Vestas, Gamesa, Clipper Make Wind Top Energy Markets Investment
By Marianne Stigset and Stephen Voss
June 4 (Bloomberg) -- From General Electric Co. to Mitsubishi Heavy Industries Ltd. to E.ON AG, the world's largest companies are investing in wind power, the best-performing energy in the past year.
Led by Vestas Wind Systems A/S and Spain's Iberdrola SA, utilities and governments in the U.S., China and Europe will spend as much as $150 billion on wind projects in the next five years, according to CLSA Research Ltd., part of Credit Agricole SA. Lawmakers are providing financial incentives because windmills are non-polluting and cost less than solar projects.
``Wind has the biggest potential to meet renewable energy targets over the next decade compared with solar and biofuels,'' said Philippe de Weck, who started the Pictet Clean Energy fund last month for Geneva-based Pictet & Cie., which manages $301 billion overall.
The greatest returns so far are generated by equipment makers for farms that can have more than 400 windmills. Each has a tower as high as 135 meters (443 feet) and rotor blades with diameters that can reach 112 meters. Wind spins the blades, turning a shaft attached to gears and a generator that converts the motion into electricity.
The market value of Vestas, the world's biggest windmill maker, has more than doubled in the past year, and Gamesa Corporacion Tecnologica SA, Spain's turbine manufacturer, is up by more than two thirds. By comparison, Pacific Ethanol Inc., which has Microsoft Corp. Chairman Bill Gates as its largest shareholder, lost 54 percent.
`Less Risky'
``Wind energy is cheaper than solar, it's a less risky form of investment,'' said Michael McNamara, a London-based analyst at Jefferies International Ltd., which tracks solar and wind companies. ``The demand for quality wind turbines is so high, we won't see supply meet demand for several years.''
Electricity from wind is a little more than 1 percent of global power supplies. The leading country is Denmark, with 20 percent. Wind provides 9 percent of Spain's energy, while for Germany, it's 7 percent.
China's National Development and Reform Commission will almost double wind generation by 2008, partly to produce clean power for the Beijing Olympic Games, said Shi Lishan, head of renewable development at the commission, the nation's top economic policy planner.
`Exceed Targets'
Tokyo-based Mitsubishi Heavy said in a May 28 statement that China plans to expand wind power at an annual rate of about 2 gigawatts in the run-up to the Olympics. Windmill rotors will be built to generate 5 gigawatts, enough to supply more than 7 million homes, by 2010, Shi said. That will increase to 30 gigawatts by 2020.
``We can easily exceed the targets because of the policy incentives,'' Shi said in a May 30 telephone interview.
China and the U.S., the top producers of carbon emissions that contribute to global warming, are under pressure from European nations to reduce pollution. President George W. Bush on May 31 proposed a round of talks among industrialized nations to set targets for reducing so-called greenhouse gases.
In the U.S., the world's fastest-growth market for wind, Arizona, Texas, Wyoming and at least 18 other states require increases in the amount of renewable power. U.S. federally mandated production tax credits currently offer 1.9 cents per kilowatt hour for power produced by wind during the first 10 years of a project.
Coal to Wind
Congress this year will consider a law forcing utilities to buy more electricity from non-polluting sources. West Virginia, once the dominant producer of coal in the U.S., has a wind farm at Silver Lake and Dominion Resources Inc. and Royal Dutch Shell Plc plan to triple the amount of wind power in the state this year to 230 megawatts.
FPL Group Inc., owner of Florida's main utility, has the world's largest wind farm at Horse Hollow Wind Energy Center in Taylor County, Texas. The site's 421 turbines can generate 735 megawatts.
``The U.S. is the Saudi Arabia of wind,'' said McNamara. ``The American Midwest is windy, very flat, and with no natural beauty sites to speak of. The U.S. is a very strong wind market and it's booming.''
Utilities such as Iberdrola, the world's top producer of electricity from wind, and FPL, the leader in the U.S., helped boost capacity last year by 25 percent to 74 gigawatts, said the Brussels-based Global Wind Energy Council.
E.ON's Project
Dusseldorf-based E.ON, Germany's biggest utility, said May 31 it will spend 3 billion euros ($4 billion) on wind stations and other renewable energy projects. GE in February bought a 15 percent stake in Theolia SA, a French wind power company.
Duke Energy Corp., the No. 3 operator of coal-fired power plants in the U.S., on May 29 said it will buy wind units in states including Arizona, Texas and Wyoming. The next day, AES Corp. agreed to buy wind projects in Minnesota and Iowa.
``The demand for renewable energy, energy that has less carbon associated with it, has really skyrocketed,'' AES Chief Executive Officer Paul Hanrahan said May 31 by telephone while traveling to a hydroelectric dam the company is building in Panama. ``The capital costs of building a wind farm have come way down and when you put those together, it has really put wind in the lead for renewable needs.''
JPMorgan's Portfolio
JPMorgan Chase & Co., the third-largest U.S. bank, has a $1 billion portfolio of wind energy investments, including 26 wind farms in the U.S., with enough capacity to power 600,000 average U.S. homes.
