Investing in Wind Power Stocks

I used to work with a guy who hated renewable energy.

Of course, he knew nothing about it.

Basically, he decided he didn’t like renewable energy because it didn’t fall in line with the illusion that to be a conservative, you must trivialize anything even remotely good for the environment.

This has long been a point of contention with me, as protecting one’s property is a value often held by conservatives… in theory, anyway.

He also insisted that renewables were economically inferior to fossil fuels and nuclear. Of course, today we know that isn’t true at all.

While geography, resource availability, natural capital depletion, and pricing flexibility all play a role in the valuation of various renewable energy sources, we have plenty of evidence today to suggest that right now, renewables can compete on cost in certain regions. This trend will continue, ultimately taking us to a global energy mix where renewables will actually command more market share than fossil fuels and nuclear.

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As reported by Bloomberg New Energy Finance, all-in project costs for wind will come down by an average of 32% and solar by 48% by 2040 due to steep experience curves and improved financing.

Wind is already the cheapest form of new power generation in Europe, Australia, and Brazil, and by 2026, it will be the lowest-cost option almost universally, with utility-scale PV likely to take that mantle by 2030.

Crushing it!

While I often speak at length about the continued boom in solar, today we need to turn our attention to wind. Because according to the latest data from Lawrence Berkley National Labs, wind’s crushing it.

First, after a brutal year in 2013, 2014 showed a significant rebound in wind installations. Check it out:

Coming off such an impressive year, wind now contributes nearly 5% of the electricity supply in the U.S. On a state level, nine states boast more than 12% of total generation, and three boast more than 20%.

Sunshine and Rainbows

One of the reasons for wind’s comeback year is technology…

As the report points out, since 1998-99, the average capacity of wind turbines installed in the U.S. has increased by 172%, the average turbine hub height has increased by 48%, and the average rotor diameter has increased by 108%.

This has resulted in lower production costs, higher capacity factors, and, most important, the ability to effectively compete against natural gas.

Of course, it’s not all sunshine and rainbows.

Much of the momentum in wind has been the result of the production tax credit (PTC), which has been used to both help and hinder the industry. Because these tax credits only tend to get extended for just one year at a time, they’ve served as both a blessing and a curse.

But as Mark Bollinger, co-author of the report, notes, the PTC actually has an impact on how these project are financed. The structure favors tax equity funding, which is one of the most expensive sources of capital. So in the absence of the PTC, we’ll start to see different and cheaper sources of capital.

Ultimately, this will prove valuable for the wind industry as it forces it to move to a more economically sustainable model — something, by the way, that fossil fuels and nuclear can never claim.

In any event, the wind energy industry in the U.S. is actually doing quite well. We knew it was booming in Europe and China, but this latest data analysis really indicates that the U.S. market is probably a lot more vibrant than most were anticipating after it fell off a cliff in 2013.

If you’re looking to invest in the U.S. wind space, the three main players (which supply about 98% of the U.S. market) are GE (NYSE: GE), Siemens (OTCBB: SIEGY), and Vestas (OTCBB: VWDRY). The latter, by the way, is the only pure play, and it’s also a stock in my portfolio.

Here’s how it’s performed so far this year:

To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.