The Wind Energy Industry Gusts East

by: Investment U

By Tony D’Altorio

HSBC (HBC) recently reported that clean energy companies have proved “resilient” to the global financial crisis and recession. Global revenues for the sector were about $530 billion last year, down only slightly from 2008′s $534 billion.

However, a closer look at the facts and figures shows a huge discrepancy…

  • According to the analysis, China strongly supported the sector over the past year. Despite accounting for only 6% of annual climate-related investment in 2004, it represented 24% last year.
  • Although HSBC ranks China behind the U.S., Japan and several European countries in clean energy usage, it also shows the Asian nation gaining rapidly.

Co-author, Joaquim de Lima, said in the report: “We think this is just the start. China is emerging in this space as the dominant force.”

This is perhaps most evident in a clean energy subsector – wind – which may offer opportunities for investors.

The U.S. Wind Energy Industry is in Distress

Wind energy generation has grown over the past decade. It is now the biggest source of new generating capacity in large energy markets such as Europe and the United States.

Still, In July, the American Wind Energy Association (AWEA) reported a collapse in the capacity added in the sector. In the second quarter of 2010, only 700 megawatts of wind turbines were installed in the U.S., down 71% from the same period in 2009.

And things will likely only get worse, with forecasted installations for the whole year dropping as much as 45% lower than 2009 levels. The AWEA primarily blames the lack of a renewable energy standard for that drop.

In the U.S., Congress has added to that issue by stalling renewable energy legislation. Wind companies had banked on the bill to bring in a renewable energy standard (RES) that would mandate certain amounts of energy from different sources.

Now, uncertain, those same businesses are waiting for more information before they make any big moves. So the industry has become stagnant. Or as AWEA Chief Executive Denise Bode put it, “The U.S. wind industry is in distress.”

But that’s the U.S. There are certainly other places in the world to look…

China’s Wind Energy Capacity Surpasses The Rest

Global wind power capacity grew by 31.7% last year, the most since 2001. Still, more than a third of that happened in China, according to the World Wind Energy Association.

Barclays forecasts an additional 35.3 gigawatts of generation capacity for next year. Once again, Asia – and mostly China – will take credit for much of that.

In 2009, according to the Global Wind Energy Council, new private and public sector investments in core clean energy leapt by 53% in China. It added 37 gigawatts of total renewable energy power capacity, more than any other country.

The Council concluded that, “China’s wind farm development was the strongest investment feature of last year by far.”

Certainly, China has the industry’s biggest success story in the past two years. It doubled its capacity from 12 gigawatts in 2008 to over 25 in 2009.

At that rate, China will easily surpass its goal of 100 gigawatts by 2020.

How to Invest in the Rapidly Emerging Wind Market

In terms of installed capacity, Denmark’s Vestas Wind Systems ADR (OTCPK:VWDRY), General Electric (NYSE: GE) and Spain’s Gamesa (PINK: GCTAF) top the list of turbine makers.

The first two, along with Germany’s Siemens ADR (NYSE: SI) and others, have set up factories in China to capitalize on the rapidly emerging wind market.

But they face stiff local competition there. Last year, China boasted three wind turbine makers among the world’s top 10 most profitable: Dongfang Electric (OTC:DNGFF), Xinjiang Goldwind Science & Technology and Sinovel Wind Group, in third place globally. Unfortunately, those companies aren’t easily accessible to American investors. And even the ones that are, such as Dongfang and China Wind Systems (Nasdaq: CWS) are very thinly traded.

So that leaves outside businesses, in which case Vestas is the strongest. Its stock price did recently tank due to poor quarterly earnings. But investors may not realize that Vestas doesn’t recognize its real revenues for a year or more after signing contracts.

That means its late weakness reflects last year’s 50% slump in orders. And it expects to lock in at least a quarter more orders in 2010 than in 2008, its record year.

The associated revenue from those deals will start to flow in 2011… and its stock price should follow.

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