Investing in Wind Energy

Wind farms used to be considered a volatile and high risk investment. Congress, who we all know to be notoriously fickle about such issues, must renew the tax credits (that make start up wind projects possible) every few years. It is not the cost of the wind (which is one of the few free things left in the world) but the start up costs that scare investors, particularly the fund managers. A look at comparative costs shows that although wind generation is marginally cheaper than other sources it is still not cheap. Initial cost of putting up one 1.5 megawatt tower with its turbine and line hook up to the grid can top $2 million.
• Natural gas costs about $65. per megawatt hour
• Coal costs about $55. per megawatt hour
• Wind costs about $45. per megawatt hour
Retrieved from http://www1.leg.wa.gov

According to the Department of Energy, harnessing wind power is the fastest growing technology in the world. Shares in wind energy related industries have grown to approximately double in five years. Corporations and blue chip organizations along with some institutional investors are lending stability and legitimacy to what was once thought of as fringy environmentalist dreams. General Electric bought Enron's wind turbine manufacturing division in 2002 and nurtured the business to a $2 billion dollar sales figure for 2005. Citigroup Venture Capital invested an equity stake in India's Suzion Energy Turbine manufacturing division. The Investor Network on Climate Risk has promised to invest $1 billion dollars in wind power along with other clean energy technologies this year. These markers indicate a confidence that the demand for wind power will grow over the next decade.

I live near one of the largest wind farms in the Northwest. The Stateline Wind Farm had a total of 454 turbines in November 2002 that generated 300 megawatts of electricity which powered 72,000 Northwest homes. That project has had several expansions into both Washington and Oregon. Every night I drive approximately 450 miles on the surrounding freeways (for my other job) and I see two to four low boy trucks carrying blades for new wind turbines which leads me to believe that investment in the company that produces the turbines will satisfy several goals.
1. Social Responsibility: Investing in clean renewable energy is socially responsible
2. Lower Risk: The risk is decreasing as the industry grows
3. Longevity: The demand will be long term and therefore suggests a stable growth investment

There are ten major companies that control most of the wind turbine market.
1. Vestas (34%)
2. Gamesa (18%)
3. Enercon (15%)
4. G E Wind (11%)
5. Siemans (6%)
6. Suzion (4%)
7. R E Power (3%)
8. Mitsubishi (2%)
9. Ecotoia (2%)
10. Nordex (2%)

The two largest companies Vestas (VWS.CO) and Gamesa (GAM.MC) are very good long term investments. Vestas supplied the turbines for the Stateline Wind Energy Project and also the largest wind farm in Wyoming located near Green River. The smaller companies have room to grow due to the increasing demand worldwide for wind energy projects. The industry has sustained a 28% growth rate per year for the past five years and is projected to continue that growth rate for probably the next decade. Information from newsblaze, Gray, Alan, Mar. 13, 2006, "Investing in Wind Energy Report", Retrieved from http://newsblaze.com/ on 6/17/06.

A news release from the U.S. Department of energy on May 31 of 2006 noted the new wind plants planned for California, Colorado Iowa and Oregon. There will be a 100 Megawatt wind farm near Arlington, Oregon and a 150 Megawatt project in Kansas. These are just a few sites of the many that are completed, are under construction or are in the planning stages for the future. The efforts range from Maine to California and from Florida to Minnesota.

The longer look at risks reveal that about 66% of the value of a wind energy investment is in the tax credits and depreciation which is best suited for the unregulated subsidiaries of large utilities companies which have very low capital and are better positioned to take advantage of tax credits. Because a 1.5 megawatt turbine can cost as much as $2 million dollars to put up, the 8 to 13 % return on capital may work better for that utility subsidiary than mutual funds investors. (Sunshine, Wendy Lyons, Feb 2006, Windfall Investments, Robb Report "Worth" P.78-84) Some energy analysts still do not take wind energy seriously but I can tell you that what I see each night as I travel this windy high basin country is steady growth as evidenced by the truckloads of blades and tower components.