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.
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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.
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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.
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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.