While the United States continues to let its vast onshore and offshore wind resources go to waste, the rest of the world has begun to seriously explore the energy source. Nowhere is this more prevalent than in faster growing, emerging markets. As these nations struggle to find solutions to their future energy needs, renewable energy has taken a front seat in their search. China's prowess in wind and solar is well known, but the emerging world of Latin America has recently become a hot-bed of wind energy. For investors, this could be a great long term opportunity. (For more, see Going Green With Exchange-Traded Funds.)
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
Vast Untapped Resources
Latin America's population boom and growing middle class demands are creating an enormous need for energy. While traditional fossil fuel demand has been steadily rising, the region has recently undergone a renewable renaissance. Since 2003, Latin America has installed more wind generation capacity than any other of the world's major nations, save for China. The region currently has around 2,500 MW of installed wind energy, but more capacity is on the horizon.
According IHS Emerging Energy Research (EER), Latin America will reach 46 GW of total installed wind capacity by 2025; that's a 12.6% compound annual growth rate of yearly installations. While leaders in Brazil and Mexico will lead the charge, nations like Chile, Costa Rica and Uruguay have recently set aggressive renewable/wind energy goals. Chile alone plans on installing more than 280 MW worth of wind power by 2024. In addition, both Argentina and Patagonia have offshore potential that rivals Europe in terms of wind strength.
The real potential for wind energy in the region stems from the various governments' progressive policies. Many nations have set up feed-in tariffs and fiscal incentives, such as financing and loan options, as well as adopting aggressive renewable standards. The creation of both the MERCOSUR and Sistema de Interconexion Electricas de los Paises de America Central (SIEPAC) transmission partnerships, has also facilitated growth for the energy source. This openness and streamed-lined process in Latin America has promoted a variety of firms to build turbine and transmission factories within the continent. Most recently, the third largest power equipment manufacturer Alstom (OTCBB:ALSMY) opened a new turbine plant in Brazil, with the goals of exporting turbines across the rest of Latin America.
Playing LatAm's Wind Ambitions
Unlike the U.S., Latin America's openness towards wind energy could be the sector's savior. The long term potential is certainly there and incentives in the region will continue to spur development. For portfolios, this could be the catalyst for investment. Both the PowerShares Global Wind Energy (Nasdaq:PWND) and First Trust Global Wind Energy (ARCA:FAN) continue to be the only pure play ETFs for the sector. The First Trust fund has managed to outperform the PowerShares fund slightly over the last year, as it devotes less of its holdings to Chinese firms. However, both ETFs are down significantly since the start of the year.
For those wanting to go the individual route, the Spanish multinational renewable powerhouses of Iberdrola (OTCBB:IBDRY), Gamesa (OTCBB:GCTAF) and Acciona (OTCBB:ACXIF), could be the best inroad. Already big players in the region, historical and cultural ties will make them the preferred owner/operators for many Latin American governments.
Perhaps the biggest wind play on the continent will be building the vast transmission network needed to utilize all of that wind potential. Brazil alone will require around $2 billion a year in spending to transform its grid. Brazilian utility, CPFL Energia (NYSE:CPL) has already begun the process of transformation, while power management firms like ABB (NYSE:ABB) and Eaton's (NYSE:ETN) products will remain in demand. Both firms have expanded sales into the region.
The Bottom Line
As the United States continues to drag its heels with regards to wind energy, the emerging world is cooking right along. Latin America is poised to be one of the biggest generators of the energy source. For investors, this expansion could be exactly what they need to power their portfolios. (For related reading, see Clean Or Green Technology Investing.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.