Profit on Wind Power's Quiet 10-Fold Surge
August 9, 2011 | Issue #1574Profit on Wind Power's Quiet 10-Fold SurgeDavid Fessler
Senior AnalystThis past weekend, my family and I attended a dear friend's eightieth birthday party in upstate New York. On our way home, we drove by two enormous wind energy farms: one outside of Corning, New York, the other on the edge of Scranton.Both farms stood along ridge tops, and both were recently constructed. The Pennsylvania farm had a dozen wind generators. The New York facility had at least twice that number. All were spinning away, generating power for their owners.With all the attention given to coal, oil and natural gas, wind power hasn't been making national headlines.But when I saw these new wind farms in my own backyard, I was reminded that wind isn't "dead." Despite some analysts' pessimism, it's quite the opposite. Wind's quietly expanding around the United States, and offering great investment opportunities.The growth prospects for wind power couldn't be brighter. Turbine costs are coming down, and they're becoming more efficient and more widely deployed. It follows that investing in it will also bring good fortune down the road to stockholders who choose wisely.Wind's Dramatic Decade-Long RiseThe huge increase in U.S. wind installations can be appreciated by viewing two maps, courtesy of the National Renewable Energy Laboratory. Each shows total wind installations by state and number of megawatts per state in 2001 and 2010.More From David Fessler:What a difference a decade makes. Wind power increased from just a few states and a little over four gigawatts (GW) to 39 states and over 40 GW. That's a 10-fold increase in as many years.As you can see from the map below from the Energy Information Administration (EIA), the largest numbers of wind turbines are in the Great Plains states. That's where conditions are the best for terrestrial wind generation in the United States.The sizes of the circles on the map below represent the output of the entire group of turbines at one location, or wind farm. Individual turbines typically installed by utilities range in size from one to three megawatts.Beside the wind-rich Midwest, the map also reflects other areas with large concentrations of wind farms. That's because many states have renewable portfolio standards (RPS) that foster alternative energy production from wind power.That's the same reason you see no wind farms in the Southeastern states. They generally experience very low levels of wind, making wind energy farms economically infeasible, and their RPS are generally more focused towards the installation of solar.The map below shows the average wind speeds across the United States. Yellow and green represent areas that aren't good for wind.The Best Way to Play the Wind GameInvestors could play the sector by investing in turbine manufacturers like General Electric (NYSE: GE) or industry leader Vestas Wind Systems (OTC: VWDRY.PK), a Danish manufacturer of wind turbines.However, GE isn't a pure-play in the space, and Vestas is sitting near its 52-week low. Perhaps the best way to gain exposure to this potentially rewarding (albeit risky) sector is through either one of two wind ETFs.The PowerShares Global Wind Energy ETF (Nasdaq: PWND) and the First Trust ISE Global Wind Energy ETF (NYSE: FAN) are almost identical, but there are a few important differences.PWND tracks the Nasdaq OMX Clean Edge Global Wind Energy Index. It includes companies in wind manufacturing and installation, distributors, and even end users of the power produced by wind. It has 36 companies in its portfolio.FAN tracks the ISE Global Wind Energy Index. It gives an aggregate weight of 67 percent to companies that it classifies as providing goods and services to the wind industry, and a 33 percent weight to companies associated with the wind industry, but not exclusively so. It has 56 different companies in its portfolio.FAN has double the exposure to the United States (16 percent compared to eight percent for PWND). PWND has over three times the exposure to China (20.91 percent) that FAN does (6.56 percent).Both PWND and FAN have underperformed the general stock market, returning -12.38 percent and -4.49 percent year-to-date, respectively.Having said all of the above, wind power could see a resurgence as governments look for ways to put millions of unemployed workers back into the job market. (Before I get any mail, I'm NOT advocating huge government subsidies for wind power.)The technology can clearly stand on its own, and is getting cheaper (read: more cost-effective) all the time. Investors wanting a long-term exposure to wind power might consider either of the above ETFs as an entry point into the sector.Good investing,David FesslerRight now, the savviest investors are not only holding on to their profits, they're expecting to make a killing on the rookie mistakes of others. The investments they're using to protect and grow their wealth even during downturns are easily accessible - but most investors don't even know they exist! To get them for yourself, you'll need the ultimate playbook. Get it here.If you enjoy reading Investment U, why not share it with your family and friends? Simply send them this link, so they can sign up (for free, of course).Note: You are receiving this e-mail as a part of your free subscription to Investment U.
Keep the e-mails you value from falling into your spam folder, Whitelist Investment UTo stop receiving and/or manage your account with Investment U, click here to end your free subscription.To cancel by mail or for any other subscription issues, write us at:
Attn: Member Services
105 West Monument Street
Baltimore, MD 21201© 2011 Investment U All Rights Reserved
Investment U · 105 West Monument Street · Baltimore, MD 21201
North America: 1.800.992.0205; Fax: 1 410 223 2650
International: +1.410.223.2643; Fax: +1 410 223 2650
E-mail: CustomerService@... | Website: www.InvestmentU.com
Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.
We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.
You're receiving this message because you subscribe to the Investment U e-letter. If you wish to post a comment on any of our articles, or contact our Customer Service team, please see the instructions above. Do not reply directly to this e-mail, as your message will not be read or answered. Also, please keep in mind that securities laws prevent us from issuing personal investment advice to our readers. We're prohibited from answering such questions or giving that information via e-mail or over the phone.
Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Investment U. 105 W. Monument Street, Baltimore MD 21201.