SAN FRANCISCO (MarketWatch) — Siemens AG may have gotten more than it bargained for with its latest acquisition.
The German conglomerate SIE, -1.16% had its eye on the booming U.S. shale-gas sector when it agreed to buy Dresser-Rand Group Inc. DRC, +0.34% this week, but it also got a piece of the futuristic-sounding, billion-dollar green energy plan for Los Angeles.
Dresser-Rand is one of four companies involved in the plan, which includes bringing wind power from an as-yet-to-be-built Wyoming wind farm to Utah, where excess energy from the wind farm would be used to compress air stored in salt caverns that could later be tapped to run additional power turbines. The three other companies involved in the plan are Pathfinder Renewable Wind Energy, Magnum Energy, and Duke-American Transmission.
“(Renewable energy) is an area that has been growing for Siemens,” said Christian Stadler, an associate professor at the University of Warwick’s business school. Siemens in 2004 bought a Danish wind turbine maker to become a major player in wind power.
The green energy plan would be a nice addition to the $7.6 billion Dresser-Rand deal, which Wall Street initially criticized as too expensive. Siemens, of course, was mainly focused on buying its way into the burgeoning U.S. shale-gas boom where Dresser-Rand, an oil and gas-field equipment maker, was already well established.
Despite concerns Siemens may have paid too much and it may be late getting into the industry, late will likely prove better than never and the acquisition was “still a good move” for Siemens, Stadler said.
As far as bringing some of its wind-power expertise to the Los Angeles project, that depend s on how fast Siemens can integrate Dresser-Rand into its operations.
Siemens in May bought Rolls-Royce Holdings PLC’s turbine and compressor business. In June, however, it lost out to General Electric Co. GE, -0.23% on a bid for France’s Alstom SA’s energy business.
The Los Angeles green plan carries an $8 billion price tag. Its proponents hope it will bring more sustainable electricity to the sprawling metropolis by 2023. The companies will submit their proposal to the Southern California Public Power Authority early next year. Their plan responds to the agency’s request for proposals to supply the Los Angeles area with renewable energy and electricity storage, they added.
According to the proposal, Dresser-Rand would install the energy storage facility with Magnum and Pathfinder. Pathfinder would build, operate, and own the $4 billion wind farm.
A 525-mile transmission line built by Duke-American would connect the Wyoming wind farm to the storage area in Utah while an existing transmission line would carry the power to Los Angeles.
The underground storage facility would be comprised of four vertical caverns carved out of an underground salt formation 130 miles southwest of Salt Lake City, according to the proposal.
During periods of low power demand, the plant would use excess electricity from the wind farm to compress and inject air into the caverns. The air, “combined with a small amount of natural gas,” would then be used to power eight generators to produce electricity during period of peak power demand.
Salt caverns have long been used to store natural-gas supplies. The U.S. natural-gas inventories are held under pressure and underground in depleted oil and gas fields, aquifers, and the salt caverns, mostly located in the Gulf Coast states.