By Brendan Coffey
Nahant, the town where I live, is the smallest in Massachusetts at just 1.2 square miles. It consist of two islands -- Big Nahant and Little Nahant -- connected to the mainland by a two-mile road paved over the hump of an arcing sand dune created hundreds of years ago by the tides. Having lived here for just a year, I can say there's a lot to like. Just about every house is a five-minute walk from a beach, taxes are bearable, it's safe and it has lots of playgrounds--things that matter more to me now that my wife Jeanne and I have Lila, our nine-month old baby.
Nahant is also breezy in the summertime, which keeps the weather from getting as hot as on the mainland, where the Cabot offices are located. The downside is in autumn and winter when that idyllic summer breeze turns into an often-relentless wind. Boston, just a few miles south, is in fact the windiest city in America as measured by average daily windspeed. So while I have been skiing at Lake Placid when it's 30-below, traipsing on glaciers during Iceland's enduring night and sporting an agonizingly thin suit the day it snowed on Opening Day at Yankee Stadium, I have never been so cold as during my five-minute morning walk to Richard Tresch's economics class my freshman year at Boston College. The wind is the only real downside to my adopted home.
Wind Power Goes Small
But it turns out it may become a new advantage. The alternative energy committee of this town of 3,000 people has approved a plan by an area startup called Deerfield Energy to replace the street lamps along the causeway to the mainland with lampposts topped with wind turbines. Since the causeway runs along a state beach, it's not the town's say, but Nahant rightfully holds some sway in the decision. If approved, Deerfield will install new lamps topped with a 12-foot diameter turbine. The wind should produce enough power to pay for the electricity of the lamps with some leftover for Deerfield to sell into the grid, paying off its investment in the posts in a few years.
About 10,000 small turbines like Deerfield's are sold annually in the U.S., according to a recent New York Times article. But only 1% of those are bought for home use, so while I'm tempted to take advantage of the wind here myself, to power Lila's toys, it isn't likely to happen. Maybe a few years from now we'll have a turbine, if the Deerfield experiment goes well, to offset her computer and radio.
Big Wind Produces Big Profts
The big news in wind isn't the doings of a town so small most Bay Staters have never heard of it. It's that plenty of big projects are being bandied about now that energy prices look to stay high for good. One project proposed by another private start-up, Bluewater Wind, calls for up to 200 turbines spaced half a mile apart off of the Delaware coast. Just the blade of each would be 140-feet long, according to CNN. The project was approved by the state legislature this summer. Off of New Jersey, fishermen who once opposed turbines have banded together to push for a new offshore wind project of similar scope.
China is aiming to have 100 gigawatts of wind energy by 2020, with expectations that the industry will actually come closer to 120GW by that time, more than is installed on the planet right now. T. Boone Pickens, of course, is busily touting his plan for renewable energy, highlighted by his proposal to build the world's largest wind farm in Texas. In many cases, once approved, these projects could come together rather quickly: a few years back, General Electric (GE) built a 25-megawatt project in the Irish Sea off County Wicklow in just nine weeks.
GE isn't the only big player in the potential for wind. As editor of the Cabot Green Investor, I'm keeping an eye out for the most promising wind stocks to be had. One of these isn't located very far from where I am--American Superconductor (AMSC), which is based in Devens, Massachusetts.
American Superconductor is a company that actually had a long promising business in superconductive transmission wires for utilities, which was a great idea, but a little ahead of its time and not profitable. But last year the company bought an Austrian wind turbine designer.
The move was shrewd, since wind is a complementary product to the wire and electrical system American Superconductor already had been producing. The combination of the two businesses has been classic razor and razorblade marketing--American Superconductor sells its designs to other companies that manufacture and market turbines. With the sale comes the right to sell the electrical components for each turbine built, something other turbines designers don't require.
The result is booming revenues--sales for its latest fiscal year, ended March, were up 115% to $112 million and are expected to grow to $180 million this year thanks to a major client in China and the uptick in the need for its superconducting wire that will help transmit all that new power.
It's stocks like those that we love to find. We recommended AMSC to readers in May. Following Cabot's time-tested method of discerning technical signals and market momentum, we recommended that readers sell their positions over the summer for a total profit of 38% in just three months. Of course, in the current market, it's been impossible to avoid some busts too, but we're glad to say we are well ahead of the performance of alternative energy ETFs and mutual funds for 2008.
Green Tax Credits Wait for Politics
Even with all the focus on wind energy this year, it is still just a minor part of the U.S. energy portfolio. In 2007, 5,200 megawatts of new wind installation went live, boosting American wind power capacity by an astonishing 45%. Yet even so, wind supplies just 1% of our total energy needs. Nurturing the wind industry would seem to be common sense now. After all, oil prices may have fallen from their summer highs, but they are hovering around $100 a barrel, still almost double the price from two years ago. On top of that, U.S. oil production is declining--a recent CIBC report noted the Gulf of Mexico still isn't producing up to pre-Katrina levels, and opening up Alaska's Arctic National Wildlife Refuge to drilling won't offset the drop in production in the Gulf and elsewhere in the lower 48 states.
Yet while action needs to be taken, tax credits that would support the U.S. wind industry are in danger of not being renewed by Congress. The production tax credit for wind is held up in Congress as part of the rancorous partisan debate over whether to expand drilling rights on federal lands to oil companies. Historically, when Congress hasn't renewed this credit (1999, 2001 and 2003) the U.S. wind industry has stalled. The same credits make solar installations competitive in the U.S., too. No doubt, that has added to the weakness we've seen in even the most promising wind and solar stocks, like American Superconductor.
Navigant Consulting estimates that 2009 investments in wind and solar power will be close to $27 billion with the tax credits, but fall to $7 billion without them. The current credits expire December 31. So, depending on what Congress does this month in its pre-election posturing, we may still get our lamppost turbines in Nahant, but we'll be looking farther afield for the next great Green stocks.
Disclosure: No positions