Who's Profiting From Wind Power?

It's getting so you can hardly even walk down to the corner convenience store without seeing one of those huge wind turbine blades being transported to a wind farm. Exaggeration? Only a little.  Wind power is a huge growth industry these days:

  • Wind power now makes up approximately 4% of the nation's electricity generating capacity, as compared to 10% for nuclear power.
  • Nearly all of that generating capacity has been installed since 2000, while no new nuclear capacity has been brought online since 1990.
  • Texas -- traditional home of Big Oil -- hosts 25% of all U.S. wind power generation.

Although wind power has been met with a certain amount of skepticism, the enthusiasm is anything but overblown. Compared to nuclear power projects, wind farms are easier to license, easier to construct, and easier to operate. Their primary drawback is that, well, sometimes the wind does not blow.

Guess who's bringing more good things to life?
As an investor I was most curious to know what manufacturers are profiting from the rapid deployment of wind turbines in the United States. Here I was pleasantly surprised:

Selected 2010 U.S. Wind Power Projects

Company

Capacity Installed in 2010, in Megawatts

% of 2010 Total Capacity

Number of Projects

% of 2010 Projects

General Electric (NYSE: GE  )

2543

50.1

35

31.8

Siemens (NYSE: SI  )

791

15.6

7

6.4

Gamesa

564

11.1

5

4.5

Mitsubishi Heavy Industries

350

6.9

2

1.8

Suzlon

312

6.1

7

6.4

Vestas

221

4.4

5

4.5

Source: American Wind Energy Association.

By any measure, GE is blowing away the competition. The fact is, GE is winning the lion's share of wind turbine contracts -- 32 projects in 2010, compared to seven for the next largest competitor. Contrast this to the early part of the last decade, when GE had no wind turbine products prior to purchasing Enron's assets in liquidation (and European manufacturers dominated the market).

Wind power investor forecast: headwinds and a chance of squalls
GE is not exactly a pure play in the wind energy space. Revenues from wind turbine sales aren't even broken out separately in quarterly reports. However, finding an American company with a strong wind-power portfolio and steady revenues is a challenge. American Superconductor (Nasdaq: AMSC  ) , which manufactures smart-grid wiring systems, plunged 50% in early April when its largest customer, Chinese turbine company Sinovel, refused acceptance of existing orders. A-Power Energy Generation Systems (Nasdaq: APWR  ) is also down over 60% in the past year and is completely dependent on projects in China and Southeast Asia. A better investment might be Broadwind Energy (Nasdaq: BWEN  ) , which builds towers for wind turbines. While its stock dropped 70% in 2010 due to a 50% drop in new wind projects nationwide, it appears to have turned a corner and isn't overexposed in Asia.

In analyzing 2010 wind U.S. project data I discovered another American company whose success we should be watching:

Company

Capacity Installed in 2010, in Megawatts

% of 2010 Total Capacity

Number of Projects

% of 2010 Projects

Northern Power Systems

5.9

0.11

32

29.1

Source: American Wind Energy Association.

Northern Power is a privately-held company that specializes in low-power wind turbines. Their main product produces 100 kilowatts (0.1 MW) of power. They are the only company selling turbines that size, which are attractive for factories, city public works, and farm installations. They supplied 29% of all U.S. wind projects -- and 100% of all "small wind" -- in 2010. Based on their success, I would recommend watching very closely this segment of the wind power market for acquisitions and new publicly-held companies. "Small wind" is an easy way for individual companies to lower their energy costs, so I think it's going to be huge.

For now, run with the big dogs
Investors looking for a one-stop wind technology stock with a proven track record will probably need to go offshore at this point. Vestas (Denmark) and Gamesa (Spain) are the largest global suppliers of wind turbines and are totally focused on wind energy. But they aren't winning over the American power industry -- and the table of 2010 projects makes it clear that if you're investing focus is the U.S. market, for now GE is where it's at.

We can help you keep tabs on your companies with My Watchlist, our free, personalized stock tracking service. Click on the links below to get valuable updates on your favorite wind company.

Fool contributor G. David Frye thinks most analysts are full of hot air, which might be a good market for single-user wind turbines.  He owns shares of GE. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2011, at 8:18 PM, buffalonate wrote:

    Wind turbines are only about 4% of revenue for GE. GE just bought out a company that makes wind turbine cranes. Instead of having to rent one of those humungous cranes they have cranes that climb the turbines. This makes them much cheaper to put up and repair. This also allows them to make them much higher thus catching more wind and being more powerful. This advancement should make wind turbines much more economical in the future.

  • Report this Comment On April 22, 2011, at 12:36 AM, gdf55 wrote:

    I'll have to look into that. I presume what you mean is that the crane climbs the tower and can be used to lower parts of a turbine assembly to the ground? If so, that's clever. I think the tower height problem may be more complex than that, though: more generating capacity means more weight and more noise. The 1.5MW generators seem to be a sweet spot for land-based turbines. Vestas is moving toward 4MW turbines that can only be used in offshore installations due to noise and footprint, but most of the U.S. is not near the ocean and power transmission distance is a huge factor.

