Australia Wind Power Investing

It's Official: Wind is Cheaper than Natural Gas!

By
Wednesday, February 13th, 2013


Wind is officially cheaper than natural gas. It's true.

Although, I should clarify: This is not the case in the United States, but rather in the land Down Under.

That's right. According to data recently compiled by Bloomberg, in Australia, wind is now cheaper than natural gas and coal.

Bloomberg's New Energy Finance has found that in Australia, electricity can be supplied from a new wind farm at a cost of about $82 per megawatt hour, compared with $147 per megawatt hour from a new coal-fired power plant or $119 from a new natural gas-fired power plant.

There is one caveat: This cost advantage exists because in Australia, the cost of carbon emissions is now tallied and added to the bottom line.

Wind Expands

Now, I'm not going to get into a whole big thing about climate change, carbon taxes, and cap and trade programs. If you're a regular reader of these pages, you know my thoughts on this issue.

What I will say, however, is that if there's an opportunity for us to make a few bucks, we're taking it — regardless of the underlying catalyst for that opportunity.

And in Australia, there are actually two catalysts for wind energy expansion. The first is the carbon tax.

Last year Australian lawmakers began charging polluters about $24 per metric ton of CO2. This has pressured the bottom line for coal-fired power plant operators. But it's helping to expedite the country's development of renewables. This is important because Australia is looking to get at least 20% of its power from renewables by 2020. That's actually the second catalyst for expanded wind energy development.

Now couple the carbon tax and the renewable energy goal with the fact that the cost of wind generation has fallen by 10% since 2011, due primarily to lower equipment expenses...

This presents a very appealing opportunity for wind turbine and development companies.

Vestas Wind Systems (PINKSHEETS: VWDRY) currently boasts about 50% of the Australian market. Xinjiang Goldwind (PINKSHEETS: XJNGF), the largest turbine maker in China, is also gearing up to invest heavily in new wind projects there, and it is likely GE (NYSE: GE) and Siemens (NYSE: SI) will have a noticeable footprint as well.

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Coal's Not Dead

Of course, as Australians embrace renewables and punish coal-fired power plants for fouling up the air and water, coal producers have little to worry about...

You see, while there's little love for coal power in the Land of Oz, China's more than happy to gobble it up. And that's why, instead of the industry contracting, Australia is actually expanding coal exports to 408 million tonnes. And nearly all of it is heading to the Middle Kingdom.

This is actually similar to what's going on here in the United States. As dirt-cheap natural gas continues to squeeze King Coal out of the equation, the country's biggest rail companies are busy running record loads of coal to export terminals on the West Coast, where ships destined for China are bursting at the seams with American coal.

The truth is the biggest winners in the energy game right now aren't necessarily the producers — but rather the rail and logistics companies servicing the various energy production sectors.

They're moving our coal to the West; they're taking our shale oil down to the refineries; and they're responsible for supplying all the necessary equipment to U.S. shale producers that, quite frankly, wouldn't be able to produce a drop of oil without these rail lines.

It really is an interesting connection between a tried and true rail distribution network and the rapid growth of new domestic oil and gas production.

And it's one that can make you a boatload of cash if you know how to play it...

And at the end of the day, that's what it all boils down to.

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Jeff Siegel

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Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.


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