``There are far greater opportunities to make good investments in wind at the moment compared with other renewable energies,'' said John Eber, a Chicago-based managing director responsible for JPMorgan's principal investments in energy. ``The market is much better developed.''
The rise in shares of wind equipment makers will continue at least through next year, said Bruce Jenkyn-Jones, a fund manager at Impax Group Plc in London.
Shares of Vestas are up 159 percent in the past year, while Gamesa, based in Zamudio, Spain, is 70 percent higher. London- based Clipper Windpower Plc, a maker of turbines for BP Plc, and FPL in Juno Beach, Florida, has more than doubled.
The Morgan Stanley Capital International World Industrials Index, which counts Vestas and Gamesa among its members, gained 24 percent in the past year, while the MSCI World Utilities Index climbed 35 percent.
The market value of the Bloomberg World Energy-Alternate Sources Index, which includes Clipper and Theolia, has more than doubled since crude oil prices in New York touched a record $78.40 a barrel on July 14. Oil has lost 7.5 percent in the past year and closed last week at $65.08 a barrel in New York.
Expensive Stocks
A price of ``$45 a barrel is the threshold at which we're competitive with crude oil,'' Peter Kruse, a spokesman for Vestas, said on the phone from Randers, Denmark, where the company is based. ``With wind, you know what the price of your fuel will be in the future. It will be zero.''
``Our favored stock is Vestas,'' said Jason Channell, an analyst with Goldman Sachs International in London. ``They're not just the biggest player by far, they also have the most diverse geographical footprint.''
The gains have made some wind power stocks more expensive than solar and ethanol producers. Clipper trades at 80 times expected earnings, while Pacific Ethanol costs 51 times, according to Bloomberg estimates. SunPower Corp., a U.S. maker of power-generating solar panels, trades at 51 times.
Jenkyn-Jones says he's undeterred, predicting annual returns of 20 percent.
Theolia Stake
``Investments in wind are likely to outperform solar and biofuels over the next three to five years,'' said Jenkyn-Jones, who helps manage $500 million in environmental stocks at Impax, where his largest holding is Vestas. ``I can't see much negative news coming out of wind energy compared with solar and biofuels.''
Demand for wind assets is driving up prices. India's Suzlon Energy Ltd. last month beat out Areva SA, the world's biggest builder of nuclear plants, for German wind-turbine maker Repower Systems AG with a 1.2 billion-euro offer. That was double the French reactor maker's initial proposal. Shares of Repower surged 37 percent since the first offer.
Shares of Theolia, an Aix-en-Provence, France-based maker of wind turbines, climbed 20 percent on Feb. 15 after GE agreed to buy its stake.
Fairfield, Connecticut-based GE entered the wind-turbine industry in 2002 with the purchase of the former Zond Corp. from a bankrupt Enron Corp. The company has expanded wind turbine manufacturing fivefold in the past three years, to 2,500 megawatts.
Iberdrola Invests
Iberdrola, based in Bilbao, in April completed the 12.4 billion-pound ($25 billion) acquisition of Scottish Power Plc. The transaction gave Iberdrola PPM Energy, a U.S. business that has more than 2,000 megawatts of wind energy in operation or under construction. Iberdrola ranks second to Endesa SA in Spain's power market.
Ethanol companies, meanwhile, have retreated as corn futures climbed to a 10-year high, crushing profits. VeraSun Energy Corp., the third-largest U.S. ethanol producer by capacity, reported a loss on May 8. Its shares have dropped 47 percent since June 2006.
Solar stocks slipped in the past three months amid higher prices for silicon, an ingredient in solar panels. Jiangsu, China-based Suntech Power Holdings Co., a maker of solar-power cells, has declined 6.5 percent since February.
Wind power has its detractors, even with the market-leading performance. Youri Vorobiev, who helps oversee Vontobel Asset Management Ltd.'s 250 million-euro Global Trend New Power Tech fund in Zurich, says that wind stocks ``are very expensive.''
Wind Opponents
Opponents of wind energy say rows of wind turbines are a blot on the landscape. Offshore windfarms can block shipping lanes and present a danger to birds.
Massachusetts environmental officials in March approved plans for the first U.S. offshore wind farm, a step in a project to build 130 windmills near Cape Cod. The plan was opposed by the state's Democratic Senators Edward Kennedy and John Kerry, and local groups said it will hurt fishing, kill birds and ruin ocean views.
Villagers in southeast England are trying to thwart the London Array wind development, a 1,000-megawatt project owned partly by Shell.
The U.K. government has countered by proposing legislation to speed up approval for large energy projects and help the country meet its clean energy targets.
``The world wants wind to work,'' Victor Abate, the director of GE's renewable energy unit, said in a May 31 phone interview from Schenectady, New York. ``We can't make them fast enough.''
To contact the reporters on this story: Stephen Voss in London at sev@bloomberg.net ; Marianne Stigset in London at mstigset@bloomberg.net .
Last Updated: June 3, 2007 19:56 EDT |
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