a recognition of what we already knew," said David L. Calhoun, vice chairman of GE Infrastructure, the group that includes both turbine manufacture and energy financing.

For now, wind energy is the only profit star in G.E.'s alternative energy galaxy, and both the finance and equipment sides of the company know they are gambling when it comes to solar and other fledgling technologies. Still, analysts applaud their decision to move on them.

"When you get the president talking about renewable energy, it has to be turning up the dial at G.E.," said Deane M. Dray, an analyst at Goldman Sachs who has an outperform rating on General Electric shares. Certainly, it is getting attention from Energy Financial Services. The unit recently bought a wind farm in Germany and is installing new turbines there at a rapid pace. It has invested in solar energy farms in California and is in the end stage of negotiations for a large solar project in Europe. Indeed, renewable energy projects already account for $1 billion of the unit's $11 billion portfolio and are its fastest-growing niche. "The renewables space has really heated up, and I hope it will account for 20 or 30 percent of our investments in five years," J. Alex Urquhart, the unit's president, said.

Today, alternative energy financing is barely a footnote in G.E.'s revenue stream. But the G.E. machine is gearing up for change. On Jan. 30 - a day before the president bemoaned the nation's "addiction to oil" - Mr. Urquhart carved out a separate group to focus solely on renewable energy projects. Lorraine Bolsinger, who runs G.E.'s Ecomagination program, says she has begun to "run the financial projects through our scorecard process" to see which ones she should include in her group of G.E.'s "green" products.

The pace is quickening in G.E.'s industrial camp, too. Energy equipment and related services, which accounted for about $42 billion of G.E.'s $149.7 billion in revenue last year, is G.E.'s largest industrial business. Alternative energy products like wind generators accounted for less than $6.3 billion of last year's sales.

Four years ago, G.E. bought Enron's wind-turbine unit, and it is now a $2 billion business, heading rapidly toward $4 billion. In five years, G.E. expects that alternative energy products will account for more than a quarter of energy equipment revenue.

If that happens, it will probably be a boon for Energy Financial Services, too. Last year, energy financing got plucked out of G.E.'s financial stable and placed under Mr. Calhoun's umbrella, along with the equipment makers.

The financial team members say that working side by side with the technical equipment gurus is helping them pick and choose among potential investments. They get early alerts, they say, on which blade designs and composites make for the most efficient wind turbines, on whether solar energy is gaining momentum, or whether the technologies will have any resale or reuse value if a project does not work out or a borrower defaults.

"Only 60 percent of our projects involve G.E. technologies, but the global research center helps us decide which technologies to invest in," said Kevin Walsh, managing director of Energy Financial's new renewable energy group.

The potent mix of expertise is already paying off. Energy Financial, for instance, invested in a solar farm in California after G.E.'s industrial experts gave the project - which does not use G.E. equipment - a thumbs-up. The energy finance specialists are helping Mr. Calhoun evaluate the economic potential of a coal gasification project; if it proves viable, they will help promote and finance similar projects elsewhere.

G.E. is not alone in backing renewables, of course. In November, Goldman Sachs committed to investing $1 billion in renewable energy, and it is already "well on its way" to achieving that, according to Lucas van Praag, a Goldman spokesman.

J. P. Morgan Chase, too, has said it will invest more than $250 million in wind-energy projects. And venture capitalists have for some time been investing in smaller renewable energy projects and technologies.

Over all, says Michael T. Eckhart, president of the nonprofit American Council on Renewable Energy, the $7 billion invested in renewable energy projects last year should increase by 25 percent a year over the next few years.

He and many others say they believe that, if the president's imprimatur results in new regulations or tax incentives, even more Wall Street money will be attracted to such projects.

Wind power has been the leading alternative energy source in recent years. The costs of turbines have come down even as their reliability and efficiency have increased; G.E., Goldman, J. P. Morgan Chase and others are snapping up wind farms across the world.

By contrast, persistent shortages of silica, needed to make solar panels, have kept the solar energy sector from taking off on a similar trajectory.

And few Wall Street dollars are going to projects that involve wresting megawatts from agricultural waste, be it crops like corn or the switchgrass Mr. Bush mentioned. And there has been almost no interest, at least so far, in methane generated from manure.

Industry supporters see President Bush's speech as sending a new signal that might favor some of the more exotic energy sources, though. "Now that the president has put the power of the bully pulpit behind ethanol," Mr. Eckhart said, "a lot of conservative people who thought biofuels were silly will view them as a mainstream investment."

For now, investors say that the logistics of selecting sites for factories and transporting biofuels keep them from being economically competitive. "George Bush said interesting things about potential opportunities in biomass, but we need a better understanding of any legislative or regulatory changes his comments might spur," Mr. Van Praag of Goldman said.

GE Energy Financial Services has taken a few tentative steps toward biomass. It has a longtime, if small, investment in plants that burn woodchips for fuel. It is seeking advice about potential biofuel investments from colleagues at Jenbacher, an Austrian company G.E. bought in 2003 that makes generators that run on the gases emitted from landfills. And Mr. Urquhart said he is "going to keep calling our people in Washington, and see what kind of rule-making is evolving around the biofuel idea."

In the meantime, he is keeping his eye out for projects that might merit investment even without additional government incentives. Mr. Calhoun has his eyes on Mr. Urquhart's quest, in case it turns up something G.E. should buy or make.

"Alex helps us decide where to put our development dollars, and we help him evaluate where to invest," Mr. Calhoun said. "And if he finds a great biomass plant, we'd be delighted."