Opportunities in the Wind Energy Value Chain 17 comments
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After having introduced the wind energy market and established why it has such a very promising future in “Wind Energy: Now Is the Time to Invest”, we explored ways to invest in this space, from the broad industry index approach of the specialized wind ETFs (FAN) and (PWND) to the targeted method of focusing on top wind turbine manufacturers such as Vestas (VWDRY.PK) outlined in “Finding Opportunities in Wind Energy ”. For all practical purposes, this latest article could have been entitled “Investing in Wind Energy, Part 3” and it takes us to mostly unsuspected ways to invest in this vastly untapped source of renewable energy.
When it comes to the selection of wind energy stocks, a look at the value chain beyond turbine manufacturers reveals what are, in our opinion, some of the best ways to play this market. With the turbine manufacturers located approximately in the middle of the value chain, we first look downstream to where the demand is coming from.
Demand for electricity ultimately comes from the consumers, industry and individuals, but the demand for renewable energy mostly originates with the utilities that are forced by regulatory mandates to gradually decrease the percentage of their energy mix coming from fossil fuels. Utilities seldom develop their own wind farms; instead they acquire them from project developers or simply buy the electricity from Independent Power Producers (IPPs). Table 1 below lists some of the key downstream wind market participants: the project developers, Independent Power Producers and utilities.
Table 1: Project Developers, Independent Power Producers, Utilities
| Company Name | Ticker Symbol | Country |
| A-Power Energy Generation Systems | APWR | China |
| E.ON AG | EONGY.PK | Germany |
| FPL Group Inc. | FPL | USA |
| Iberdrola Renovables | IBDRY.PK | Spain |
| Nacel Energy | NCEN.OB | USA |
| Naikun Wind Energy Group | NKWFF.PK | Canada |
| Otter Tail Corporation | OTTR | USA |
| Western Wind Energy Corporation | WNDEF.PK | Canada |
| Xcel Energy | XEL | USA |
The list is ranked alphabetically and includes some of the larger players in their respective fields as well as some emerging ones. Besides a couple of large U.S. utilities, many of the companies are either foreign or small (or both), but they all can be traded on the over-the-counter markets. The list also varies widely in terms of exposure to wind energy. Some, like A-Power Energy Generation, a small-cap Chinese Project Developer which has positioned itself masterfully as a wind pure-play to Wall Street investors, in fact generates the bulk of its revenue from waste heat cogeneration projects. At the other end of the scale we find companies such as E.ON, an $81 billion German energy behemoth which recently came to the attention of U.S. investors when they opened the world’s largest wind farm in West Texas. It might be a great energy company, but a wind pure-play they are not. To find pure-play wind companies you need to look to much smaller companies such as Nacel Energy, Naikun Wind Energy Group, and Western Wind Energy Corp. which, at $20 to $25 million in market capitalization, are not even ranked as micro-caps.
While no publicly traded utility company offers exclusive focus on wind energy, we like the U.S. utilities as they stand to profit from the long-term shift to renewables. With a market cap of about $825M, Otter Tail Corporation is a smaller utility but they have made great strides in incorporating wind in their generation portfolio. Larger utilities we prefer for their forward thinking strategies are FPL Group Inc. which already generates 10% of its electricity from wind, and Xcel Energy, as their NextEra Energy Resources subsidiary owns 25% of current U.S. wind capacity.
The last and maybe the most unrecognized but also the most promising segment of the wind energy supply chain can be found upstream from the turbine manufacturers. It turns out that wind turbine manufacturers are mostly system integrators and they outsource many of the critical components to specialized firms. Table 2 below includes a broad collection of wind components manufacturers which produce blades, bearings, transmissions, generators, towers, power electronics and other key ingredients.
Table 2: Wind Turbine Components Manufacturer
| Company Name | Ticker Symbol | Country |
| ABB | ABB | Switzerland |
| American Superconductor Corp. | AMSC | USA |
| Ameron International Corp. | AMN | USA |
| Broadwind Energy, Inc. | BWEN | USA |
| Hexcel Corp. | HXL | USA |
| Trinity Industries Inc. | TRN | USA |
| Timken Co. | TKR | USA |
| SKF | SKFRY.PK | Sweden |
| Toho Tenax | TINLY.PK | Japan |
| Toray Industries | TRYIY.PK | Japan |
| Xantrex | France | |
| Zoltek Companies Inc. | ZOLT | USA |
The list is a sampling of publicly traded companies and is by no-means exhaustive. Few of them are wind pure-plays, but this gives them some solid diversification and financial strength. While new wind turbine makers appear by the dozen, the components used in their assembly require very high levels of expertise and specialization. Many of these specialties have significant barriers to entry and the incumbent suppliers are not easily displaced. They promise to grow as fast as the wind energy market grows and their margins tend to be easier to maintain and several have the fundamentals to provide great investment potential.
