We explored the solar sector, and this week, we’re following up with wind power. Find out more!
Last year was a challenging year for wind power equities with plenty of headwinds, but expectations and valuations have since lowered. This could present some opportunities amidst the turbulence. Let’s dive into the details!
Are Favorable Winds on the Horizon?
Similar to the solar sector and wind energy sector has faced numerous challenges over the past 2 years.
Fact, in several aspects, the situation for wind power has been even more difficult.
Logistical challenges and rising costs have driven up costs, which have impacted profitability.
Simultaneously, Increasing interest rates have made financing more expensive.
The significant owners of large wind farms are utilities, which, similar to most utilities, offer appealing dividend yields. However, these yields look less attractive once bond yields surpass 4%.
As a result, numerous wind energy projects were called off in 2023, especially across the United States, in which substantial offshore wind energy projects were planned along the eastern seaboard.
Additionally, the upcoming US election might complicate matters further.
Wind and Solar
Over the past 15 years, both solar, wind energy costs have dropped, and they are now quite comparable. However, there are critical differences regarding the capital needed for each.
Solar systems can range from small setups with just a few panels powering a single home to massive installations like India’s Bhadla Solar Facility, spanning 14000 acres. Commercial solar setups are also feasible, allowing businesses to produce their own power.
On the other hand, wind energy projects typically need to be on a much larger scale. Each turbine costs a minimum of $2 million, and a wind farm with 10 turbines is relatively small.
This indicates that wind farms need significantly more capital investment. However, wind energy projects often receive support from local governments, which is capable of providing some security for investors.
Next-Generation Wind Power
Stock prices may imply turmoil in the sector, yet the truth is that 2023 saw a record-high 117GW of newly installed wind power, marking a 50% rise from the previous year. Governments worldwide remain dedicated to COP28 goals, necessitating a threefold increase in annual capacity expansion by 2030.
Unless net-zero emission goals are entirely discarded worldwide, a significant number of additional wind generators will still be needed. Although November’s US election may introduce uncertainties, the nation’s targets make up only a small fraction of the broader global ambitions.
Advancements in energy storage batteries, hydrogen applications, or extended turbine longevity could further drive demand for wind energy. At present, turbines typically operate for about two decades, but increasing their lifespan to twenty-five or even 30 years would substantially improve the economic feasibility of projects.
GE Vernova: An Emerging Force in Renewable Energy
General Electric has recently underwent a restructuring, separating its energy division into GE Vernova. While not a brand-new entity, this division was previously part of the broader GE conglomerate.
Before the separation, GE’s energy segment accounted for about half of the company’s total revenue while adding only 15% to its market valuation and failed to generate net income.
The newly independent GE Vernova is structured into three core divisions:
- Power – Supplies technology, services for natural gas, hydroelectric power plants, nuclear.
- Wind – Manufactures turbine components and delivers services for both land-based, offshore wind projects.
- Electrification – Develops digital solutions and hardware for overseeing grids, power transmission, and energy storage.
According to company reports, these segments collectively generated 33 billion dollars in earnings for 2023.
Why GE Vernova Deserves Attention
GE Vernova stands out for several reasons.
First, it spans the full spectrum of power generation landscape, rather than focusing solely on wind energy.
Second, it boasts a substantial order backlog of $116 billion spanning all three business units. A significant portion of this comes from service contracts, which are less capital-intensive than manufacturing. Despite its scale, GE Vernova remains under the radar for many investors.
That said, profitability remains a key concern.
In 2023, the company was near break-even in terms of operating cash flow, though it posted negative earnings. Its Q1 earnings results, set for release on Thursday, 25th, will provide further insight. The shareholder briefing presentation is also available for review.
Key Takeaway: The Energy Transmission Network is Bigger Than You Think
When discussing wind power equities, investors often focus on firms that own wind power plants or manufacture turbines. However, the broader infrastructure supporting renewable energy is just as crucial.
Previously, we highlighted the significance of firms involved in integrating photovoltaic and wind power systems into electrical grids, along with those managing and expanding grid networks. GE Vernova stands as one example, but other key players include Itron, Quanta Services, ABB (Switzerland), NV5 Global, Eaton. These firms benefit from wind energy growth but are not solely reliant on it.
About further investment ideas, explore the Wind Power Stocks portfolio. Additionally, thematic ETFs offer an alternative to gain exposure:
- Global X Renewable Energy ETF
- First Trust Renewable Energy ETF
If you’re looking for a diversified approach…
