Don’t Get Blown Away by the Naysayers: 3 Reasons to Be Bullish on Wind

Although solar stocks had an outstanding 2013, wind stocks remained stagnant. The United States lags the world in adoption of wind energy; however, the winds of change are swirling, and it seems reasonable that the U.S. will be seeing a lot more turbines turning in the near future.

Layin' down the offshore law      
Some investors are bearish on the wind industry due to the legal complications surrounding the development of offshore wind farms. Arguably, this is most clearly demonstrated by the numerous lawsuits that have been filed in an attempt to prevent the development of Cape Wind. Fully permitted, Cape Wind is the first offshore wind farm to receive a commercial lease and approval for its Construction and Operations Plan by the U.S. Department of the Interior. This week Cape Wind benefited from a U.S. Court of Appeals finding which rejected the claims of opponents and upheld the Federal Aviation Administration's approval of the project.

As further evidence that there is no legal merit to the opposition of the project, Cape Wind asserts that "opponents have lost all 12 legal decisions in other courts. " In addition to providing approximately 130 of its 3.6-megawatt (MW) offshore wind turbines, Siemens AG (NYSE: SI  ) will be providing an offshore Electric Service Platform and a service agreement for the first 15 years of commercial operations. Successful development of Cape Wind will lead the way in companies tapping into what the Department of Energy believes is more than 4 million MW of offshore wind capacity available along the coasts of the U.S. and Great Lakes.

Innovation   
One of the more popular energy stories from 2013 was SolarCity (NASDAQ: SCTY  ) , and its unconventional ways of financing its operations. In addition to the November announcement that it will be offering solar bonds to investors, last week, the company announced that it is planning on rolling out what it calls a "new, Web-based investment platform through which it intends to allow a broad range of investors, including both individuals and organizations of all sizes, to participate directly in solar investments that have previously only been available to large financial institutions." It's stories like this (and others) that helped drive the shares up nearly 500% since the company's late 2012 IPO.

There are no wind power oriented companies like SolarCity; however, an analogy can be made to the newly public company Pattern Energy Group (NASDAQ: PEGI  ) . Taking advantage of the ever-changing landscape of energy production and distribution, Pattern Energy offers an intriguing thesis for long-term investment. The company owns and operates eight wind power projects in the United States, Canada, and Chile, Pattern Energy offers investors a novel approach to investing in the wind sector.

By securing steady revenue streams with long-term power purchase agreements, or PPAs, the company is confident that it can produce stable and sustainable cash for shareholders through a newly introduced quarterly dividend -- a 4.3% yield as of this writing. Having IPO'd last September and introduced the dividend in November, it's impossible to evaluate any significant past performance, so I'll be looking closely at the next earnings report.

The company is sticking to its strategy of third-party acquisitions, though. It recently announced two acquisitions that will bring its portfolio of wind power projects to 10, representing 255 MW of net capacity. The first facility, Grand Renewable, is a 149 MW project located in Ontario. Under a 20-year power purchase agreement with the Ontaio Power Authority, Pattern Energy is comprised of 67 Siemens wind turbines. The second acquisition, located in Carson County, Texas, is Panhandle 2. Consisting of 79 Siemens turbines, the 182 MW project is scheduled to be completed in the fourth quarter of 2014. According to Pattern Energy's President and CEO, Mike Garland, both acquisitions "are designed to provide accretive, stable and sustainable cash flows and are the first in what we believe will be a series of acquisitions from the portfolio owned by Pattern Development that support the growth plan we previously outlined during the IPO process."

Gulf Wind Farm, Source: Pattern Energy Group

Staying on the grid 
One of the most consistent arguments made against the adoption of wind power is that it is an intermittent and therefore unreliable source of energy. According to a recent report by the National Renewable Energy Lab, this may not necessarily be a weakness.

The research shows that wind power can be used to support the electrical grid; whereas, in the past, the approach was to use a power system's other resources, like natural gas plants, to support the wind output. The study finds that active power control, the adjustments of wind turbines' power contributions to the grid "helps balance load with generation at various times, avoiding erroneous power flows, involuntary load shedding, machine damage, and the risk of potential blackouts." 

A Fool's final thoughts
Solar power stories certainly lit up the headlines in 2013. Will 2014 be the year that wind power catches up? I have my doubts, as there are still plenty of challenges. But, for those investors with long-term time horizons, recent developments in the wind sector suggest that the future will be promising and certainly warrant further investigation for those considering investment.

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  • Report this Comment On February 01, 2014, at 11:04 AM, Doowleb wrote:

    As of Dec. 31/13 Ontario's Liberal Government had built or approved 6,736 wind turbines.

    Here's the chart by county. Google : windpowergrab wordpress

    200 of the turbines where built on crown land.

    Conservative Ridings - 4597

    NDP Ridings - 1365

    Liberal Ridings - 574 (Of the 574 in Liberal Ridings 537 were in the Thunder Bay Area - Out of sight out of mind?)

    To recap: In Ontario's actual population areas (Thunder Bay is NOT a population area.)

    Conservative Ridings get to look at 68.3% of these beautiful bird blenders.

    NDP Ridings get to look at 20% of these monuments to Gaia.

    Liberal Ridings (Other than the woods of Thunder Bay) .6%

    That's right .6%

    Can you believe their unmitigated gall?

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