This article first appeared on Trend Investing on August 13, 2020; therefore all data is as of this date.
Wind energy, especially offshore, is rapidly growing in popularity due to lower costs and governments desire to move quickly to boost renewable energy capacity. Bloomberg
A look at the offshore wind massive growth forecasts for this decade
The UK is currently the largest market for offshore wind with 9.7GW, followed by Germany with 7.5GW, and China with 6.8GW. By 2030 China is expected to have 20% of the world’s offshore wind turbines (52GW), while the UK is forecast to reach 40.3GW, and the US to 23GW (up from 30MW now).
Putting the above into a chart below we confirm that China is forecast to have by far the greatest increase in offshore wind capacity this decade (45.2GW increase). Next is UK, then USA, then Germany. This is a consideration when choosing what wind companies to buy.
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A comparison of offshore wind capacity from now to 2030 [GW]
Actual end 2019 [GW]
|Forecast 2030 [GW]||Capacity Increase [GW]|
|Global||29||234||An 8 fold increase|
Source: Own chart, with data from here, except Germany 2030 target which is linked.
Global offshore wind capacity is forecast to grow 8 fold this decade
Source (The image is of Germany’s Amrumbank West offshore wind farm in the North Sea)
More forecasts for wind energy
- The Global Wind Energy Council (GWEC) is stated (Aug. 2020): “The world’s offshore wind farm capacity could grow eightfold by the end of the decade (led by China) from just over 29GW at the end of 2019 to reach 234GW by 2030.”
IRENA states to reach the Paris Climate Agreement the following is required:
- Onshore wind power needs to grow 3 fold by 2030 (to 1,787 GW) and 9 fold by 2050 (to 5,044 GW), from 2018 levels.
- Offshore wind power needs to grow 10 fold by 2030 (to 228 GW) and substantially towards 2050 (nearing 1,000 GW).
GreenTechMedia states: “Amid a growing global wind market — expected by WoodMac to average around 77 gigawatts of new annual installations during the 2020s — the number of major turbine makers is on the decline.”
Funding for renewables is on the rise
- Christine Lagarde, President of the European Central Bank, has opened the door to using its €2.8tn asset purchase scheme to pursue green bonds. The US has some similar green bonds (Citi issued US$1.5b of green bonds in 2020).
- US nominee Joe Biden recently announced a massive $2 trillion green infrastructure and jobs plan over his first term in office. He wants to ensure the U.S. has a carbon pollution-free power sector by 2035 and will support ‘clean electricity’. This generally means renewable energy (hydro, solar, wind etc).
- Many global fund managers are now mandated to ESG purchases, with the E standing for ‘environment’.
The International Renewable Energy Agency (IRENA) stated in their October 2019 ‘Future of Wind” report:
Wind power, along with solar energy, would lead the way for the transformation of the global electricity sector. Onshore and offshore wind would generate more than one-third (35%) of total electricity needs, becoming the prominent generation source by 2050.
Note: Wind & solar make up 9.8% of global energy source today.
Clearly the world is going to see a wind energy boom that may last from 1-3 decades and should provide a very strong tailwind for the leading wind turbine manufacturers. A side winner would be the powerful wind turbine magnet manufacturers and rare earths (NdPr) miners.
Global onshore wind market share 2018 and 2019
Global wind turbine manufacturers market share 2019
Source: GreenTech Media courtesy of WoodMackenzie
A look at the top wind stocks to consider and a wind ETF
Vestas Wind Systems [DC: VWS] [GR:VWS] (OTCPK:VWDRY) – Price = DKK 917.8, USD 48.46
Vestas Wind Systems A/S (“Vestas”) is a Danish manufacturer, seller, installer, and servicer of wind turbines that was founded in 1945. The Company operates manufacturing plants in Denmark, Germany, Taiwan, India, Italy, Romania, the United Kingdom, Spain, Sweden, Norway, Australia, China, Brazil and the United States, and employs more than 25,000 people globally. (Source: Wikipedia)
Vestas has installed 117+ GW of wind turbines in 81 countries, more than anyone else and in 2019 was the global leading wind turbine manufacturer by market share. Vestas operates through the Power Solutions and Service segments. The Power Solutions segment comprises the sale of wind power plants and wind turbines. The Service segment includes the sale of service contracts, spare parts, and related activities.
