If you’re an investor interested in the energy transition in the U.S., chances are you may have exposure to onshore wind companies.
After all, America has been a leader in installed onshore capacity for some time. But it’s only getting started with offshore wind — giant wind farms out in the ocean or in the Great Lakes.
If the U.S. goes the way of Europe and Asia with offshore wind, there is a substantial investment case for the nascent domestic industry.
Although the U.S. has just 42 megawatts of offshore wind energy currently operating from two pilot projects, an August report from the U.S. Department of Energy said there are more than 35,000 megawatts in various stages of development.
The U.S. offshore wind industry is also set to benefit from decades of development in other nations, as ever larger turbines have made offshore wind farms more efficient, an evolution that is good for companies and consumers.
“Turbines that will be available in the next few years promise a new level of efficiency and generation capacity and could help reduce the costs of offshore wind while helping it power more of our energy needs,” the Frontier Group think tank said in a March report.
Consider these points as you weigh adding exposure to U.S. offshore wind to your portfolio:
— Offshore wind has federal backing.
— Investing in turbine manufacturers.
— Investing in wind farm developers.
— Investing in other parts of the supply chain.
— Investing in exchange-traded funds.
Offshore Wind has Federal Backing
One of the reasons now may be a good time to invest in the domestic offshore wind industry is that the federal government and some coastal states are making this type of renewable energy a priority.
“Our outlook for the U.S. offshore wind industry is strong, driven by policy tailwinds from the Biden Administration, as well as an acceleration in new wind turbine project development,” says Andrew Little, research analyst with Global X, which manages exchange-traded funds.
The Biden administration has set a goal to have 30,000 megawatts of offshore energy installed by 2030. While there is debate within the industry about whether it will hit that goal, the attempt could prove lucrative for companies involved. Capital expenditures in the U.S. offshore wind supply chain alone could total $200 billion through 2035, according to a recent report from the research provider Lium.
The U.S. Department of the Interior is engaged in the permitting process for a host of potential offshore wind farms off the East Coast and California, and just this year approved the first commercial-scale farm. The Energy Department has made $3 billion in loans available to support the industry. Congress recently approved a 30% investment tax credit for offshore wind projects that start construction by Dec. 31, 2025.
The nation’s first commercial-scale offshore wind farm, in development off the coast of Massachusetts, recently landed $2.3 billion in investment from nine banks. Global investment manager Apollo Global Management Inc. ( APO) last year bought into offshore wind developer U.S. Wind, which is working on a federal lease area off the coast of Maryland.
But you don’t have to be JPMorgan or Bank of America to get in on the investing action in U.S .offshore wind, as there are plenty of publicly traded companies with exposure to the industry.
Investing in Siemens Gamesa and Other Turbine Manufacturers
With as much as 30% of the capital expenditures for a wind farm going to the giant turbines, providers of those turbines are among the most obvious beneficiaries of development.
“Turbine providers are often recognized by investors as the ‘face’ of the offshore wind supply chain,” the Lium report says. “This is because they are large and publicly traded with onshore wind and international offshore wind success under their belts, and turbine awards are visible.”
Of the 9 gigawatts — or 9,000 megawatts — of known turbine awards off the East Coast, 48% have gone to Siemens Gamesa Renewable Energy SA (ticker: GCTAY), 35% to General Electric Co. ( GE) and 17% to Vestas Wind Systems (VWDRY), Lium says.
They stand to “collect a large chunk” of the $40 billion to $50 billion spent for offshore wind turbines through 2035, according to the report.
Siemens Gamesa is a global offshore and onshore turbine maker that has installed more than 107,000 megawatts in more than 70 countries. In its most recent quarter, the company reported a 12% rise in revenue, although its net income slipped.
“Renewable energy projects, including wind, continue to evidence considerable resilience against the persisting backdrop of the pandemic,” the company said in its quarterly report. “The steady increase in decarbonization commitments and the role of renewable energy in economic recovery programs have had a very positive impact on demand prospects in the short, medium and long term.”
Investing in Orsted and Other Wind Farm Developers
Of course, those sales wouldn’t happen without the companies developing the offshore wind farms in the first place.
The world largest offshore wind developer is Danish power company Orsted (DNNGY). The company was involved in developing the two pilot offshore wind projects in the U.S., off Rhode Island and Virginia. It also has a robust pipeline of commercial-scale projects in various stages of development.
Keep in mind that some developers, such as Avangrid, as well as the turbine makers, also have exposure to the domestic onshore wind industry. Other stocks with U.S. onshore wind exposure include NextEra Energy Inc. ( NEE) and Berkshire Hathaway Inc. ( BRK.A, BRK.B).
Investing in Other Parts of the Supply Chain
For the U.S. offshore wind industry to succeed, the country will have to develop a supply chain to support it, including specialized ocean vessels to transport and install wind farm components and companies that can make foundations. Plus, these wind farms will require miles of high-voltage cable, as well as offshore substations to help handle the electricity.
“The U.S. offshore wind industry is robust,” says Mike Bammel, national head of JLL’s renewable energy valuation team. “The infrastructure involved includes port upgrades, specialized vessels and land and electric transmission improvements where power lines come to shore.”
As the U.S. offshore wind supply chain gets off the ground and the nation’s energy transition continues, industry watchers expect offshore wind will use expertise from the offshore oil and gas industry.
Joseph Triepke, partner with Lium, points to firms including oil and gas equipment company Nov Inc. ( NOV), offshore platform and marine vessel manufacturer Gulf Island Fabrication Inc. ( GIFI) and offshore vessel companies Seacor Marine ( SMHI) and Tidewater Inc. ( TDW).
Investing in Exchange-Traded Funds
Investors who want more immediate diversification than building a portfolio from individual stocks can turn to exchange-traded funds including the First Trust Global Wind Energy ETF ( FAN) and the Global X Wind Energy ETF ( WNDY).
Keep in mind that these funds invest in the global wind sector and contain companies with both onshore and offshore exposure.
Whether you invest in turbine manufacturers, farm developers or other companies involved in the U.S. offshore wind supply chain, it seems like the winds of fortune could be at this industry’s back for some time.
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