While hydraulic fracturing is making some huge gains in terms of natural gas production, another energy source in the United States is also shattering records. Installed wind energy capacity continues to hit new highs across the U.S. That echoes similar gains around the globe.

Perhaps more importantly, those gains could continue into the future as a series of positive factors are blowing in the renewable energy source's favor. For investors, the time to bet on increased wind capacity is now.

Rising Market Share, Lower Costs

For the wind power industry in the U.S., 2013 was a great year. This past January, wind was responsible for 4.8% of America’s electricity used. While that amount seems small- especially when compared to coal and natural gas- this percentage was the highest January on record and eclipsed last year’s record amount. According to American Wind Energy Association (AWEA), wind generation capacity in the U.S. has grown from just 25,000 megawatts (MW) to over 61,000 MW in just five years. That’s a 140% growth rate.

The key for that torrid growth has been some major transmission upgrades as well as falling costs for wind power.

Texas recently completed its ambitious Competitive Renewable Energy Zone (CREZ) project earlier this year- which helped build-out new long distance transmission lines designed to take wind energy and place it into the grid. That helped Texas see a huge surge in its wind generation capacity. Likewise, similar build-outs are occurring in Oklahoma, Colorado and the Midwest.

At the same time, the cost of wind energy has fallen by 43% over the last four years. In some markets, that cost is now below coal and natural gas without tax subsidies. Globally, average onshore wind power costs the same as natural gas at $84 per megawatt hour. That’s important considering the U.S. is thinking about exporting much of our natural gas bounty overseas.

The additional grid build-outs and lower costs- plus the fact that the expired tax credits for wind energy are now back on the table- has the AWEA estimating that nearly 60,000 MW of new wind energy projects could be coming to the U.S. over the next few years. That’s basically double current capacity. While these projects will take time to complete, it does insure steady growth for the renewable energy source.

A Windy Portfolio

The recent records set by the wind industry in the U.S. along with its torrid future growth makes it an interesting investment option for portfolios. Diversifying into the sector makes for a great play. For those looking for a broad option, the closing of the PowerShares Global Wind Energy ETF left only the First Trust Global Wind Energy (NYSE:FAN). Not that this is necessarily a bad thing.

FAN tracks 47 different firms associated with wind energy. Top holdings include Aarhus, Denmark’s turbine superstar Vestas Wind Systems (OTCBB:VWDRY) and wind-heavy Fergus Falls, Minn. utility Otter Tail (Nasdaq:OTTR). Performance for FAN has been pretty poor since its inception. However, last year the ETF managed to destroy the S&P 500- by about 25%- as wind energy resumed its upwards momentum. Given the projections of newly installed capacity, FAN could post similar results into the future. Expenses for the fund run 0.60%.

Installing that proposed 60,000 MW worth of additional capacity will take a lot of turbine muscle. And when it comes to turbines there are only a real handful of big players. Both Fairfield, Conn.-based General Electric (NYSE:GE) and Munich's Siemens (NYSE:SI) continue to duke it out over who will be the turbine maker of choice for the wind industry. Both have expanded turbine size for onshore applications and continue to see rising orders for their products. Likewise, parts suppliers like Fort Collins, Colo.-based Woodward (NYSE:WWD) and Pittsburgh's Allegheny Technologies (NYSE:ATI) have also seen rising sales from growing wind capacity. Woodward makes electric converters that are required for grids, while ATI produces specialty metals used in turbine towers, engines and blades.

For those investors looking for a different route to playing the renewable energy source, the wind heavy utilities maybe a great buy. Wind now accounts for roughly 60% of Minneapolis-based Xcel Energy’s (NYSE:XEL) generation capacity in Colorado, while Juno beach, Fla-based NextEra Energy (NYSE:NEE) has nearly 10,000 MW worth of wind generation capacity and is the largest operator in the U.S. Both utilities offer stable dividends and a way to create an income stream of wind energy.

The Bottom Line

While natural gas production continues to break production records, so does renewable energy source wind. Across the U.S., more and more wind energy is coming online. And new grid upgrades will have that fact playing out well into the future. For investors, now could be the time to bet on the sector. The previous picks- along with Bilbao, Spain-based utility Iberdrola SA (OTCBB:IBDRY) –are ideal ways to play the industry.

Related Articles
  1. Chart Advisor

    Hottest Energy Sector Stocks

    The energy sector is the top performer over the last week. Here are stocks leading the sector.
  2. Forex Education

    Natural Gas Industry: An Investment Guide

    Investors looking into this industry are faced with a confusing amount of information. We explain the important concepts and terms.
  3. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  4. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  5. Economics

    Will Winter Affect the Price of Oil and Gas?

    Learn how heating oil and natural gas prices are affected during a harsh or mild winter and the EIA's prediction for heating consumption.
  6. Stock Analysis

    Deepwater Explorations That Had Profitable Results

    Learn how deepwater oil wells sometimes deliver large profits to the companies finding them, if the oil company drillers can overcome high fixed costs.
  7. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  8. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  9. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  10. Economics

    The Biggest Oil Towns in Texas

    Learn about the boom of oil production in Texas cities and how the new surge of wealth into these cities is changing local economies.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center