Not all wind turbine components present good opportunities for investment. Towers, for example, are mostly outsourced to an ever growing list of local suppliers. With no real barrier of entry and transportation a permanent confining factor, the market for towers will continue to be very fragmented and local. Ameron International Corp. and Trinity Industries Inc. are two such companies which produce wind towers as one of many other businesses such as rail cars, barges, gas tanks, pipelines, etc. Almost at the other extreme in terms of industry concentration and geographic reach are gears and bearings which are in every wind turbine. There are a few very large global manufacturers like Germany’s SKF and Timken Co. who split the market amongst them, but in our opinion present little attraction as investments because they offer relatively low exposure to the wind market and modest profitability prospects. Much of the same statements apply to generator manufacturers which include large multinationals like ABB and General Electric (GE).
A different breed of wind player is represented by Broadwind Energy, Inc. which is providing a broad array of components and services for the wind industry. They build everything from towers to bearings and gears, and provide heavy haul transportation for the massive parts as well as complete wind farm maintenance and operation services.
With the industry pushing to ever larger, stronger and lighter turbines, carbon fiber blades have emerged as a substitute to fiber glass and other composites. Our list of manufacturers includes Japanese firms Toray Industries and Toho Tenax, a wholly-owned subsidiary of Teijin and the dominant US-based blades companies: Hexcel Corp. and Zoltek Companies, Inc.
On the power electronics front we have a large number of vendors providing anything from inverters, to wind turbine current-leveling and backup power for blade pitch control systems. ABB once more heads the list of the large players competing with specialist companies such as American Superconductor Corp. and Xantrex, which has now been acquired by French giant Schneider Electric.
The wind energy value chain features many more companies than we could list here, and not all we listed necessarily make great investments. There are several dozen companies to investigate among which many outstanding gems can be found by the informed investor.
Disclosure: No positions.
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of course U know my largest holding is (APWR) and I look for APWR to make news with the Obama China trip in 3 days! Vestas is building four new wind turbine plants here in Colorado making the USA the next Vestas growth market!
On Nov 11 04:31 PM wind4me wrote:
> Two other component companies I would have added would be Woodward
> Governor (WGOV) and Keydon (KDN),both USA companies that sell components
> to the Wind industry.
>
> of course U know my largest holding is (APWR) and I look for APWR
> to make news with the Obama China trip in 3 days! Vestas is building
> four new wind turbine plants here in Colorado making the USA the
> next Vestas growth market!
On Nov 11 12:59 PM User 327942 wrote:
> SKF is a Swedish company
On Nov 12 10:37 AM The Green Investor wrote:
> User 327942: Thank you for catching the error, it is now fixed.<br/>
when alterative energy is forced on the power industry and it becomes an essential part of power the excess will not be dumped as now.
keep reporting, good job.
Analysis of performance of the Chinese industry, even including the global majors, shows that power production lags far behind european industry standards, and it will take some years before we begin to see necessary results.
This comment does not suffice for a detailed analysis, but it is highly unlikely that A-Power will be able to produce a turbine anywhere near existing state-of-the-art. (Not because of the design, from German shop W2E, which is reputable.)
In fact, the first two turbines came off the line only recently, and the manufacturing line is already fixed without any test data. Even in Europe there are only a few turbines with a year's data, not nearly enough.
To compare, GE spent extra years developing their new 2.5MW turbine, and only after hundreds of turbines had several years of experience are they confident enough to begin to slowly market the turbine in the US next year.
In fact, A-Power licensed a 2.5MW design from Germany, but before they even built one, "upgraded" the license to a 2.7MW nameplate rating, even though there is no test data for the upgrade.
Caution, and serious due diligence are in order here.
In fact, high officials have stated privately that up to 90% of the companies might fail, but that is their method of jump-starting their industry.
There is little question in my mind that China will experience the fastest to maturity of any global market, but not in the short term. And the background story to A-Power is questionable.
(Of course, that doesn't mean there isn't much money to be made betting in the casino.)
I am told that it is an issue now in Denmark with their 20% of electric power from the wind. Someone else commented on a blog here that it becomes an issue at about 15% of power. We have a long way to go to reach those figures.
The comment about wind being the next ethanol is just plain wrong in all respects.
here's a real good story about rare earths and U.S.A wind energy vs jobs vs china
See the report at the following link.....password to open is terbium.
www.jackliftonreport.c...
