In Texas, everything is bigger -- including wind energy. The Lonestar State is blowing away its wind energy competition like never before. But stocks with Texas wind stakes aren't guaranteed to grow. Let's take a look at why Texas wind is winning, a few stocks benefiting from the boom, and whether their Lonestar location is truly enough to press the "buy" button.
Texas doesn't just have more wind generation capacity than other states, it has more than twice as much. According to new data released from the U.S. Energy Information Administration, Texas's 2013 (most recent data) wind generation blew past 35,000 MWh. In second place, Iowa edged ahead to clock in just over 15,000 MWh's worth of energy, with California in third place at around 13,000 MWh.
Across all top wind-producing states, wind energy has continued to increase over the years. But Texas took off around 2006, and it never looked back as its capacity far exceeded those of its closest competitors. There are a few reasons why.
As a first-order condition, Texas has an optimal natural environment for wind energy: It's big, there's lots of open space, and it's windy.
And while the middle of America is home to its highest winds, Texas also needs more energy than many of its neighbors: Its 27 million residents make it the second-most populous state behind California, and sixth for energy consumption per capita.
Wind turbine technology advancements by the likes of General Electric Company (NYSE:GE) have also made wind relatively more competitive versus other energies. Bigger, more efficient, and better connected wind turbines have allowed Texans to win the wind war. In 2014, General Electric Company sold more than 2,800 turbines worldwide, and lays claim to more than 26,000 turbines in total. As with Texas, General Electric Company noted in its most recent annual report that "[we] are seeing growth in ... wind ... industries."
The Texas energy landscape also gets a boost because it's relatively deregulated, allowing utilities to pop up and explore competitive opportunities in ways that just aren't feasible in states that rely on heavily regulated electricity monopolies. Utility NextEra Energy (NYSE:NEE) and its renewable YieldCo NextEra Energy Partners, LP (NYSE:NEP) are collectively the biggest wind producers in America. The companies' total wind capacity exceeds 11,300 MW, of which around 2,400 MW comes from its 13 Texas wind farms.
On September 13, Texas produced more wind energy than it ever had before. Then it did it again on October 21...and then it broke the record again the next day with a 12,238 MW peak. In total, wind energy now accounts for around 10% of Texas's energy generation.
Since wind energy is essentially costless to produce once it's up, one (privately held) utility is even giving away energy during non-peak nighttime hours in an effort to shift customer consumption away from costly peak production times when natural gas plants and other pricey powers need to kick in. Other utilities are taking note, and what seemed to be a potential customer satisfaction nightmare is turning into a marketing and cost-cutting success that may soon become a widely adopted practice.
Invest in Texas?
When it comes to wind energy, Texas has taken the cake. But even if you could invest in a pure play Texas wind energy stock (which you can't), you shouldn't. State-specific natural, regulatory, and economic environments make it too risky.
But Texas's wind energy success and the success of those companies investing in it point to an important investing fact: we investors don't just invest in a company, we invest in its environment. Identifying stocks that start or strategically expand into conducive areas enjoy an innate advantage over competitors, no matter how great the other guys may be. So when you're putting together your next investing thesis on wind energy (or almost any stock), be sure to take a critical look at that stock's geographic presence before deciding whether it's a buy.
Justin Loiseau owns shares of General Electric Company and several kites. The Motley Fool owns shares of General Electric Company. 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.