While everyone knows that the United States is currently undergoing an unconventional drilling revolution in the energy sector, the spark has been set for almost an equally big opportunity. With nearly 4,200 gigawatts worth of generation capacity potential up for grabs offshore, the U.S. wind energy sector is set to cross a major milestone and begin brining some of that potential into the electrical grid.
For investors, the recent gusts of bullish activity and support represents an interesting long-term option for energy generation and a portfolio position.
SEE: Green Energy: Why We’re Still Not Using It
One Million Homes
This July, the race to begin harvesting the North Atlantic Ocean’s vast wind energy potential begins. This past Tuesday, the Department of the Interior announced that it is was planning on auctioning off the rights to develop offshore wind energy facilities in federal waters off the coasts of Massachusetts and Rhode Island next month. Overall, the two blocks will cover 164,750 acres about 9.2 nautical miles south of the Rhode Island coast. Together, the areas could lead to the generation of almost 3,400 megawatts or enough to power one million homes.
This is the first auction of such rights and has been deemed a major milestone for the offshore wind industry.
The U.S. Department of Energy's National Renewable Energy Laboratory (NREL) estimates total U.S. offshore wind energy potential at 4,150 gigawatts with nearly 212 GW in easy to get to shallow water. The NREL also estimates that total onshore wind generation potential is approximately 10.5 million MW.
However, all of this potential has gone untapped as many offshore wind projects have been contested in legal battles and private environmental reviews. The landmark offshore Cape Wind project took 10 years to finally be approved after legal battles. Likewise, NRG Energy’s (NYSE:NRG) Bluewater Wind project remains on hold since January of 2012.
The opening of federal waters to wind projects via auction is an important step in diversifying the industry beyond onshore projects. Last year, the US added 12,620 megawatts of wind capacity onshore. By opening up federal waters to turbine farms, the offshore wind industry has essentially been given the greenlight by the Feds to expand. The Department of the Interior acknowledged that it would accelerate offshore wind leasing if the upcoming auction was successful.
SEE: The Industry Handbook: The Utilities Industry
Turning Wind Energy into Portfolio Energy
The recent bullish news propelling the U.S. offshore wind sector could be the gust needed to propel portfolios as well. Investors may want to consider added a dose of wind energy investments to their portfolio. With the closing of the PowerShares Global Wind Energy ETF, investors have only one broad wind energy choice for their portfolios. The First Trust Global Wind Energy Fund (NYSE:FAN) tracks 51 different holdings including turbine giant, Vestas Wind Systems (OTCBB:VWDRY) and wind heavy utilities like AES (NYSE:AES). So far, the fund has been a bust losing 22.77% since inception in 2008. However, given that the U.S. is not getting serious about its offshore wind potential, the fund could finally move higher.
A better choice maybe the markers of the turbines themselves. Industrial stalwarts General Electric (NYSE:GE) and Siemens (NYSE:SI) continue to duke it out over who will be the turbine maker of choice for the wind industry. Both over dedicated offshore turbine lines and will be major winners as the U.S. begins to tap its windy potential. Not to be outdone, specialty metals producer Allegheny Technologies (NYSE:ATI) offers a host of metal parts for turbine manufacturers.
The potential of the United States offshore wind energy hasn’t gone unnoticed by foreign firms. Spanish utility Iberdrola SA (OTCBB:IBDRY) is expected to be one of the main bidders in the upcoming auction as it looks to diversify its holdings in austerity plagued Europe. At the same time, Norwegian oil and gas giant Statoil (NYSE:STO) has received approval from the Maine Public Utilities Commission to build a 12 MW, $120 million wind farm of the coast of main. The first mover status of both firms could prove fruitful over the long haul.
SEE: Guide To Oil And Gas Plays In North America
The Bottom Line
The recent Dept. of Interior decision to begin auctioning off blocks of federal waterways for offshore wind development does wonders for the United States in terms actually tapping its potential. Overall, the measure opens up the doors for the many other wind installations waiting in the wings and could possibly boost portfolios as well. For investors with long enough timelines, betting on the wind sector could finally make sense.
At the time of writing, Aaron Levitt did not own shares in any of the companies or funds mentioned in this article.
Active TradingBefore jumping into this hot sector, learn how these companies make their money.
EconomicsEven in times of economic turmoil, utilities can be a good investment.
SavingsThe reason we are still dependent on fossil fuels for energy is about as old as the fossils themselves. Read on to find out why.
Bonds & Fixed IncomeLearn how to filter out the noise of the market place in order to find a solid way of determing a company's value.
MarketsLearn about per share data, price/book value ratio, price/cash flow ratio, price/earnings ratio, price/sales ratio, dividend yield and the enterprise multiple.
Stock AnalysisLearn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
Mutual Funds & ETFsLearn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
Stock AnalysisDiscover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
Mutual Funds & ETFsLearn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
SavingsIf you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>