Asset Management, Wind Power

Investing in Wind

This week’s RE Insider is Rona Fried, president of SustainableBusiness.com. In her article “Investing in Wind,” Fried speaks to several investment experts about the viability of investing in Renewable Energy.

Wind energy is the world’s fastest growing energy source, growing at about 35 percent annually for the past 5 years. It is expected to continue growing between 22-30 percent per annum over the next five years. Through favorable legislation and an early commitment to renewable energy, Europe opened the door to the wind industry. Two-thirds of the world’s installations are in Europe, as are 90 percent of the world’s wind turbine manufacturers. Riding a tax credit-driven wind rush, the U.S. added 1600 MW of new wind power in 2001, a 90 percent jump from the previous year. Texas alone installed 900 MW. With some 1100 MW in place, Texas now has as much wind power as many countries, surpassed only by Germany, Spain, Denmark and India. Another boom is expected in 2003 before the U.S. tax credit expires again. The U.S. has tremendous wind resources, lots of land and lots of coast. The on-again, off-again tax credit feeds a boom/bust cycle in the U.S., but all the major wind turbine manufacturers are planning to expand into the huge U.S. market, intensifying competition and putting pressure on prices. Vestas is currently the leading wind turbine manufacturer in the U.S. with almost a 40 percent market share, followed by GE WindPower (formerly Enron Wind) with a 26 percent market share. The only “pure plays”—companies for whom wind is their predominant product—are the wind turbine manufacturers. The four public wind companies, all European—Vestas , NEG Micon, Gamesa and Nordex — dominate the market. Since 1997, they have installed over half of all new capacity. The wind industry is growing by leaps and bounds. But does that mean the companies are good investments? I recently asked a group of investment advisors to join me in a conversation about investing in the wind industry. The participants are Jack Robinson, Principal & Portfolio Manager, Winslow Management Co., Green Growth Fund; Ken Scott, Portfolio Manager & Social Research Analyst, Walden Asset Management’s SmallCap Innovations funds; Carsten Henningsen, Co-Founder & Principal, Portfolio 21 mutual fund; Terry Foeke, Principal, Materials Productivity, Inc., a 20-year old clean manufacturing consulting firm and Cary Wasden, Principal, Reed Wasden Research, an independent research firm focused on energy. RF: Do you consider the wind industry a good investment? Jack Robinson: Yes. Demand is picking up for environmental and economic reasons. There’s good reason to be interested in wind, because you can invest in companies that are profitable today and are likely to grow their profits at a rate equal to the industry growth at 25 percent. Carsten Henningsen: Yes. We’re definitely very supportive and see wind as a growth industry over the next 5-7 years. Cary Wasden: Yes. If you asked me this question 5-6 months ago I would’ve said the wind stocks look expensive. Now, they’ve come down to realistic valuations. Terry Foeke: No. You have all the earmarks of things traditional investment advisors avoid, such as dependence on government subsidies and high valuations. The whole alternative energy sector is hard for me, because I work a lot in conventional energy—coal-fired power plants especially. They’re not only cleaning them up, but they’re getting cheaper. It’s old and stodgy, but they know what they’re doing. Alternative energy is new and has a lot of perceived risk. Ken Scott: Yes. We like the outlook for alternative energy companies in general and wind power in particular. We believe wind is a good investment as part of a diversified portfolio. All forms of energy are subsidized, it’s just that it has a different name for wind power—it’s called a production tax credit. RF: How would you recommend that people invest in the wind industry? Jack Robinson: The only way to invest in the wind industry is to buy shares in the wind turbine manufacturers. They are the only “pure plays.” All the major brokers can easily buy internationally. The Winslow Green Growth Fund holds both Vestas and NEG Micon in wind. Carsten Henningsen: Our style is to pick a couple of the best companies in a sector that we think are positioned to take advantage of the growth. We invest in Vestas and NEG Micon. Ken Scott: We only invest in Vestas in the wind sector. We believe the most potential for wind expansion is in the U.S. and Vestas stands to benefit the most. Also they’re integrated—they make a lot of their own components. Cary Wasden: We recommend buying all four companies. Their valuations are close to parity now. Terry Foeke: Vestas would be the first choice among the turbine manufacturers, but again, I caution people to think hard about whether this is the best place for their money. Gamesa is diversified, which is a good thing. They own wind farms as well as manufacture turbines. FPL on the development side, might be a better bet for some people. RF: How does investing in wind compare to the other alternative energies like solar and fuel cells? Carsten Henningsen: If I only had enough money to buy 3 positions, I’d want a company in each alternative energy sector—Ballard in fuel cells, AstroPower in solar and Vestas in wind. If I had a bit more money I could diversify further and get Plug Power in fuel cells and NEG in wind. Ken Scott: Vestas and other wind power companies are profitable now. That’s not true except for AstroPower for solar companies, and it’s not true for the fuel cell companies yet. Terry Foeke: I don’t like any of them. I think they’re set up for some terrific problems as conventional energy industry gets its head on straight and starts to deal with this. Jack Robinson: It’s important to understand that these companies are all small cap growth stocks, the segment of the market that’s been hurt the most. We have a significant commitment to alternative energy. Besides holding Vestas and NEG Micon in wind, we have Fuel Cell, Astropower, Quantum and IMPCO. Cary Wasden: Once fuel cells become commercially available, the world of wind will fade. Fuel cells generate electricity 24 hours a day, they’re clean and they’re much more efficient. But that’s at least 20 years down the road, so for the next 5-10 years you’re safe investing in wind power. Rona Fried is the President of SustainableBusiness.com. Contact her: [email protected] This article is an edited excerpt of several articles from the Wind Issue of The Progressive Investor, an electronic newsletter available by subscription at www.sustainablebusiness.com. Each issue includes conversations among world-class sustainable investment analysts on viable green business investments. This article will also appear in Solar Today Magazine in the January/ February issue. Solar Today is published by the American Solar Energy Society.