Billionaire Sees Wind Power as Next Big Thing.

Bel-Air billionaire Selim Zilkha is among those who have been making a bundle off the state's energy crisis, and now he's positioning himself to make an even bigger bundle on helping to solve it.

Zilkha -- a major shareholder of natural gas supplier El Paso Energy Corp., which has benefited from a runup in prices -- is busy creating what he hopes will be a renewable energy empire that will make wind power a reliable and serious energy option.

"With new technology and better management, we can make wind power really economical for the first time," says Zilkha, referring to the company he set up with his son, Michael, called Zilkha Renewable Energy.

Since Zilkha, a 74-year-old Baghdad native, has made several fortunes throughout his long career -- he's one of only 21 known billionaires whose primary residence is in Los Angeles -- his views certainly carry some heft.

But wind power? Isn't that one of those feel-good "green" investments that limousine liberals tout, but that nobody ever makes serious money on?

"Look, this industry is only just coming out of its infancy," Zilkha points out. "For most of the last 20 years, many wind farms have really been places to park money for tax shelters. No one has really been able to make a profit at this until now."

Zilkha and industry analysts say that technology has lagged behind the dreams of policymakers and environmentalists for years, making it not economically feasible to pursue wind energy on a wholesale level.

But with the energy crisis pushing wholesale electricity costs to 10 cents or even 15 cents per kilowatt-hour in recent months, and wind power finally getting down to the 5-cents-per-kilowatt-hour threshold, the economics of wind power are suddenly much more favorable.

Of course, the $20 million or so that Zilkha has thus far sunk into his wind power venture represents little more than a molecule of his $1 billion body of wealth. Nonetheless, he seems convinced that vast energy riches are blowing in the wind, and he is undertaking a plan to scoop up a bunch of it.

The first step: modernizing hundreds of windmills up and down the state, making them more efficient and producing more electricity for power-starved Californians.

But there are several roadblocks in the state for Zilkha and other wind energy producers, including uncertainty about being paid for some of the power they've generated and practical limits on the number of windmills that can be installed here. As a result, much of Zilkha's attention -- at least for the time being -- is focused on areas where there's more open land and stronger, more-consistent wind currents. He is especially bullish on Iowa and Pennsylvania.

"The opportunity out there is tremendous, especially since the industry is only now just coming to those areas," he said.

As for California, Zilkha said that "when it makes sense economically," his firm would invest in additional wind turbines. He added that the company would continue to upgrade and modernize turbines it already owns.

New economics

Even as recently as the mid-1990s, wind power was still almost twice as expensive as conventionally generated electricity, according to Arthur O'Donnell, editor and associate publisher of the Bay Area-based California Energy Markets Newsletter. Operators of wind farms had little incentive to put the millions of dollars in up-front investments needed to modernize their turbines.

As a result, industry analysts say, wind power has only been a force at the margins of the California energy market. It cost 10 cents or more per kilowatt-hour to generate electricity from wind, compared with 2 cents to 4 cents for more conventional means.

Bigger turbines with more efficient wind-to-electricity conversion rates and precise computer controls have finally pushed the price of wind power down to about 5 cents per kilowatt-hour. That's lower than the 6.9 cents that Gov. Gray Davis has announced as the average price of long-term power contracts that the state recently negotiated.

In the three years since its inception, Zilkha Renewable Energy has, with other investors, bought up 600 windmills in the Altamont Pass east of Oakland, which is the state's largest wind power region. When all the windmills are operating at peak efficiency, their turbines can produce about 90 megawatts of electricity, the equivalent of a mid-sized power plant and enough to power about 68,000 homes.

Zilkha Renewable Energy also has stakes in wind power projects in Britain and Costa Rica, totaling another 75 megawatts.

Yet, while these may sound like impressive figures, they really represent only a drop in the bucket. California's total generating capacity is about 40,000 megawatts, while peak demand often tops 50,000 megawatts. Existing wind power projects throughout the state only account for a fraction of this -- about 1,800 megawatts, according to the American Wind Energy Association. That means new entrant Zilkha has about a 5 percent share of the market.

However, those 1,800 megawatts are extremely important, especially as the state is expected to be caught short by up to 6,000 megawatts at times this summer. If, for example, enough new and retrofitted wind turbines were to come on line to double the output, it could be just enough to prevent rolling blackouts this summer.

Unexpected problems

But just when prospects seemed to be brightening for Zilkha and other wind power generators, the energy crisis dealt an unexpected whammy: Pacific Gas & Electric and Southern California Edison stopped paying them for the power they sold onto the grid. That prompted wind power generators and other alternative energy producers to withdraw their power briefly from the grid, which was the chief cause of the two days of rolling blackouts that the state experienced in March.

Both utilities agreed to pay alternative power producers for power generated from then on, but not necessarily for power that had already been supplied onto the grid.

Zilkha said his company is owed about $562,000 from PG&E. But with PG&E in bankruptcy, Zilkha Renewable Energy joins a long list of creditors, and experts say it could be months before Zilkha receives even a portion of the money it is owed.

And there are other problems in California as well. The state has three prime wind power locales -- the Altamont Pass, the Tehachapi Pass in the northwest corner of the Mojave Desert and the San Gorgonio Pass on the way out to Palm Springs. But windmills already take up much of the land in those passes, according to Suzanne Korosec, manager of new renewable resources for the California Energy Commission.

While there are other wind-prone areas, such as the slopes of the Sierra Nevada, they are hard to get to and, more importantly, are not close to any transmission wires, she said.

"There simply isn't that much prime land left," Korosec said.