Jan Paulin has known highs and lows of wind energy business
By Craig D. Rose
UNION-TRIBUNE STAFF WRITER
http://www.signonsandiego.com/news/business/20060530-9999-1b30paulin.html
May 30, 2006
As a sailor, pilot and entrepreneur, Jan Paulin uses wind for recreation, transportation and occupation.
The 55-year-old chief executive of La Jolla's Padoma Wind Power says his fascination with wind and sky began early in life, when he dreamed of being a military fighter pilot. The dream ended with a boyhood eye exam and a prescription for glasses.
These days, Paulin is piloting Padoma through what might be described as a pleasant storm: The wind energy business is booming as fossil fuel costs remain high and concerns about the environment grow.
The boom is being driven by the growing number of state mandates requiring that a fixed percentage of electricity be generated from renewable sources, including wind.
The industry is also getting a strong lift from a federal production tax credit passed last year of 1.9 cents per kilowatt hour for wind projects. The credit makes the price of wind power competitive with the cost of electricity generated by burning natural gas, which has become the fuel of choice for conventional power plants.
But the boom has put companies like Padoma – which has just seven employees – in a bind.
Where wind energy projects once involved say 15 to 25 megawatts of wind power and costs of perhaps $25 million, they now typically involve upward of 150 megawatts and cost hundreds of millions of dollars.
What's more, said Paulin, the boom in wind projects has led to a wave of mergers and acquisitions, along with the entrance of large Wall Street players into the business.
“Padoma doesn't have that kind of capital,” said Paulin, who predicted his business will be absorbed by a larger company.
But what the company does have, he quickly added, is vast experience in the wind business among its top officers.
In many ways, Paulin has the perfect résumé for navigating the changes Padoma needs to make.
Twenty years ago, long after his dream of being a pilot died, Paulin was an attorney in Denmark doing international deals for a wind turbine builder that has since evolved into Vestas, the world's largest manufacturer of the machines.
With most of its sales in California, the manufacturer was financing many of its deals through PrivatBanken, a Danish bank with offices in New York.
Within a couple of years, Paulin was recruited by the bank to be its general counsel, just in time for one of the wind industry's periodic lulls.
Because of mechanical problems with the turbines two decades ago and inexperience in project development, the business lost hundreds of millions of dollars in the late 1980s.
“For a couple of years, I did little but restructuring,” Paulin said.
In the course of that work, Paulin learned another lesson: “Foreign banks tended to get the worst deals, the leftovers not taken by U.S. banks.”
But it was good experience: pick a snag or hassle in the wind energy business and it's likely Paulin has dealt with it. Not to mention the hassles of commuting to his job in mid-Manhattan from a home in Princeton, N.J.
Paulin is a polite type with a stunning memory for dates and events that prove pivotal, at least on a personal level.
He can recall, for example, arriving at the office on a particularly hot day, drained by the commute before the start of his workday.
“I would be less than forthright if I said it did not occur to me that this was not the smartest move,” he said.
The sweaty, long commutes left him open to the prospect of a move. So when an opportunity to join San Diego-based SeaWest Windpower as general counsel came along, he jumped at it.
Paulin figured he couldn't lose.
“I thought that if I didn't like the position, I could always sit for the California Bar and get a real job,” he said.
The change proved a tonic in more ways than the weather. Instead of fixing deals, Paulin found himself making them. But again the industry went from phenom to funk.
After a high profile wind energy venture failed after a public offering, Paulin said most institutional investors fled the industry.
“There was a period when you couldn't say wind without being thrown out of the room,” he said.
That began to change about six years ago, when General Electric moved strongly into the business and the industry began to adopt variable speed turbines.
Since then, the industry has been in boom mode, with an annualized U.S. growth rate of 29 percent over the past five years, according to the American Wind Energy Association.
But as the business boomed, things soured for Paulin at SeaWest, and in the summer of 2001, he and two other top executives – Jeffrey Marks and Gary Dodak – left the company during a corporate shake-up.
Within days, the three joined to form Padoma. Within a month, the company had its first deal.
Paulin says Padoma has since been involved in some 500 megawatts of wind turbine projects. Each megawatt of wind power can provide electricity for 250 to 300 homes, depending on average wind speed.
Marks said the trio has a terrific blend of skills, dating back to their days at SeaWest. Dodak knows operations, Marks knows finance, and Paulin's strength is cutting the deals, Marks said.
Later, Jerry Fuchs joined the company as a senior vice president, bringing what Marks described as an encyclopedic knowledge of the U.S. wind energy industry.
Padoma generally gets its projects by winning a competitive bidding process. The company does permitting, site acquisition, purchases the turbines needed and oversees construction of its wind farms. Then it typically sells the completed projects to companies specializing in operating the farms.
“Jan is a tough negotiator because he does not flinch after he carves out a position,” Marks said. “He is good at the chessman's view of the board, so you always want him in the boardroom for negotiations.”
Ron Fawcett, a former chief executive of SeaWest, agreed.
“Jan is one of the best transaction guys I know,” Fawcett said. “He is very good at the art of the deal.”
But he has his weakness, Fawcett added.
“Jan is a terrible golfer,” he said. “We played with him in Scotland and after he whiffed on the first tee four times, we told him to go for a drink.”
The U.S. wind industry this year is expected to have its best year ever, with an projected $4 billion of investment and 3,000 megawatts of turbines planned for installation.
But the bullish pace has exhausted the ability of turbine manufacturers to keep up with the demand and has greatly increased the cost of equipment. In that environment, the companies with the deepest pockets have a lock on supply of the critical machines.
So Paulin expects Padoma to merge with a larger company sometime in the next two years.
“You always want to align yourself with the biggest balance sheet,” Paulin said. “We have projects we could build, but we can't get the turbines.”
But the once-frustrated fighter pilot has fulfilled his dream of flying airplanes, albeit far more modest civilian aircraft. And he says he takes particular satisfaction from the business he ended up in.
“I remember driving in New Mexico and seeing one of our projects with 120 turbines in the setting sun,” he said. “It's a monument to all the hard work that went into the project. And it's satisfying to be something that is good for me as businessman and good for society.”
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