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Energy From Thin Air
For a long time in human history, energy was limited to 2 sources: human and animal muscle and wood combustion. Then came the Industrial Revolution, which was caused by the massive use of fossil fuels. But this came at serious and growing environmental costs. Today, the turn toward renewable energies is in full swing, with solar and wind. But they still represent just a fraction of our total energy consumption. Solar is a topic we discussed further in our article “Top 10 Solar Power Stocks to Invest In.”
Wind is actually, together with hydropower, one of the first power sources used by humankind, with water and windmills. What was missing was a way to turn the mechanical power of rotating blades into usable electricity. Thanks to complex electromagnets, modern wind power can compete on costs even against the cheapest fossil fuels.
The Wind Power Market
The global wind power market size was worth $99.3B in 2021 and is projected to grow at 6.5% CAGR until 2030.
The sector is split between onshore and offshore production.
Onshore generally has a much cheaper levelized cost of energy but comes with less predictable production and more opposition from local residents.
Offshore in a contract is more expensive on paper but fulfills better the role of baseload power production, something other renewables can struggle to achieve without backup batteries, which are significant costs themselves.
While onshore represents the bulk of current wind power production (71.7% in 2021), most of the future growth will likely be from offshore, as most of the best onshore sites located in wind corridors are already used.
Contrary to solar, wind power is very much a type of renewable managed by large utilities and quite centralized, with little implication from smaller producers.
1. Ørsted A/S
The Danish energy producer has undergone a massive transformation, from 2006, with 83% of the energy produced from fossil fuels, to 2022, with only 8% still from fossil fuels, and on track to reach 99% renewable production by 2025.
It was the first company to create an offshore wind farm in 1991, and it is currently operating the world's largest wind farm as well.
Orsted has an installed renewable capacity of 15.4 GW, with 4.9 GW more under construction and a grand total of 30.6 GW installed and in projects.
Half of this power generation is from offshore wind farms, and the onshore generation is roughly equally split between solar and onshore wind farms. Most of the planned growth is in offshore wind generation.
Orsted has farms in Denmark, the UK, Germany, the US, Taiwan, and Vietnam.
As a pioneer and leader in wind power generation, Orsted is the most prominent wind stock for investors looking for exposure to the sector.
Vestas is a designer, manufacturer, and installer of wind turbines. With a cumulated total of 166 GW installed, it made and installed more wind turbines than any other company. It currently services 146 GW.
The company has a project pipeline of 32 GW. It controls 35% of the wind manufacturing market, excluding China, up from only 20% in 2010. It also has more revenues, orders, and higher EBIT (Earnings Before Interests and Taxes) margins than any of its competitors.
One of the serious problems with wind power was the impossibility of recycling the wind blade, which ended up in landfills, making it a not-so-green solution in that respect. Vestas has recently unveiled a new epoxy chemistry allowing for full recycling. This allows the wind industry to become a fully circular value chain.
It is also exploring the potential of wind to power the world’s first green ammonia plant, which can then be used to transport hydrogen or produce fertilizer without natural gas.
Due to its scale, technological edge, and higher margin, Vestas is a relatively safe investment in the wind power supply chain, with its turbines the best-in-class in the industry.
A leader in industrial equipment, Siemens's branch in energy is deeply involved in the wind supply chain, providing fully built wind turbines and associated services.
Siemens Energy is also present in other energy solutions, including gas turbines, grids, energy storage, and carbon capture. It also often licenses its technology to other foreign companies.
As a result, 1/6th of the world's energy is created using Siemens Energy technology in 90 countries. Among the more unique technologies, Siemens also offers non-battery-based energy storage with Compressed Air Energy Storage (CAES). This technological lead is sustained by $1B of annual R&D spending.
Siemens Energy is now finalizing the integration of Siemens Gamesa (formerly Gamesa Corporación Tecnológica), a process started in 2017. Notably, in 2018, Gamesa won the tender for equipping the largest wind farm in the world, managed by Orsted for 1.3 GW.
The company has continuously been growing its backlog orders since 2020, reflecting strong demand.
Siemens Energy is a leader in the energy sector, and not only in wind power. This is an interesting company for investors looking to capitalize on ever-growing energy demand, as well as the need to make energy generation increasingly greener and more efficient. The electrification trend will also greatly benefit Siemens, whose technology will be present at every step of the way, from wind turbines to smart grids to energy storage.
Northland has economic interests in 3 GW of power generation assets.
It also has a portfolio of as much as 20 GW of potential capacity in projects or in construction. This includes a 60% equity stake in the 1,044 MW Hai Long offshore wind project off the coast of Taiwan, the 1.6 GW German Nordsee cluster, and a 49% equity stake in the up to 1,200 MW Baltic Power project off the coast of Poland.
The pipeline mostly comprises offshore wind projects (60%), focusing on Europe and North America.
Northland is financing its aggressive expansion with fixed-rate debt, shielding it somewhat from rising interest rates, even if its latest capital raise required interest rates of 7.34%.
Northland is a stock for investors looking to bet on the need for quickly accelerating renewable generation, ideally in combination with rising carbon taxes. If combined with inflation, this could provide Northland's long-lasting wind assets a lot of pricing power while reducing the debt servicing cost significantly.
Goldwind is a Chinese leader in wind power, with a cumulated installed capacity of 97 GW (47,000 turbines) and servicing 56 GW. The company is the leader in China, controlling 23% of the Chinese wind power market in 2022, with China the world’s leader in onshore wind generation.
Historically a leader of onshore, the company is now very active in offshore and coastal installation as well, with a focus on increasingly large turbines.
