Wind Power Investing

Why This Is The Most Lucrative Near-Term Wind Play

Written by Brian Hicks
Posted July 2, 2009

On Wednesday, the vice-president of the Chinese Wind Energy Association announced that China is planning to set up seven wind power bases - with a minimum capacity of 10 GW each - by 2020.

That means each wind power base will generate more than double the power that's expected to be generated at T. Boone Pickens' wind farm in Texas. That's huge!

Certainly for those who invest in turbine manufacturers, this kind of continued support for wind energy in China could prove to be quite lucrative. But this opportunity is not limited to only the Middle Kingdom.

As it stands, the U.S. surpassed Germany as the country with the largest amount of installed wind power capacity in 2008. This, after more than 8,500 megawatts of new wind power increased the nation's cumulative total to more than 25,300 megawatts - representing a growth of about 50 percent.

Based on this growth rate, and assuming long-term policy support (which is now in place), this puts the U.S. on a trajectory to generate 20 percent of our electricity from wind energy by 2030.

This is a massive jump, based on the 1.25 percent that was generated by installed wind projects at the end of 2008 - and a massive opportunity for investors.

Of course, the real catalyst here is Washington.

Secretary of Energy Steven Chu has been very vocal about his support for wind energy development, saying that he believes wind energy is one of our most promising renewable energy sources.

Not surprisingly, the wind energy industry picked up $93 million from the stimulus to further develop wind energy in the U.S.

We also believe that much of the new investment in transmission and infrastructure is being made to facilitate the continued growth of wind in the U.S. After all, the DOE didn't announce that wind energy could produce 20 percent of our electricity by 2030 without taking into account infrastructure development.

The writing is on the wall, my friend. And unless you hate money, there's absolutely no reason you shouldn't be properly positioned in the wind energy market.

Wind Energy Investing: What the Stimulus Holds

When we talk about investing in wind energy, most focus on turbine manufacturers. It's a common and logical connection.

Today, GE (NYSE:GE), Vestas (CPH:VWS), Siemens (NYSE:SI), Suzlon (NSE:SUZLON) and Gamesa (MCE:GAM) are the main suppliers of wind turbines in the U.S.


And they are likely to remain the major players too.

In fact, Vestas is now in the process of constructing two new manufacturing facilities in Colorado. Both are expected to be operational in 2010.

Gamesa has built four new wind turbine production facilities in the U.S. over the past two years, and Siemens is expected to begin construction on its newest turbine production facility next month in Hutchinson, Kansas. This comes just two years after the company built a rotor blade manufacturing facility in Fort Madison, IA.

Now a couple of years ago, turbine prices were exorbitant...and the down time between the initial order and receipt of the turbines was anywhere between two to four years.

Today, however, thanks to the recession - prices for wind turbines have fallen 18 percent globally. This is primarily because of declining demand and a decrease in the cost of raw materials.

Perhaps this hasn't made turbine manufacturers do cartwheels, but it has allowed some wind farm developers to get better pricing. At least the ones that have the financing to continue their expansion projects.

That being said, once a lot of that stimulus money finally gets funneled through the system later this year, we'll definitely see a lot of those wind farm developments that have been on hold for the past year or so, get back on track. As a result, turbine orders will pick up.

Now some have suggested that it's too risky to count on that stimulus money. But the fact is, that money's already been set aside and is currently being distributed. Granted, the distribution of that money may be too slow for some. But I'd prefer a slower distribution to a bunch of blank checks being thrown around wildly - something Washington is famous for.

In the meantime, we continue to believe the near-term opportunities here will be found primarily in the wind farm developers that are either currently developing new projects, or at least have the necessary financing to begin development in Q3 and Q4, 2009.

In 2010, we'll likely see turbine orders pick up enough to at least start to make a difference when earnings come out.

Of course, everyone has a different take on the timing. But the bottom line is that the world's largest wind turbine manufacturers have already begun building out their manufacturing right here in the U.S. They wouldn't be doing that if there wasn't real opportunity here.

Again...the writing is on the wall.

And whether you believe it's the right thing or not, the government is facilitating the wind energy industry's early growth, not only by offering direct support for research, testing and development. . .but also by building out our nation's electric infrastructure to enable the transmission of new wind power generation.

This is all going down right now.

Even as the climate change and energy debates continue on the Hill - the wind energy industry is continuing to grow and develop at a rapid pace. And in no time at all, wind will go from being considered an alternative form of power generation to simply another form of power generation.

Now as I already mentioned, we see wind developers representing the best near-term opportunities for investors. Particularly those with operations in California. And next week, I'll get into more detail on why that is. I'll also clue you in on a publicly-traded wind energy developer that could easily be one of our biggest winners for 2009.

To a new way of life, and a new generation of wealth...

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