Offshore Wind Energy A Reality

By Aaron Levitt | May 17, 2010 AAA

In the wake of the BP (NYSE:BP), Transocean (NYSE:RIG) environmental disaster, alternative and renewable energy is getting a boost in the public limelight, with the wind industry getting a big helping hand from Uncle Sam. The Department of the Interior, after a 10-year-long battle, approved the first offshore wind farm in the United States last week. This cleared the way for up to 130 wind turbines to be placed in a 25 mile area in Nantucket Sound, five miles off the coast of Massachusetts.
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The Cape May Wind Farm
Private Company, Energy Management is developing the $2 billion dollar project and estimates that the project will produce 182 megawatts of energy, enough to supply 200,000 homes. This equates to being able to power 75% of Cape Cod's, Nantucket's and Martha's Vineyard's residences. Energy Management hopes to have the construction beginning by the end of this year and operational by 2012. This development was a long time coming, with the original application filed in 2001.

New Projects
Offshore wind farms, run by companies such as Vestas Wind Systems (OTCBB:VWDRY) have been fixtures in Europe for more than 20 years. The recent Cape May decision, along with the recent oil spill, opens up a plethora of projects in the United States. More than 11 offshore sites are waiting approval in states such as Delaware, New Jersey, North Carolina and Texas. The government of Maine has set a goal of generating at least 300 megawatts of offshore wind power by 2020, and in New York, utilities are looking to develop a 700 megawatt farm off of Long Island. Utility, NRG Energy (NYSE:NRG) has its sights set on developments offshore in Maryland and Virginia. The U.S. Department of the Interior predicts that offshore wind farms in the Atlantic Ocean could have the potential to produce 1 million megawatts worth of renewable power.

Wind Energy into Portfolio Energy
While the world has embraced offshore wind projects, even China produces about 100 megawatts worth of power this way. The United States certainly has some catching up to do. While the Cape May project boosted returns for investors in the sector for a brief time, the volatility caused by the Greek crisis took the wind out of the sectors sails. However, the approval of the Cape May project opens the doors for continued long-term gains in the sector, and patient investors could use this downturn as way to add wind energy to a portfolio.

Both the PowerShares Global Wind Energy (Nadaq:PWND) and First Trust Global Wind Energy (NYSE:FAN) are two exchange-traded funds that focus on the sector. FAN gives investors access to more than 56 different holdings, versus PWND's 36. Both funds offer the same top three holdings; EDP Renovaveis SA (OTCBB:EDPFY), Iberdrola Renovables (OTCBB:IRDVY) and Vestas. Both funds offer a global portfolio, however FAN does not have any direct China exposure. Growth in China's energy infrastructure is one of great portfolio stories for the future; PWND should get the nod because of it.

For investors wanting a direct play on the Cape Wind project, British super-utility National Grid (NYSE:NGG) is in talks with EMI for using electricity from the project. While, there is no firm agreement yet, investors can sit pretty with National Grids 5% dividend yield until any conditions are agreed upon.

The Bottom Line
The Cape May project does wonders for the United States in terms of offshore wind energy. Its approval opens up the doors for the many other wind installations waiting in the wings. Long-term investors can add a broad swath of wind energy to a portfolio through PWND, or invest directly in the Cape May project through National Grid. Either way, wind energy will continue to make up more of the United States energy pie. (For related reading, take a look at Clean Or Green Technology Investing.)

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