Time for a Wind Power Comeback?

Brian Hicks

Written By Brian Hicks

Posted December 31, 2013

Solar has been getting most of the attention within the renewable energy world, but a secret war has been brewing in the wind sector between GE (NYSE: GE) and Vestas (OTC: VWDRY).

Throughout 2013, both companies have been running neck and neck in stock value, competing for valuable business around the world. However, it appears Vestas is winning the battle.

wind turbinesAnalysts did not realize this at the time, but competition between Vestas and GE was a possible sign of wind power’s return as a viable investment. Experts are now telling investors to get in on Vestas’ stock due to management shakeups, stronger cash flow, and order increases.

Vestas generated 5,214 MW worth of business in 2013, Bloomberg reports, an increase from 3,738 MW from the previous year. And Vestas accumulated 1,700 MW of wind turbine orders in North America – the company’s best yearly sales since its inception in 1981.

Shares are projected to increase five times their current value in 2014.

This also comes on the heels of a recent deal between Warren Buffett’s MidAmerican Energy Holdings and Siemens (NYSE: SI). MidAmerican cemented a $1 billion deal in a wind project by the name of Cape Wind, and Buffett is investing heavily in wind and solar power.

The reason we saw a surge in these deals is because companies were racing to qualify for a lucrative tax credit that expired on December 30, 2013. Those companies that qualify will get 2.3 cents per kilowatt hour for the next ten years.

This subsidy is considered a treasure, since Congress has allowed a number of renewable subsidy programs to expire over the years, resulting in a turbulent cycle for the wind sector.

Investors were not willing to touch wind with a ten-foot pole, but they may want to recalibrate their thinking for certain companies.

Vestas’ Status

This is not a guarantee that the entire wind sector will make a strong comeback, but Vestas is the lead company to watch out for. Vestas has been adept at meeting its budget needs and cutting down its workforce. The company was able to cut fixed costs by $400 million by selling six factories, including one additional plant that was closed down.

And the cherry on top is a recent deal with Mitsubishi Heavy (OTC: MHVYF).

Vestas experienced a 40 percent decline in its stock value, but 2013 has been a good year, and the total value has surged 100 percent since its IPO debut in 1998. Amid new orders and partnerships, many analysts believe Vestas is one of the undervalued stocks out there.

Sydbank A/S (OTC: SYANY) analyst Jacob Pedersen shares this view. He believes 2014 will be a great year for the wind giant.

On the other hand, critics believe the excitement over Vestas’ stock value is overhyped and premature. Vestas has lost money for nine straight quarters, and investor firm Schouw & Co. (OTC: SUWCF) is less optimistic of Vestas’ longevity, having already sold 4 million shares of the company.

Schouw believes Vestas will struggle to move beyond 5 percent in the medium term. However, it did highlight sheer magnitude of the company’s international operations and entrance into emerging markets. But fixed costs at the local level will be a problem going forward, according to the firm.

All of these tidbits are good signs for Vestas, but there is also glimmer of hope among other companies.


Wind Investment

First Wind placed an order with Vestas for 150 MW of wind turbines, enough supply power to 50,000 homes.

Though not as big as Vestas, Nordex (OTC: NRDXF) has over 2,700 installations worldwide, along with 10 years of experience in the wind field. Nordex has projects in Germany, one country that is looking to increase its renewable energy presence while trying to reduce nuclear and coal power.

More governments are looking to cut back on coal emissions, and since countries like Germany are still a bit nervous from the Fukushima fallout, there is an effort to invest in renewable energy sources like wind.

China is one example of a nation scaling back on coal use to reduce emissions – replacing it with clean burning sources. China Wind Power (HKG: 0182) and another company plan to add 700 MW of solar and wind to China by 2015.

There is swelling international demand for wind power around the world, but whether subsidies will remain in place is another issue.

Wind Works Power Corp. (OTC: WWPW) placed an order with Nordex Inc. for 60 wind turbines, and this order will allow Wind Works to remain qualified for federal production credits in the United States. The wind turbines will go to the Thunder Spirit, which is a 150 MW project in the works that is located in North Dakota. Delivery of the wind turbines will be in the summer of 2015, with the entire project completed by the end of that year. Nordex also has connections to the Thunder Spirit project.

As more companies are reaping the benefits of lingering tax credits, the wind industry as a whole looks solid.

And since natural gas prices are inching back up, this will provide relief to the wind glut supply that has plagued the industry in the last few years. Iowa is already benefiting from cheap energy generated by wind turbines.

Wind has long been written off as a dead industry, but it may come back with a vengeance in 2014 and beyond.


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