Offshore Wind Investment Opportunities

Is Offshore Wind a Dead Market?

By
Monday, April 16th, 2012

Those on the right are blasting it as a treehugging boondoggle.

Those on the left are praising it as an opportunity to diversify the state's energy portfolio.

And those looking to profit yet again from the transition of our global energy economy are sniffing out the money trails.

The latter is where we'll focus our energy today.

Waiting on the Free State

Earlier this year, Maryland Governor Martin O'Malley reintroduced offshore wind legislation that would've ultimately led to the construction of more than 80 turbines off the coast of Ocean City.

A couple of weeks ago, it passed the House. But stiff opposition kept it from coming to a vote before the Senate Finance committee.

Those who opposed the bill were unhappy with the proposal that called for ratepayers to pony up an additional $1.50 a month to help pay for the wind farm. That fee would've been tacked on once the farm went online – which would've been around 2017.

However, most surveys have found that more than half of Maryland ratepayers actually support the plan – even with the $1.50 monthly fee. The most recent survey showed 62% of those polled back the legislation. And I suspect that despite some angry message board posts and a handful of fear-based political ads, support for offshore wind in Maryland will not go gently into that good night.

Although this will take time, I have little doubt that within the next few years, an offshore wind bill will finally get approved. And when that happens, I definitely look forward to finding out which turbine and transmission companies will land the big deals.

My money's on ABB (NYSE: ABB), Siemens (NYSE: SI) and Gamesa (PINK SHEETS: GCTAF), which last year launched the Offshore Wind Technology Center in Chesapeake, VA with Northrop Grumman (NYSE: NOC). Northrop's looking for a piece of the offshore wind business as it could offer a big boost for the company's ship building arm.

Of course, Maryland's eventual expansion into the offshore wind space will still only represent a very small portion of the overall offshore wind market.

But about 3,600 miles to the east, it's a completely different story.

European Windstorm

According to Pike Research, offshore wind growth is expected to soar over the next five years. In fact, the firm has suggested offshore wind power production will reach $104 billion in revenues by 2017. This is a 53% annual growth rate based on 2011 revenue numbers.

Much of this growth – about 75% – will come from Europe.

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In the UK, offshore wind energy development is strong. A recent government report actually shows that offshore wind could account for as much as 50% of the total electricity in the United Kingdom by 2050.

Denmark currently has about 4,000 megawatts of wind power capacity installed (which covers about 20% of the nation's electricity needs), and a few weeks ago approved an additional 1,000 megawatts of offshore wind that's expected to be online by 2020.

Germany actually has plans to have 10,000 megawatts of offshore wind sending juice to its grid by 2020, and 25,000 megawatts by 2030. This is massive, and to put that in perspective, Maryland's looking to add – at most – 500 megawatts.

Now if you're a regular reader of these pages, you know that Germany's in the process of transitioning to a nuclear-free energy mix, of which 80% would come from renewable sources by 2050. This is truly an aggressive goal that, if met, could singlehandedly alter the face of renewable energy investment in the future.

Certainly Germany accomplished this once already by turning the once-niche-based solar industry into a multi-billion-dollar powerhouse.

I wouldn't bet against Germany falling short on its goals.

France also recently dipped its toes into these waters.

Last week, government officials in France finally decided which companies would be selected to build 3,000 megawatts of offshore wind. State-owned EDF, in partnership with Alstom (PINK SHEETS: AOMFF) won most of the deals with Iberdrola (PINK SHEETS: IBDRY) of Spain picking up a fourth deal.

Interestingly, this news came about a month after the Court of Auditors in France published a report that revealed the cost of producing nuclear energy is set to surge as old plants need updating and new safety standards will be put in place. The court suggested that nuclear will require significant investment in the short- and medium-term at a rate of at least double the current level of investment.

Now I would actually argue that new nuclear technologies, like this one, could potentially alleviate this cost problem. And let's be honest, with 77.7% of its power coming from nuclear, France is not putting its nuclear power industry to bed.

So I believe that two things are going to happen here: One – France is going to pursue new nuclear technologies that will allow for massive operating cost reductions, and two – it will significantly extend its use of wind energy, which offers low maintenance costs and zero fuel costs.

We look forward to profiting from both agendas.

To a new way of life, and a new generation of wealth. . .

Jeff Siegel Signature

Jeff


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