How to Invest in Wind Power, a Major Clean Energy Source in the U.S.
Onshore wind farms account for almost all of the electricity generated by wind in the United States
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What is wind power?
Wind power refers to energy from wind used to produce mechanical work or electricity. The classic mechanical illustration of wind power is a windmill, a device with sails or wings that uses the wind to turn a wheel that grinds grain. Today, wind power typically refers to rows of purpose-built towers that use the wind’s kinetic energy to drive a turbine that generates electricity to turn on lights and electronics in homes, offices, and factories.
The cost of large-scale construction and installation of wind energy has decreased significantly since the 2010s due to the proliferation of wind farms and increased production of turbines. Utilities are the largest collectors of wind energy, but as with solar power, non-commercial use is catching on and homeowners with the space are installing small turbines in their homes.
With zero carbon emissions, wind is increasingly becoming a viable source of clean, renewable energy for power generation. According to statistics from the US Department of Energy, total US annual electricity generation from wind power increased from about 6 billion kilowatt hours (kWh) in 2000 to about 380 billion kWh in 2021.
In 2021, wind accounted for 9.2 percent of all utility-scale electricity generation, surpassing solar with a 3 percent share of production. In 2020, a typical American household customer used 10,715 kWh each year, suggesting that tens of millions of households’ electricity was generated by wind.
Europe accounts for most of the world’s wind power production, and companies based in countries like Germany, Denmark, Spain and the UK have more experience than companies in the US in manufacturing and installing wind turbines.
How is energy collected from wind?
There’s a maximum efficiency at which wind turbines can harvest energy from the wind, and that’s known as the Betz limit — set at 59.3 percent. The latest turbines can reach as much as 50 percent, suggesting there is room for improvement as turbine technology continues to advance.
Wind can be collected from vertical or horizontal structures. The dominant shape is the horizontal structure, where the blades rotate in the direction of the wind and this kinetic energy turns the blades, which drive the turbine housed in a so-called nacelle to produce electricity.
Innovations in rotor blade design allow rotor blades — typically made of fiberglass and resin — to rotate and flex with the wind to avoid breaking in high winds, and a single turbine can generate enough electricity to power thousands of homes continuously to supply.
Where is wind power generated?
Onshore wind farms account for almost all wind power generation in the US, but offshore tower installations are gaining traction. Department of Energy maps show areas on land and coasts where wind capture is most efficient.
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Most wind turbines are installed on extremely tall towers with an average height of around 280 feet. Rural areas are ideal for installation while urban areas are not suitable for installation due to space requirements. In the US, the areas in and around the Great Plains are ideal for wind turbines. Parts of Kansas, Oklahoma and Texas show the greatest potential for harnessing the wind’s kinetic energy to generate electricity.
Offshore
The east and west coasts of the US and the Great Lakes have the potential to produce massive amounts of wind power due to strong winds. Shallow water is best for installing towers, but such areas across the country where solid ground structures can be erected are limited.
Offshore structures, such as a tether system that connects a floating structure to the seabed, make it possible for wind turbines to operate in deeper water. The only offshore wind farms operating in the US are located off the coasts of Rhode Island and Virginia. (Solid Ground vs. Floating)
How to invest in wind power
Unfortunately, there is no market for trading wind power generated in the United States. However, the industry does have a wind index futures contract based on renewable energy in Germany that trades on Nasdaq, known as the Nasdaq Renewable Index Wind Germany (NAREX WIDE). The contract was first traded in 2015 and is primarily designed to help companies hedge against risks associated with changes in wind production.
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Terms from TheStreet Dictionary
indices
The ISE Global Wind Energy Index, created in December 2005, is one of the oldest indices that tracks listed companies in the wind energy industry worldwide. The benchmark’s holdings range from utilities like France’s Engie SA (ENGI: IM) and Spain’s Ibredrola (IBE: BMAD) to turbine manufacturers like General Electric (GE: NYSE) and ABB (ABB: NYSE).
Another example is the Solactive Wind Energy Index, which focuses on companies involved in the design and manufacture of wind turbines, as well as power generation, wind technology and services.
Below is a chart of the ISE Global Wind Energy Index from May 2013 to August 2022. The data shows that returns on wind power companies were flat from 2013 to 2020 and have skyrocketed in the later years of that period.
Wind investment returns started to increase in 2020.
Screenshot via Yahoo! finance
ETFs
Many fund companies have started to benefit from wind energy with their ETFs, and some use the Solactive Wind Energy Index as a benchmark. The most popular ETFs include the First Trust Global Wind Energy ETF and the Global X Wind Energy ETF.
Holdings in wind ETFs target utilities outside the US, particularly in China, Canada and European countries, and turbine equipment manufacturers.
Stocks
Utilities play a dominant role in wind energy, from erecting wind towers to distributing the electricity generated by wind turbines. For example, Public Service Enterprise Group (NYSE: PEG) is working on a wind farm off the coast of southern New Jersey. As more wind turbine utilities install, the less they will need to rely on fossil fuels like natural gas to power their generators. Wind is becoming an abundant and cost-free source of energy for utility companies, helping them reduce costs over the long term.
Companies that manufacture structures and equipment for wind turbines typically benefit from the wind power boom. Just four turbine manufacturers, led by General Electric (NYSE: GE), supplied all of US wind power capacity installed in 2021. The other three companies were Siemens-Gamesa Renewable Energy (OTCMKTS:GCTAY), Vestas (OTCMKTS: VWDRY), and Nordex (OTCMKTS: NRDXF) – all based in Europe.
What is the bottom line of wind power?
More and more countries are involved in wind energy, both onshore and offshore. With about 10 percent of all electricity generated in the US coming from wind, there remains greater potential to gain market share from fossil fuel-based power generation. As legislation at both the state and federal levels includes the development of onshore and offshore wind energy, wind power generation is likely to increase.
Onshore wind farms account for almost all wind-generated energy in the US, but offshore wind energy production offers greater potential for increased power generation due to underdevelopment compared to onshore.
The Inflationary Reduction Act, passed in August 2022, provides incentives for clean energy generation, including from wind, and puts the US on track to meet its clean energy goals for 2030 and beyond. China and Europe are ahead in wind power production, but the US could catch up and take the lead.
Turbines and rotor blades are likely to become more efficient and towers could get taller as wind technology continues to improve. While energy generated from wind can fluctuate throughout the day, power-storing batteries can provide balanced performance for consumers. Lithium-ion battery manufacturers like Tesla (NASDAQ: TSLA) will benefit from the use of battery storage.
Frequently Asked Questions (FAQ)
Below are answers to some of the most common questions investors ask about wind energy.
Is wind energy more efficient than solar energy?
Wind can generate electricity 24/7, while solar relies on sunshine. However, wind farms tend to be more expensive to build than solar farms, and they also require more maintenance. Energy suppliers are trying to store electricity generated from wind using batteries.
What are the disadvantages of wind power?
The wind is not always constant and fluctuations can disrupt the amount of electricity generated. The noise generated by wind turbines can be very loud, and the spinning blades can kill birds. Blades also have a finite lifespan, and thousands of blades end up in landfills each year. However, some companies are trying to find ways to recycle and reuse discarded blades.