Vestas Wind Systems trades on a market cap of USD 28.6b, and no net debt. The 2020 PE is 40.3 and 2021 PE is 26.1; with a 2020 dividend yield of 0.83%. 2020 net profit margin is 4.23% and 2021 is 6.56%.
4-traders shows an analyst’s consensus is ‘outperform’ with a price target of Euro 109.2 representing 11% downside. Yahoo Finance has a price target of DKK 497, which represents 46% downside.
My view is that Vestas is a good long term buy and a top tier wind energy stock; however given the current recent price surge I would not buy until after a significant dip if possible.
You can view the Company’s latest presentations here and a recent Seeking Alpha article here.
Vestas Wind Systems financials and forecast financials
Xinjiang Goldwind Science & Technology Co. Ltd (“Goldwind”) [SHE:002202] [HK:02208](OTC:XJNGF) (OTC:XNJJY) – Price = CNY 11.85
Goldwind a China-based company, principally engaged in the manufacture and distribution of wind turbine generator sets and spare parts. The Company is also engaged in the provision of wind power services, as well as the investment and development of wind farms. The Company distributes its products within domestic and overseas markets.
Goldwind’s products include 2.5 and 3.0 megawatt, as well as 2 and 6 XMW permanent magnet direct-drive wind turbine generators. The Company is also involved in the manufacture and sale of wind power equipment and accessories; operation of water treatment solutions; provision of technical and finance lease services; development and operation of solar power generation projects; and photovoltaics, including smart energy storage centers and standard PV inverters.
The Company now operates on 6 continents, has more than 8,000 employees, and more than 60 GW of installed wind capacity. The Company booked 848 MW external turbine sales in the first quarter of 2020, down slightly from 929 MW in Q1 2019; which is not bad given the COVID-19 disruptions. In 2019 external wind turbine sales increased 39.4% YoY. Order backlog remains strong at 20.76 GW.
Goldwind trades on a market cap of CNY 46b (USD 6.77b), with CNY 12.5b of net debt. The 2020 PE is 12.9 and 2021 PE is 11.5; with a 2020 dividend yield of 2.15%. 2020 net profit margin is 7.54% and 2021 is 8.38%.
4-traders shows an analyst’s consensus is ‘outperform’ with a price target of CNY 12.79 representing 9% upside.
My view is that Goldwind is currently quite well valued and a strong long term buy, albeit with China risk. The stock should benefit the next decade as China leads the world with a massive boost in wind energy installations.
You can read more about Goldwind here, and their Q1, 2020 results presentation here.
Goldwind’s financials and forecast financials
Siemans Gamesa Renewable Energy [SM:SGRE] – Price = Euro 22.39
Siemens Gamesa Renewable Energy S.A. (“SGRE”), formerly Gamesa Corporación Tecnológica S.A. and Grupo Auxiliar Metalúrgico S.A., is a Spanish-German wind engineering company based in Zamudio, Biscay, Spain. It manufactures wind turbines and provides onshore and offshore wind services.
Germany’s Siemens (OTCPK:SIEGY) owns the largest share of Siemens Gamesa and plans to merge the wind turbine maker with its broader power and grids business and spin it off as a separate company later this year to be called Siemens Energy.
SGRE trades on a market cap of Euro 14.9b, with 4-traders showing no debt. The 2020 PE is -21.2 and 2021 PE is 66; with a 2020 dividend yield of 0.05%. 2020 net profit margin is -7.07% and 2021 is 1.95%.
4-traders shows an analyst’s consensus is a ‘hold’ with a price target of Euro 16.67 representing 24% downside.
I would give SGRE a miss for now as profit margins are negative and forecast to remain very low in 2021.
SGRE’s financials and forecast financials
General Electric Co (GE) – Price = USD 6.72
GE Wind Energy is a branch of GE Renewable Energy, a subsidiary of General Electric. The company manufactures and sells wind turbines to the international market. In 2018, GE was the fourth largest wind turbine manufacturer in the world.
Given GE Wind Energy is a subsidiary of the massive General Electric company buying GE is not a pure play wind company. In FY 2019 renewable energy was only 15.34% of GE’s revenue.
For that reason I prefer others that are a purer play on wind energy. For investors positive on GE’s other segments then it can make sense to buy GE.
