For those of you who have missed out on the largely uncorrected rally since March 2009 in the equity markets, finding value is becoming harder with each passing day. Even though most assets classes are already well off the bottom, we turn to the wind energy sector as it has not been impacted by the market recovery so far, particularly in 2010. Most stocks and ETFs in this sector have underperformed and thus might provide a viable entry point, given the strong fundamentals.
Wind energy is set to grow in the coming years, particularly in North America - led by the US and Canada. The overall wind energy market in the U.S. is valued at approximately USD $150 billion and is expected to grow even more rapidly. Growth is also expected in the Asian economies of India and China. The global installed wind energy capacity is projected to attain 2407 GW by 2012, with an average annual growth rate of 12.4 per cent.
Investments in the wind energy space should be directed towards regions that are set to benefit the most from the rapid expansion plans of wind energy as a power source. The U.S. leads the world in annual wind capacity additions and holds the second position in cumulative capacity. However, the U.S. trails in wind power generation as a percentage of electricity consumption. This also indicates a likelihood of escalated growth in the domestic wind sector in the upcoming years.
Beta & Correlation calculated with regard to the Dow Jones Industrial Average over the last year
The US also has plans to push for greener energy alternatives with an emphasis on wind, solar and nuclear sources. Approximately USD $84 billion has been allocated for energy efficiency enhancement and renewable energy production with an additional package of USD $32 billion for building an effective energy grid with inputs from renewable and alternative sources, as per the latest energy policies. However, the more substantive proposal, in terms of growth in the energy sector, is the proffer to launch a federal Renewable Portfolio Standard (RPS) to ensure that 10% of the U.S. electricity comes from clean, home-grown renewable sources by 2012. The plan involves the extension of the Federal Production Tax Credit (PTC) for five years to promote the production of renewable energy.
Analysis of the wind power prices and wholesale power prices indicates that wind power has been competitive in the wholesale power market in the recent years. The average wind power prices are consistent or have remained at the lower end of the wholesale power price range since 2003.
If we were to come up with an investing thesis for the wind energy sector, it would be based on three strong rationales. First, the sector is expected to demonstrate slow but unyielding growth in the upcoming years based on the strength of the fundamentals. Secondly, the low beta of most of the instruments in the wind energy sector ensures it remains dictated by fundamentals mostly and not speculative activity. It is also largely insulated from market fluctuations (unlike the crude oil market). Thirdly, the wind energy instruments have not rebounded significantly from the recessionary lows as has most of the other sectors and investors with a long term appetite can still enter the sector at the moment at relatively inexpensive levels.
Major wind ETFs such as First Trust Global Wind Energy ( 13.69 +0.18 +1.33%), PowerShares Global Wind Energy ( 13.4601 +0.1401 +1.05%) and PowerShares WilderHill Clean Energy have performed better in comparison with the other sectors in the recession. Both PWND and FAN, the most widely traded wind ETFs, offer direct entry into the industry as the stakeholders include transmitters, distributors and equipment manufacturers.
As far as pure plays go:
NaiKun Wind Energy Group [NKW:TSX-V] is a Canada-based renewable energy company. It is focused on developing an offshore wind project in Hecate Strait off the north coast of British Columbia.
Vestas, which owns approximately one-fourth of the worldwide wind turbine market is listed on the Copenhagen exchange.
Suzlon Energy is the largest wind turbine manufacturer in Asia and the 5th largest worldwide. It is based in India and listed on the Bombay stock exchange.
Current value of investments of USD $100 made 1 year ago
What are your thoughts on alternative energy and the wind energy sector in particular? Do you own any alternative energy equities?
No comments:
Post a Comment