by Louis Basenese, Advisory Panelist, Investment U
Associate Investment Director
Thursday, September 17, 2008: Issue #856
It’s become cliché to say that the United States is addicted to oil. I’ll make no effort to refute the claim because it’s true. It’s an expensive habit, too.
The upshot, however, has been the explosion of interest in renewable energy sources. Last year, investors poured a record $71 billion into the alternative energy space. And billions more funnel in every day.
But with so many possibilities – hydropower, wind power, solar power, geothermal, biofuel, clean coal technology – investors are forced to pick which alternative energy source will distinguish itself as the most viable replacement for oil. It’s a crapshoot.
That is, until you realize the shooter (in this case Wall Street) is rolling a pair of “loaded” dice. In recent months, heavy hitters like The Blackstone Group, General Electric and T. Boone Pickens have stealthily invested billions into a single renewable energy source. JP Morgan Chase revealed that it’s holding a $1 billion stake in the very same investment.
Even better, in the next five years, the governments in the United States, China and Europe will plow at least $150 billion into the same alternative, according to CLSA Research.
And, unlike oil, there’s no possibility of it running out. So let’s take a closer look at this odds-on favorite to win the alternative energy derby.
And the Winner Is – Wind Power
Wind. It’s clean (wind power generates absolutely no greenhouse gases). It’s renewable. And it involves no production decline curve. Hence, 30 years from now we won’t be worrying about “Peak Wind” theories coming to fruition.
It also can’t be hoarded by power hungry cartels. In fact, enough of it exists to satisfy global demand seven times over, according to a Stanford University study. North Dakota alone has enough of it to meet 25% of U.S. demand.
But perhaps most importantly, it’s finally coming of age. Just consider:
- From 2000 to 2007, the size of the wind power industry increased fivefold.
- Last year, records were shattered with $36 billion in total global wind investments with the United States leading the way with $9 billion.
- In the next 10 years, the wind industry is expected to quadruple in size.
Hands down, wind is the fastest growing source of power. But can such growth continue?
Sure, the Department of Energy and countless other studies and industry experts say it will. But are they being realistic? Absolutely. And here’s why…
Wind Power Makes Economic Sense & Simply Works
First and foremost, wind power makes economic sense. If the price of oil drops to $50 a barrel (it won’t), the economics still work; even without government subsidies.
You see, wind can be used to generate electricity for 6 to 8.5 cents per kilowatt-hour.
For comparison’s sake, the cost of nuclear power runs about 15 cents per kilowatt-hour. Coal now costs north of 10 cents (without factoring in carbon capture and storage). And gas-fired power costs approximately 12 cents.
Keep in mind, too, that just a few years ago, wind costs rested north of 15 to 20 cents. But today, costs are low enough in some markets to compete with conventional power generation methods. And future advancements will make wind power even cheaper.
Look no further than Denmark. It already generates 20% of its electricity from wind. And Spain, Portugal and Germany boast similarly impressive penetration rates of roughly 12%, 10% and 7%, respectively.
The timing couldn’t be more perfect, either. While wind energy costs are dropping, costs for competing technologies – coal, nuclear and gas – are headed in the opposite direction.
Wind is the cost effective way our nation can start solving its oil addiction. And unlike many of the other far-fetched solutions to our energy needs …
Wind is realistically attainable.
Today’s Investment U Crib Sheet – Six Wind Picks…
Even in our domestic market, some of the biggest players in wind power are companies based overseas. Because the United States has showed up late to the “wind power party,” many of the industry leaders are in Europe.
- Vestas Wind Systems (CPH: VWS)
- Suzlon Energy Limited (NSE: SUZLON)
- Clipper Windpower (LON: CWP)
- Babcock & Brown (ASX: BBW)
- GE Energy (NYSE: GE)
- Siemens AG (NYSE: SI)
Some of the hottest wind companies in the United States still remain private, and many of the smaller companies producing wind power and equipment remain speculative investments because of their risk. Many of the biggest players in wind power – like GE – have large wind divisions within larger conglomerates. It makes finding “pure” wind investments tricky.
For more investment ideas on renewables and the T. Boone Pickens Plan, find out how to supercharge your portfolio with natural gas and wind in Investment U Issue #837, The T. Boone Pickens Way: How To Supercharge Your Portfolio.
Regardless of how we solve our energy problems, the solution will require large investments in energy and infrastructure. And the benefits for investors could be enormous. Find out why the energy sector is on sale, and why it shouldn’t stay that way for long in Investment U Issue #839, The Energy Sector: Another Solid Industry Goes “On Sale.”