Investing in wind energy might seem like an odd choice if you’re looking to invest in newer markets.
However, over the years, renewable energy sources have slowly delivered steady returns. In fact, solar energy has quickly become the most popular choice for investors.
Luckily, the positive performance of solar energy has turned wind energy into a fan favorite as well. Despite this fact, most investors, still shy away from investing in renewable energy. It’s not because the stocks aren’t attractive; this apprehension is because they look pretty complicated.
The Volatility of Wind Energy Stocks
Renewable energy stocks have historically been risky in nature, particularly for new investors. This risk comes off of the fact that the renewable energy area is still developing. The uncertainty causes stock volatility, which means that even political changes can drive the stock worth up or down at the drop of a hat.
Stocks that are this volatile usually tend to scare away the younger investors. However, if you choose to invest in the right renewable energy stock, you can walk away with a golden egg. That’s because today more efforts are being made to reduce the volatility of these stocks. The aim here is to encourage more investors towards this area.
Wind Energy and Public Opinion
Wind energy is harvested through the power of the wind. Large wind turbines are responsible for converting wind power into electricity. The energy produced is completely green and stored in batteries for use. There’s no waste associated with it and the only thing needed is the wind which is absolutely free.
This energy is then provided to all the nearby residential and commercial areas. On average, a single wind turbine can produce enough energy to power over 600 homes in the US. However, only 2.5% of all energy produced worldwide is generated through this method. Luckily, this number is growing with each passing year.
Recent data shows that wind energy production has also grown exponentially at a rate of 25% since 2010. Based on such favorable numbers and changes being made, special attention is being given to the area of wind energy. Advancements of new technology have also allowed overhead costs to be greatly reduced.
As more people look into getting clean energy, wind energy stands out from the crowd because it meets this aim. This means that public interest in this area is also on the rise. This has not only reflected well in energy production but also boosted stock performance.
This means that more investors are interested in investing in wind energy and renewable energy stocks.
Why You Should Invest in Wind Energy
Wind energy has a lot of advantages. This is one of the major reasons why public interest has grown in it. It has also allowed this branch of renewable energy to grow at such an exponential rate.
However, there are still some advantages and disadvantages of wind energy which can affect stock performance. To make sure that you’re not surprised by these, it is a good idea to familiarize yourself with them, especially if you’re thinking of investing in wind energy.
These will help you gauge the risk as well as the potential for growth in this area. So, let’s take a closer look at the advantages and disadvantages of investing in wind energy.
Advantages of Investing in Wind Energy
If you are planning on investing in the wind energy sector, these are the major advantages you need to consider:
1. Green and Renewable
There’s actually an infinite source of wind. It is also a resource which occurs naturally. Unlike fossil fuels, oils or natural gas which are finite sources, there is no limit to the wind.
Additionally, wind energy doesn’t pollute the environment with byproducts like fossil fuel does. In fact, the pollution it produces is minimal at best. Furthermore, its potential for use is virtually limitless.
2. Enormous Potential for Production
Production of energy through wind power has huge potential because of the limitless nature of the wind. As previously stated, one wind turbine can easily power 600 houses in the US. If harnessed properly, wind power has the potential to yield 400 terawatts (TW) of energy.
This also means that unlike other fuels, this is not a commodity which is diminishing with each passing day. Wind does not have a finite source or supply and it’s found everywhere around us.
3. Wind Turbines are Very Space Efficient
Unlike solar panels or hydropower systems, wind turbines don’t consume a lot of unnecessary space. Yes, they need to be in wide-open places, but the land can still be used for farming purposes.
This makes it a very cost-effective venture as it ensures that there is no wastage of land or other resources. With solar panels, this isn’t possible as yet. Luckily, more designs are being made to ensure that these panels are space-efficient.
4. Low Operational Costs
Just like solar panels, technological advancements have reduced the costs of wind turbines. In fact, some wind turbines are actually more affordable than solar panels. They don’t have to made from specialized equipment either.
In 2002, a young boy living in a village in Africa was able to build a wind turbine which not only changed his fate but also how the village got electricity and water. His wind turbine was created from scrap metal, plastic pipes, and rough materials. It only cost him hours of his time to make one.
Disadvantages of Investing in Wind Energy
While there are many advantages to investing in wind energy, there are also some disadvantages. The following are some of the major ones to consider:
1. The Unpredictability of Wind Power
The strength of the wind can be very unpredictable. If the wind farms are set up without paying attention to the location, wind strength and weather patterns, there is a high possibility that the turbine will not generate enough energy.
This is why area mapping has to be properly done. This can help to pick the right location for the wind farm. For this reason, wind energy cannot be the main source of energy in many areas. It can also be very costly to get the land appraisal done properly.
2. Noise Pollution of Wind Farms
While not all wind turbines are noisy, that can change quickly, especially if you’re establishing a wind farm. The slow buzzing sound they make can be virtually soundless but for people with hearing sensitivities, it can get pretty loud. That’s why wind turbines cannot be set up near urban or residential areas.
This is a major reason why off-shore wind turbines are best because they have fewer noise issues. Luckily, newer designs are also focusing on this issue. A large number are being developed to make them noiseless but they’re still a work in progress.
