The Ultimate Guide To Wind Power Investing

Wind power is one of the most prevalent forms of alternative energy in the world, as numerous countries have taken major steps towards weening themselves off of fossil fuels. Currently, wind power amounts to just over 2% of the world’s energy supply, but at current robust growth rates, this figure is predicted to hit 8% by 2018. From the years 2000 to 2010, global wind power capacity has increased from just 17.4 GW to 194.4 GW, representing a 1,017% change, as this budding industry is enjoying exponential growth in a number of developed and emerging markets alike [see also Crude Oil Crushed: Buy or Sell?].

Wind Power Capacity

Wind is the movement of air molecules from high pressure to low pressure. It is caused primarily by the sun, because it unevenly heats the surface of the earth, creating a massive variety of air pressures in different geographical locations. One of the biggest attractions to this industry is the fact that wind power is free; once the operation is funded and put in place, there are no further costs outside of maintenance and upkeep of the turbines. However, the power source is not without its downsides as a great deal of noise is emitted by the machines; some can be as loud as a small jet engine and be a major hassle to local residents. The turbines are also variable; if the wind is not blowing, the turbines are not generating new electricity, making them somewhat risky for utilities who need to provide customers with a constant stream of power [see also Dividend Special: Top Companies In Every Major Commodity Sector].

Wind power’s output is measured in watts, and can often be quoted in kilowatts, megawatts, and gigawatts. As a reference point, one gigawatt of energy is equal to one billion watts. According to a 2007 report form the U.S. Energy Information Administration, the average home uses 11,232 kilowatt hours of energy on an annual basis, though estimates vary across the board. This means that one gigawatt is enough energy to power roughly 90,000 homes for a year, and the current 194.4 gigawatts through out the world is enough to power roughly 17.4 million homes across the globe [see also Major Countries Burn Up Crude Reserves: Big Oil In Trouble?].

Wind Power Supply And Demand

The top wind producer comes from China, as the emerging nation is taking great strides to incorporate alternative energy into their economy. This may pay off dividends later, as it is much easier to develop alternative energy along with an economy than it is for a major developed nation like the U.S. to ween itself off of a crude addiction. For the most part, however, the list of wind producers is a who’s-who of developed markets, with Europe dominating the space [see also The Guide To The Biggest Companies In Every Major Commodity Sector].

Top 10 Countries By Wind Power Capacity (2010)
Country Windpower Capacity (MW)
China 44,733
United States 40,180
Germany 27,215
Spain 20,676
India 13,066
Italy 5,797
France 5,660
United Kingdom 5,204
Canada 4,008
Denmark 3,734
Source: World Wind Energy Association

Wind Power Price Drivers

As a global commodity, the price of production as well as overall capacity is impacted by a number of factors, and is often subject to significant price swings in a relatively short period of time. The major price drivers of wind power include:

  • Weather Conditions: The most obvious price driver for wind power comes from weather conditions. No wind means no power generated, and can be costly if there are large stretches of time without wind. Most turbines are built in historically windy places that are carefully selected, but the risk of adverse weather still remains.
  • Government Subsidies: A large percentage of wind farms have some kind of government subsidies built in to reward those who are adopting clean energy. When markets are in a pinch governments may scale back on these subsidies, but may also increase them during fruitful economic environments.
  • Crude Oil/Natural Gas Prices: Crude oil and natural gas are the two most popular fossil fuels for energy production throughout much of the world. However, with both commodities being finite resources, fluctuations in their price will have a major impact on whether or not wind power is a more economically viable option by comparison.
  • Rare Earth Metals: Rare earth metals are key components of wind turbines, namely one mineral called neodymium. The prices of these metals will have a significant impact on how expensive and attractive it is to build new turbines. Also note that China produces over 90% of the world’s rare earth supply, allowing them to dominate both wind power, and this set of elusive metals [see also A Closer Look At The Rare Earth Metal ETF (REMX)].

Investing in Wind Power

Wind’s appeal as an investment stems from its wide use throughout the globe. As such a popular commodity with such a strong growth outlook, investors can use wind power to make plays against strong and weak economies. An investment in wind power can also be used to make a play on weather conditions or to hedge against crude oil and natural gas [see also Analyzing Five High Yielding Oil & Gas Pipeline Stocks].

Wind Stocks

A number of wind companies lie outside of the U.S. and are therefore listed on foreign exchanges. While there are still domestic options for investors, moving outside of U.S. equities is most likely your best bet for wind exposure.

  • Broadwind Energy, Inc. (BWEN)
  • China Longyuan Power Group Corp Ltd (CLPXF)
  • REpower Systems AG (RPW)
  • Innergex Renewable Energy, Inc. (INE)
  • EDP Renovaveis SA (EDPR.PL)
  • Iberdrola Renovables (IBR.SM)
  • Vestas Wind Systems (VWS.DC)
  • China WindPower Group Limited (182.HK)

Wind ETFs

While direct investment in wind is impossible, there are several ETFs that offer exposure to the underlying industry, giving investors broad exposure to the industry through a single ticker. This method looks to help investors diversify away company specific risk but could also drag down overall returns as well. The two options for wind power ETFs include:

  • Global Wind Energy Portfolio (PWND)
  • ISE Global Wind Energy Index Fund (FAN)

Resources On Wind Power Investing:

[For Commodity analysis right to your inbox, sign up for our free CommodityHQ newsletter].

Disclosure: No positions at time of writing.

This entry was posted in Alternative Energy, Commodity ETFs, Exclusive, Investment Vehicles, Wind and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

Related News Stories