APWR is a DPG company first and has an added kicker of wind power as an extra. APWR has never ever booked a dime of wind revenues so your '''caution'' is quite overblown imho
On Nov 12 02:44 PM Alpha 10 wrote:
> As a wind industry analyst for over three decades, I would suggest
> extreme caution regarding A-Power. Though the company didn't exist
> 2 years ago (predecessors did) they are now also a manufacturer of
> a sophisticated turbine. History of the industry shows that virtually
> all new turbines are brought to market too quickly, without adequate
> testing and redesign. This includes the majors like GE and Vestas,
> as well as second tier companies like Suzlon, Gamesa, and even formerly
> well-capitalized companies like Clipper.
>
> Analysis of performance of the Chinese industry, even including the
> global majors, shows that power production lags far behind european
> industry standards, and it will take some years before we begin to
> see necessary results.
>
> This comment does not suffice for a detailed analysis, but it is
> highly unlikely that A-Power will be able to produce a turbine anywhere
> near existing state-of-the-art. (Not because of the design, from
> German shop W2E, which is reputable.)
>
> In fact, the first two turbines came off the line only recently,
> and the manufacturing line is already fixed without any test data.
> Even in Europe there are only a few turbines with a year's data,
> not nearly enough.
>
> To compare, GE spent extra years developing their new 2.5MW turbine,
> and only after hundreds of turbines had several years of experience
> are they confident enough to begin to slowly market the turbine in
> the US next year.
>
> In fact, A-Power licensed a 2.5MW design from Germany, but before
> they even built one, "upgraded" the license to a 2.7MW nameplate
> rating, even though there is no test data for the upgrade.
>
> Caution, and serious due diligence are in order here.
maybe we should all just curl up in the fetal position and forget that China must build 300,000 wind turbines in the next 20 years and NEVER invest anything in anything and then we would NOT lose a dime would we ???
Why not explain the DPG model of how APWR builds 19 Clean Power projects and NOT one is wind ??? lets be real, U have NOT a clue of APWR and their background!
so, give ME ''''YOUR ''' quarterly numbers for APWR since U are a 20 year analysts in wind power ??
On Nov 12 03:04 PM Alpha 10 wrote:
> Postscript: Be very wary of the incredible bubble that is windpower
> in China. Their method of establishing an internal industry (which
> may be valid) is to allow explosive growth. The current performance
> stats show the the state of the industry is poor, and even the majors
> have had serious problems, much related to QC and lack of operations
> infrastructure.
>
> In fact, high officials have stated privately that up to 90% of the
> companies might fail, but that is their method of jump-starting their
> industry.
>
> There is little question in my mind that China will experience the
> fastest to maturity of any global market, but not in the short term.
> And the background story to A-Power is questionable.
>
> (Of course, that doesn't mean there isn't much money to be made betting
> in the casino.)
so, CIELO with 4000MW's of wind background is ''cautious'' on APWR ????
so, GE having built 10,000 wind turbines is ''''Cautious'' on APWR since GE PARTNERED with APWR for the largest Asia gear box factory?????
sorry, I will let GE help me WHO to invest in......want to explain the MACAU LNG plant for 1.5 bilion ??? U stay cautious, I will just buy more!
On Nov 12 02:44 PM Alpha 10 wrote:
> As a wind industry analyst for over three decades, I would suggest
> extreme caution regarding A-Power. Though the company didn't exist
> 2 years ago (predecessors did) they are now also a manufacturer of
> a sophisticated turbine. History of the industry shows that virtually
> all new turbines are brought to market too quickly, without adequate
> testing and redesign. This includes the majors like GE and Vestas,
> as well as second tier companies like Suzlon, Gamesa, and even formerly
> well-capitalized companies like Clipper.
>
> Analysis of performance of the Chinese industry, even including the
> global majors, shows that power production lags far behind european
> industry standards, and it will take some years before we begin to
> see necessary results.
>
> This comment does not suffice for a detailed analysis, but it is
> highly unlikely that A-Power will be able to produce a turbine anywhere
> near existing state-of-the-art. (Not because of the design, from
> German shop W2E, which is reputable.)
>
> In fact, the first two turbines came off the line only recently,
> and the manufacturing line is already fixed without any test data.
> Even in Europe there are only a few turbines with a year's data,
> not nearly enough.
>
> To compare, GE spent extra years developing their new 2.5MW turbine,
> and only after hundreds of turbines had several years of experience
> are they confident enough to begin to slowly market the turbine in
> the US next year.
>
> In fact, A-Power licensed a 2.5MW design from Germany, but before
> they even built one, "upgraded" the license to a 2.7MW nameplate
> rating, even though there is no test data for the upgrade.
>
> Caution, and serious due diligence are in order here.