The company is also getting active in water treatment, with 66 water treatment subsidiaries in 33 cities, bringing $125M in 2022 (out of $6.4B in total revenues).
China is a leader in wind power, but its main industrial champions have seen their stock price suffer from geopolitical tensions and fear of investors regarding Chinese stocks in general. While this risk cannot be underestimated, it also could represent an opportunity to access wind power leaders like Goldwind at a discount.
6. Boralex Inc.
Boralex is a wind power producer with a total installed capacity of 3GW. Wind represents more than 4/5th of its total capacity.
It focuses on small-scale, distributed projects, with most of the growth portfolio made of many 10-30 MW projects and the largest in the 100-120 MW range.
Boralex’s current activity mostly focuses on Canada and France and a little bit on the USA. By 2030, the USA should represent almost half of the company's activity and have added EU+UK to its portfolio.
Boralex capacity growth aims for a balanced mix between wind and solar, more than doubling the current wind capacity but adding even more solar. Growth targets are aggressive, with a goal to multiply by 4x the current capacity by 2030.
While not the largest wind operator, Boralex's focus on smaller-size projects allows it to distribute its risks and have its growth less likely to be threatened by any hiccup on just one major flagship development.
Because a large part of the growth will come from solar, Boralex is a stock that will be interesting for investors looking for exposure to wind power today but to solar power as well in the next few years, capitalizing on the demand for renewables in general.
7. Nordex SE
Nordex is a German wind turbine manufacturer with a focus on onshore turbines.
The company has installed a nominal output of 44 GW in 40 countries. It currently services a 31 GW capacity.
Thanks to its focus on onshore technology, Nordex provides its customers with one of the lowest possible costs of energy generated.
In 2016, Spanish manufacturer Acciona Windpower (AWP) was integrated into the Group, expanding Nordex's presence in the Americas and India. AWP also brought expertise in concrete towers and dealing with larger wind farm developers. Activities outside Europe contributed more than 38% to overall sales in 2022.
The company suffered from a cybersecurity incident in 2022. Still, toward the end of 2022, the installation volume was back to normal.
Combined with intense competitive pressure, it had to close some manufacturing sites in Spain and Germany. It is now working on reducing its debt load and rebounding from a difficult 2022.
While not an industry leader, Nordex has solid technology and industrial capacity. Its recent struggle has brought down the stock price. Whether this reflects an opportunity or fair value, the risks the stock carries must be carefully determined by the potentially interested investors.
8. Cadeler A/S
While the wind industry stocks tend to be focused on wind turbine manufacturers and wind farm operators, another small segment of the industry is often ignored. Offshore wind farms must be built, and the wind turbines must be carried on site.
Cadeler is a Danish company and key supplier of ships able to build the foundations for wind turbines and assemble them. And it is ordering new ships and cranes to increase its capacity.
The company has installed 601 wind turbine installations, powering 7 million European households. It increased its backlog order by 193 % between 2020 and 2022, supported by the ambitious growth plan of the wind farm operators.
The company is also looking to merge with Eneti (NETI), which owns a fleet of 5 specialized vessels for wind farm construction built from modified offshore service vessels for the oil & gas industry. Eneti has also commissioned 2 more ships, which should be delivered in 2024 and 2025.
With the merger with Eneti, Cadeler will be a leader in European wind farm construction services. The company estimates that in the 2026-2030 period, the industry might be short of no less than 19-25 vessels to satisfy the demand of wind farm operators for newly built installations. This could give service providers like Cadeler strong pricing power, especially considering newly built ships take several years to be assembled.
With Cadeler, investors are betting on the aggressive projection growth regarding offshore wind power generation, while the underlying infrastructure of specialized ships is lagging behind. In addition, the push to turn away from Russian gas and expensive LNG should accelerate the already strong wind sector growth in the EU+UK.
TPI Composites manufactures wind blades, with industry leaders like Vestas, GE, Nordex, and Enercon among its clients. It operates 9 manufacturing plants.
The company sales have grown 15% CAGR since its IPO in 2016. Since the IPO, it grew its control of the wind blade market ex-China, from 16% in 2016 to 38% in 2022.
It also offers services like repair, inspection, and recycling.
The company is expanding into the automotive market, using its expertise in composites to offer composite car and truck frames. Compared to traditional materials, composites are lighter, more corrosion-resistant, and require less capex. It is of special interest for EVs, as a lighter frame means a larger range and/or less battery required, which is always a key question when designing a new EV model.
TPI Composites has established itself to grow with the industry as the dominant actor in an essential part of the wind turbine. It can also use its now remarkable scale in composite manufacturing to enter new markets, of which automobile is the most promising.
10. Broadwind, Inc.
Broadwind is a manufacturer specializing in high-precision mass manufacturing. One of its key markets is the pillar and other components like gearboxes required by wind turbines.
Since a push for diversification beyond wind power in 2018, Broadwind is also active in other sectors that require large machinery, like mining, power generation, shipbuilding, power generation, and oil & gas. By far, wind is still its largest segment, representing half of the company's revenues.
In Q1 2023, the company grew its revenues by 17% year-to-year. The company also received a “transformational” new order for wind turbine towers worth $175M, more than twice the company's early 2023's valuation, to be fulfilled in 2023 and 2024. The company also estimates that the passing of the IRA (Inflation Reduction Act) should bring it up to $30M in gross profit beginning in 2023.
Broadwind is a stock that will benefit from relocating the industrial supply chain in the USA. It is also still a very small market capitalization, with plenty of space to grow, or maybe also a potential target for acquisition by a larger wind turbine manufacturer willing to integrate Broadwind’s expertise in precision manufacturing.