It’s been a tough year for the wind industry.
In the United States, wind installations in the first half of the year were down 71% compared to last year, and new wind capacity fell behind new coal capacity for the first time in years.
If energy treasury grants aren’t extended this year, I suspect the wind energy industry in the U.S. is going to fall on some hard times…
Last month, we also saw Vestas (PK:VWDRY) — one of the strongest wind turbine manufacturers on the planet — announce a larger-than-expected loss and cut forecasts, due mostly to delayed orders.
There’s no doubt that the recession has hurt wind development. And to be honest, I don’t see how any of these pure play turbine manufacturers are going to post solid earnings anytime within the next few quarters — not because demand isn’t there; but either the capital isn’t there — or, in the case of the U.S. — the policy support isn’t there.
That being said, the big picture for wind remains strong, particularly in the UK and in developing nations in Asia.
Long-term, I still have faith in the U.S. market. But it’s hard to make a call until this election is over, and our policy-makers get back to work. (Of course, they’re all still pretty much useless as it is.)
But when it comes to energy, it blows my mind that we still don’t have a real energy plan in place that focuses on long-term sustainability instead of short-term “fixes” that do nothing but placate special interests.
And if you don’t believe me, ask yourself why your tax dollars continue to get funneled to the oil and coal industries — both of which are mature and already profitable!
Nonetheless, the wind energy industry will not go gently into that good night. But make no mistake about it, the industry must continue to focus on efficiency, reliability and cost reduction to keep moving forward.
Tomorrow’s wind turbine — today
One company that really seems to be upping the ante in the wind energy department is Siemens (NYSE: SI), which recently unveiled a new 3 MW direct drive turbine.
Instead of a gearbox, this turbine connects the rotor right to a magnet generator. I spoke with an engineer who’s working on some projects out in the Tehachapi region in California, and he told me that this design is more reliable than conventional designs.
And Siemens says that the new turbine will offer 25 percent more power than their current 2.3 MW machine — with a lower weight and only half the parts. Having few parts also allows for less maintenance. These turbines can also be transported on standard vehicles.
So we’re looking at a more efficient machine that will enable cost reductions and better reliability.
Now Siemens doesn’t necessarily have a monopoly on direct drive systems… In fact last year, GE (NYSE: GE) acquired a Norwegian company called ScanWind, which developed its own direct drive technology.
A few months back, GE announced a partnership with the Lake Erie Energy Development Corporation to develop the first fresh water offshore wind farm in the U.S. This 20 megawatt project will utilize a 4 MW machine that incorporates ScanWind’s direct drive design.
Backdoor wind profits
While the potential for direct drive turbines is bright — especially because of their maintenance advantages, which make them better suited for offshore wind development — these turbines do require permanent magnets… And these require rare earth metals.
As I’ve written in the past, 95 percent of the world’s rare earth elements are produced in China. And China needs those supplies to fuel its own alternative energy development, as these materials are also necessary for hybrid and electric vehicles, high-performance batteries, and LEDs.
So from an investor’s point of view, the growth of direct drive turbines could put even more pressure on rare earth production. It’s not necessarily a direct way to play the wind energy industry, but it’s certainly an indirect way that could make a pretty penny over the long term.
Of course, if you’re looking for a direct route to wind energy profits, I’d continue to focus on wind farm developers that are actively building out capacity right now…
Wind farms that have already been approved, have power purchase agreements in place, and are properly funded offer the safest and easiest opportunities to profit from wind over the long term.
You can read more about those wind farms here.
To a new way of life, and a new generation of wealth…
Jeff
