With the bankruptcy filings of solar firms Evergreen Solar (OTCBB:ESLRQ) and Solyndra, many investors have seriously begun to question the validity of alternative energy. Stocks within the sector have fallen hard as investors have dumped risk in the face of safety. However, with the world's expanding populations, rising middle classes and dwindling fossil fuel sources, renewables will be needed to meet the world's future energy needs.
Despite the recent stock pessimism, one bright spot has been the wind industry. Both utility-scale and community wind installations are growing, and turbine costs are falling. For investors, now could be a good time to consider the sector in the face of lower stock prices.
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More Than Just a Breeze
A paper published in the science journal Proceedings of the National Academy of Sciences (PNAS) estimates the total global wind energy potential at 2,470 exajoules (EJ) or about 40 times current worldwide consumption of electricity. The U.S. Energy Information Administration predicts that worldwide demand for non-fossil fuel sources, such as solar and wind, will increase 22% over the next five years and 85% over the next 25. The global wind industry is bent on making those targets and saw a major revival in new capacity during 2011. More than 18.4 gigawatts (GW) worth of new capacity has been installed globally in the first half of 2011, and 25.5 GW is expected to be added in the second half of the year. So far, global wind capacity grew by 9.3% in 2011.
Domestically, the United States has constructed more than 2,150 megawatts (MW) worth of new wind power in 2011. Over the last four years, the U.S. has been responsible for 35% of the world's new capacity. This growth in wind generation is second only to the growth in new natural gas generation, but it is more than nuclear and coal growth combined. Overall, scientists at NREL estimate that the U.S. has a total generation potential of 145,500,000 MW worth of both on- and offshore wind energy.
Globally, the picture continues to be rosy for wind energy. Faster-growing emerging markets have adopted the power form in spades as a way to satiate their growing energy needs. In Brazil, wind energy now costs less than natural gas, despite the nation being a huge producer of fossil fuels. Both India and China continue to add new capacity at record clips, with China adding over 8 GW in only six months. Kenya, moving past its reliance on hydroelectric power, has plans to significantly increase its use of wind by 2013.
Catching the Gust
With the long-term potential for wind energy great and stocks within the sector down big, now could be a great time to add wind to a portfolio. Both the First Trust Global Wind Energy (NYSE:FAN) and PowerShares Global Wind Energy (Nasdaq:PWND) offer investors a chance to bet on a wide swath of wind companies. Both ETFs are currently trading near their 52-week lows and can be used as a proxy.
Perhaps one of the easiest ways to play the growth in wind is through the turbine manufacturers. Both GE (NYSE:GE) and Vestas (OTCBB:VWDRY) are the two largest and most-efficient turbine producers, and Ming Yang Wind Power Group (NYSE:MY) offers an interesting play on China's "low-cost" leadership in alternative energy.
Parts for Complex Machines
In addition, many of the companies that provide parts for these complex machines are trading for bargain levels. Carbon fiber is used in turbine blades to reduce weight and allow the blades to spin faster. Fiber producer Zoltek (Nasdaq:ZOLT) won a $3.7 million grant from the U.S. Department of Energy (DOE) for advanced carbon fiber research, while Hexcel (NYSE:HXL) continues to expand its presence in emerging markets.
Finally, ball-bearing manufacturers such as Kaydon (NYSE:KDN) and Federal-Mogul (Nasdaq:FDML) are seeing their stars shine as more wind products are being built across the globe.
The Bottom Line
Renewable energy is facing a vacuum of confidence from most investors. However, the long-term promise is great. One shining example in the space is the wind energy sector. Capacity continues to grow and offers a value among the renewable energy sectors. The previous stocks, along with Woodward, (Nasdaq:WWD) make ideal choices. (For additional reading, see Going Green With Exchange-Traded Funds.)
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