Envision Energy (private)
Envision Energy is headquartered in Shanghai provides wind turbines, energy management software, and energy technology services.
Envision has pioneered development and innovation of “smart wind turbines”. Envision’ s world first smart wind turbine for low wind speed sites has accelerated the strategic realignment of China’s wind power industry by effectively tapping low wind speed areas, which accounts for more than 60% of China’s wind resource……Through a “software-defined turbine” approach, Envision Energy has surpassed the technological limits of traditional wind turbines, and increased the efficiency of wind power generation by 15%…… Envision has the largest market share in low wind speed turbines in China.
Envision has developed a smart wind turbine for low wind speed sites
- Ming Yang Wind Power Group (private)
- Nordex SE [GR:NDX1] (OTC:NRXXY)[Germany]
- Zhejiang Windey Co Ltd [SHE:300772][China]
- Enercon [Germany]
- Sewind [China]
- Acciona SA [SM:ANA] (OTCPK:ACXIF)
- Northland Power Inc. [TSX:NPI] (OTCPK:NPIFF)
- Orsted A/S [DC:ORSTED] (OTCPK:DNNGY)
- Boralex Inc. [TSX:BLX] (OTCPK:BRLXF)
- Iberdrola SA [BME:IBE](OTCPK:IBDRY)
- Innergex Renewable Energy Inc. [TSX:INE] (OTCPK:INGXF)
- China Longyuan Power Group Corporation Limited (Class H)
- WindGen Energy Inc. (OTCPK:WGEI) [USA]
Many utilities have invested in wind power energy farms such as German utilities RWE Renewables a division of RWE AG [GR:RWE] (OTCPK:RWEOY).
Note: I may look and some of the “others” listed above in a future article.
Top holdings of the FAN wind ETF
- Wind energy may not grow as fast as forecast. Solar wind can be cheaper, but depends upon the location. There should be a huge place for both wind and solar.
- New wind energy technology or other forms of energy production may takeover.
- Governments can influence the sector positively and negatively.
- Sovereign risk.
- The usual business risks – Competition, debt, funding, management, currency, and litigation risks.
- Stock market risks – Dilution, lack of liquidity (best to buy on local exchange), market sentiment.
The global offshore wind power industry is forecast to be worth US$1 trillion by 2040
Source: The Future of Energy | Episode 2: Offshore Wind Power (video)
The wind energy sector looks set to have a massive boom in the decade ahead. The Global Wind Energy Council (GWEC) forecasts that the world’s offshore wind farm capacity could grow eightfold by the end of the decade (led by China). The International Renewable Energy Agency (IRENA) sees onshore wind power needing to grow 3 fold and offshore by 10 fold by 2030 to meet the Paris agreement. Whilst Europe has been the wind energy leader future growth is forecast to be led by China, UK, USA. In the US if Biden is elected he has pledged a$2 trilliongreen infrastructure and jobs plan over his first term in office with a goal to make the US a carbon pollution-free power sector by 2035 thereby massively supporting renewable energy (solar, wind, hydro etc). Finally green bonds and fund managers globally are now focused on ESG (E for environment) investments.
The leading wind turbine manufacturers stand to be big winners in a wind energy boom. The top 5 by 2019 sales market share are Vestas Wind Systems A/S, Xinjiang Goldwind Science & Technology Co. Ltd, Siemans Gamesa Renewable Energy, General Electric, and Envision Energy.
My top pick is Goldwind due to being a pure play, with good valuation, and a massive forecast growth for China wind energy installations. I like the industry leader Vestas but will wait for significantly better valuation if possible. I think the FAN ETF is reasonable value and a good way to play the sector. Finally the successful rare earth (NdPr) metal miners such as Lynas Corporation [ASX:LYC] (OTCPK:LYSCF) and MP Materials Corp. (MP)/ Fortress Value Acquisition Corp. (FVAC) stand to do well as wind turbines are very large users of NdPr.
As usual all comments are welcome.
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Disclosure: I am/we are long FAN, Xinjiang Goldwind Science & Technology Co., Ltd. [SHE:002202], Lynas Corporation [ASX:LYC], MP Materials Corp. (MP)/Fortress Value Acquisition Corp. (FVAC). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.