3. Aesthetic Pollution Caused by Wind Turbines
Not everyone likes to see wind turbines and wind farms in the vast plains or mountain areas. They can be an eyesore, especially if that place is renowned for its natural landscape. Many people complain about how these structures ruin the natural beauty of a place.
If enough people petition for it, this can mean that certain sites are off-limits for use as wind turbine farms. These bans can apply, even if these places are very favorable for wind farms as it seriously harms the tourism prospects of the place.
4. Long Term Investments Only
Despite the low cost of entry associated with wind turbines, the return on investment (ROI) is only best for a long term basis. Wind power also faces a lot of competition from other, well-established modes of energy generation such as solar power.
Additionally, wind turbines need an investment of around $40,000 – $70,000 and produce 10 kilowatts of energy to count as electricity producers. Even then, it will take around 10 to 20 years for one to begin to break even on this amount.
As you can see, the benefits outweigh the disadvantages here, but it is still necessary to keep an eye on them. This can ensure that you have realistic expectations and are able to invest in wind energy carefully.
The Growth of the Wind Energy Industry
Despite the disadvantages that one can face in this area, the wind energy industry has generated a lot of interest from the general public and investors as well. It also experienced growth on an exponential level. The American Wind Energy Association (AWEA) reported that the sector has grown by 9% since 2017. It has increased the capacity of power generation to 7,000 megawatts.
In 2017 alone, 6.3% of all energy produced in the U.S. was wind energy. This number might not seem very high but it’s enough energy to power over 27 million homes. The states of Oklahoma, Kansas, South Dakota, and Iowa were able to meet 30% of their overall energy needs from wind power alone.
Going Big on a Global Level!
The potential for the growth of wind energy on a global level is even greater. This is because more countries are showing interest in this area too. They are looking to expand their energy production and to also cut down on the overall pollution.
It should also be noted that data shows that energy consumption is increasing and will rise over the years. The introduction of electric vehicles has increased energy consumption. This has pushed the production of energy to increase by almost 18% – 25% to meet the rising demand. Due to this reason, the global production of electricity and energy has been revised.
It is the general hope that by 2050, 77% of energy production will be solar and wind-based in nature. On a global scale, wind energy is going to be at 18% by 2050 according to the International Energy Agency (IEA). Based on this factor, there is no question about the tangible growth of the wind energy industry on a global scale.
The Best Wind Energy Stocks to Invest In
Despite the growing popularity of wind energy, investors still need to be careful. Not all wind energy companies are functioning on a pure-play basis. They’re usually subsidiaries of other energy production companies. These can dabble in solar power, wind power, and even hydropower.
It’s a good idea to consider this factor when you are thinking of investing in wind energy. To save you some trouble and to help you out, we’re listing down some of the best performing wind energy stocks in the market.
1. Pattern Energy Group Inc. – PEGI
Holding 24 different wind power facilities, Pattern Energy Group Inc. stocks are worth checking out. It has wind farms situated all across the world, including the US, Canada, Mexico, and Japan. The firm provides renewable energy in an environmentally friendly manner. It also sells credits for renewable energy and electricity to local facilities around it.
Despite its under-performance in the past, the shares from Pattern Energy are on their way to improvement. This pullback offers possible investors with a great entry point for acquiring shares of a company dedicated to renewable energy.
2. General Electric Company – GE
Considered to be a behemoth company in the energy industry, General Electric Company offers blue-chip stocks. The global presence of the company has also helped boost its performance and it has a market cap of around $110.377 billion.
It also posted revenue of $122.09 billion in 2017 alone. The company has also slowly increased its presence in the wind energy industry. It has taken over businesses such as LM Wind Power which it acquired by paying around $1.7 billion. While the company has seen some rough times, it has managed to pull itself together over the years.
3. Vestas Wind System A/S – VWDRY
If you want to invest in a dedicated wind energy company, then Vestas Wind System is for you. It’s a company which focuses on 100% production of wind energy only. It also won the title of The Largest Manufacturer of Wind Turbines in the World, beating down giants like Xinjiang GoldWind Science and Technology Co., Ltd.
(Note: The stock analysis on their strength and activity is till June 2019. Before you invest in the stocks listed here, please consider all current market changes.)
Remember that investing in wind energy stocks comes with long term returns. So, if you’re looking to get instantaneous returns, this stock type might not be the best option for you.
Embrace Diversity in Your Portfolio
Most people don’t consider investing in wind energy stocks because they see no need for this. However, investing in them has less to do about need and more to do about having a diverse portfolio. Investing in such stocks is lucrative and helps you do this. With a bit of diversity, you will actually have a stronger stock portfolio.
A diverse portfolio allows you to pair some of your high-risk investments with low-risk ones. Renewable energy stocks can help to offset much of the risk that you might experience from other stocks. Similarly, if your energy stocks are facing some risk, you won’t end up losing everything. Your other stocks will balance it out.
Just remember not to go overboard with this. A diverse portfolio will allow you to spread out the risk you are facing. So, if you’re considering investing in wind energy; your portfolio needs to be strong enough to shoulder that risk.
Otherwise, things could go very wrong for you. At the end of the day though, always make educated decisions when it comes to investing in any stock regardless of which market it relates to. Even though wind energy is a new market and measures are trying to make it stable, always be careful. The stocks show healthy performance, but they can change due to various ever-evolving market trends.