    Re: wind turbines being 4% of revenues for GE. Some documentation would be nice; I have not been able to find accurate and verifiable information that breaks out wind power separately from other renewable energy product lines at GE.

  • Report this Comment On April 23, 2011, at 5:31 PM, David369 wrote:

    Wow, 4% wind, 10% nuke. I would assume solar is very small. Is the rest all coal?

  • Report this Comment On April 23, 2011, at 5:51 PM, sajahmeoli wrote:

    Talking with a friend who is an operator for a power company, I learned the following: One of the industrial-sized wind turbines costs $1 million (or more) to build. Maintenance fees are then about $40k per year.

    The value of the energy generated by this turbine in one year is about the same as what it costs to maintain the unit. Forget about getting a return on the initial capital investment.

    The reason this industry appears to be doing well at present here in the US is that it is receiving substantial federal and state subsidies to offset the capital investment costs. Politicians and businesspeople and regular citizens would like this particular form of alternative energy to make sense, but the numbers simply do not support it.

    While some are profiting from this industry, the present wind-power industry is not sustainable without governmental supports.

  • Report this Comment On April 23, 2011, at 6:10 PM, devoish wrote:

    Aerovironment - AVAV also has small windmills.

  • Report this Comment On April 24, 2011, at 11:40 AM, sailrick wrote:

    BWEN also makes gear boxes for turbines and provides servicing of gear boxes. They don't just build towers.

    China, which already has 45 GW wind generating capacity, will build 90 GW more in the next five years.

    Nuclear is usually said to provide 20% of U.S. power, not 10%. I guess 10% might be correct as far as nameplate capacity, but not for megawatt hours produced.

    sajahmeoli

    Your comments are just plain wrong. Wind energy is in the single digits cents per kWh. - in the range of 4-8 cents/kWh.

    It is competitive with fossil fuels already. The real costs of fossil fuels are two to three times the sticker price, when you add in the huge externalized costs of health and environmental effects. Subsidies to fossil fuels are TWO times as much as for all renewable energy combined in the U.S. And about half of renewable aid is for ill advised corn based ethanol, something only loved by big AG industry and chemical fertilizer producers.

    Oil has been subsidized nonstop since 1918, and coal since 1932, in the U.S. Fossil fuels in the big picture, are the most expensive energy sources imaginable.

  • Report this Comment On April 24, 2011, at 11:46 AM, sailrick wrote:

    Here's who else is profiting from wind- small farmers whose land they are on.

    In Texas: Nukes Out, Wind In.

    http://climatecrocks.com/2011/04/23/in-texas-nukes-out-wind-...

  • Report this Comment On April 24, 2011, at 9:44 PM, gdf55 wrote:

    Natural gas is the largest source of generating capacity, closely followed by coal. Here are some hard numbers, courtesy of the US Energy Information Administration:

    http://www.eia.gov/cneaf/electricity/epa/epaxlfile1_2.xls

    @sailrick: I have also heard that some nuke plants generate well above the boilerplate capacity number, but don't have any indications beyond the data I cite above and can't prove that the figures I used are boilerplate vs. actual capacity. I'm trying to take EIA numbers at face value.

    About @sajameoli's relayed claim that wind costs as much to produce as it generates in revenues. I can't make that add up. Assume a single 1.5MW generator operates at 40% of capacity - that is, it's turning 40% of the time. And also assume the value of the electricity it produces is about $.02/kWh. That comes to about $100,000/year, before maintenance costs (which you claim are large) and fuel costs (which in the case of wind is $0).

    I also had problems with the notion that a single turbine maintenance contract is worth $40K/year, but don't have any data and will see what I can dig up. In any case, it's not like gas/coal/hydro generators are maintenance-free either.

    Another thing to consider is that, if this is so unprofitable, why does "small wind" work? Farmers and manufacturers all over the country have worked out agreements with power companies where they only pay for power they consume over what the single small turbine produces, and any extra power produced goes back on the grid but does not generate revenue for the owner. If anything, you'd expect small single turbine installations to be less efficient.

    I guess you have to put me in the "skeptical of big oil/coal/gas protecting its turf" camp.

  • Report this Comment On April 25, 2011, at 8:36 AM, JamesNPS wrote:

    Thanks for this article. One other reason to look at Northern Power is that their turbines do not have gearboxes - they use a permanent magnet direct drive architecture - so that the turbines are more reliable and have a lower cost of ownership.

  • Report this Comment On May 18, 2011, at 10:52 AM, delmardoug wrote:

    Nuclear is actually 21% of US Output

    Coal is over 50% , Hydro in the teens.

    Wind is actually around 2% but growing fast.

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