Looking Offshore For Wind Power

By Aaron Levitt | September 16, 2010 AAA

With the debt debacles in Europe, alternative-energy investing has taken a back seat to austerity and financial reform. Both wind- and solar-power companies are heavily dependent on government financial assistance to stay afloat. As nations around the globe, especially European Union countries, take the necessary steps to reign in budget deficits, cuts to non-essential spending is almost assured. However, as population size and energy demand are still rising at exponential rates, the need for new sources of energy is still great. Despite the austerity pressures, offshore wind is getting a major boost as of late.

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Blowing in the Right Direction
The offshore sector could be the right way to play wind energy's long-term potential. Domestically, this potential was highlighted by a recent report by The U.S. Department of Energy's National Renewable Energy Laboratory (NREL) estimating the U.S. offshore wind energy promise at 4,150 gigawatts. New advances in wind turbine technology and surveying techniques has allowed for the NREL to revise upwards its previous estimates of 1010 GW. Last May's approval of the 128 megawatt Cape May Wind farm and the more than 11 offshore sites waiting approval in states such as Delaware, New Jersey and North Carolina show the promise of offshore wind's future. (For background reading on another alternative energy source, read Spotlight On The Solar Industry.)

The good news for the sector doesn't stop locally, offshore wind is experiencing tremendous growth worldwide. Analysts estimate that between 2010 and 2020, North America and China will contribute 25% of all new installed offshore capacity. China recently completed the first offshore wind farm outside of Europe. Located in the East China Sea off the coast of Shanghai, the 102-megawatt Donghai Wind Farm began transmitting energy to the grid in July. The Chinese government claims that the wind farm will reduce the usage of 100,000 tons of coal, annually. This is the first of several wind projects under construction in the nation.

Even in austerity-battled Europe, offshore wind is getting preference over other forms of renewables. France recently began accepting bids for 600 turbines or about 3,000 MW worth of power. The nation has a goal of targeting 6,000 megawatts of offshore wind power by 2020. Recent successful offshore efforts in Europe are highlighted by neighboring UK, Scotland and Denmark.

Harnessing the Power
Despite the negativity surrounding austerity measures, offshore wind has real long term potential. The current negativity offers a perfect buying opportunity in the sector for the long haul.

For investors wanting an overarching play on wind energy's rise, the PowerShares Global Wind Energy (NYSE:PWND) or First Trust Global Wind Energy (NYSE:FAN) are the easiest ways to add exposure. Investors may want to go with the PowerShares fund as it has exposure to Chinese companies. China has made it clear on its green intentions and this weighting should give it the edge versus its sister fund. (For more information on China's energy plans, check out China's $700 Billion Clean Energy Plan.)

Domestic manufacturers have produced 60-70% of wind turbine market growth in China, which bodes well for A-Power Energy (Nasdaq:APWR). While there is a plethora of Chinese-listed solar companies, such as China Sunergy (Nasdaq:CSUN), APWR represents one of the only wind plays available to domestic investors.

Offshore wind turbines need to be big in order to gain cost efficiencies and deal with the stresses of being out at sea. There are currently two companies offering investors the most direct participation in the race to develop the world's first 10 (MW) offshore wind turbines. American Superconductor Corporation (Nasdaq:AMSC) through its Seatitan turbine design is leading the way in mega-turbines. AMSC was also a partner in the recently opened Chinese wind farm. United Technologies (NYSE:UTX) owns a 49.5% equity stake in the Clipper Wind, the other major player.

Other players include Dow Chemical (NYSE:DOW) through its investment in Blade Dynamics and German engineering giant Siemens (NYSE:SI).

Bottom Line
While austerity measures and budget cuts still remain at the forefront of many government's agendas, alternative energy has faltered. However, the long-term demands for new and more energy are still in place. Offshore wind power represents long-term potential in the space. Investors can use the current downturn in renewable energy stocks to add to the sector.

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