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March 07, 2003
Investing in Wind Energy Is Not a Breeze
    by William Baue

With few pure players in the domestic wind energy sector, investors who want exposure to wind energy must commit their money overseas.


Wind power is the fastest growing energy source in the world. According to the American Wind Energy Association (AWEA) and its European counterpart (EWEA), global wind-generating capacity has been increasing an average of 32 percent annually since 1998. During this same five-year period, the U.S. wind energy market grew by 24.5 percent. This kind of growth bodes well for practitioners of socially responsible investing (SRI), as wind energy represents a clean and renewable energy resource. However, investing in wind energy is not as easy as one might think.

"In the United States, most of the smaller companies involved in wind are privately owned," said Christine Real de Azua, an international policy analyst at AWEA. "Among those that are publicly traded, whatever they do with wind is a small fraction of their activities. So [when you invest in one of those companies], you're not necessarily investing in wind."

For example, Florida Power and Light (ticker: FPL) is one of the largest wind power developers in the U.S., but they also produce energy using natural gas and nuclear power, activities that social investors generally avoid because of the negative environmental effects.

General Electric (GE) acquired Enron Wind last year to create GE Wind Energy, a subsidiary that is now the largest wind turbine producer in the United States.

"But there's no way to invest [only] in that subsidiary," Ms. Real de Azua told SocialFunds.com.

GE fails to pass many SRI military, nuclear, and environmental screens, and its excessive CEO compensation concerns corporate governance advocates.

"If you really want wind in your portfolio, you need to go overseas," said Ms. Real de Azua.

Portfolio 21 (PORTX), an SRI mutual fund managed by Portland, Oregon-based Progressive Investment Management, does just that.

"Our approach to the volatility and risk associated with such an immature industry is to identify one or two companies in the sector that we really want to bet on because we feel they are positioned well to be survivors as the industry matures," Progressive Investment Management Chair Carsten Henningsen told SocialFunds.com.

"In wind, it's going to be Vestas (VWSYF.PK) and NEG Micon (NEGMF.PK)," said Mr. Henningsen.

Vestas, the world's largest wind turbine manufacturer, and NEG Micon are both based in Denmark, as is Bonus (BONU.CO).

The German wind market is by far the largest in the world and includes Enercon (ENDC.PK) and Nordex (NRDXF.PK).

"Everyone keeps expecting the German market to level off, but it doesn't," said Ms. Real de Azua.

International investing can be tricky, however, as many foreign companies do not list on U.S. stock exchanges. On the other hand, investors can purchase the stock of foreign companies such as Vestas and NEG Micon "over-the-counter" (OTC) in the currency of the host nation.

Inconsistent wind-energy incentives in the U.S. have made it a challenge for foreign and domestic companies to operate in this country. However, Gamesa (GAM.MC) is expanding beyond its home market in Spain and entering the U.S. market.

"They're partnering with a U.S. firm to look into developing projects," said Ms. Real de Azua. "If there's enough of a stable political environment regarding the production tax credit for wind energy, they're likely to open a manufacturing facility in the U.S."

The U.S. government established the wind energy production tax credit (PTC) in 1992 to create financial incentives for wind energy projects. However, the PTC has been allowed to expire twice in the last half-decade and is set to expire again at the end of 2003. Wind energy projects are racing to get up and running before then in order to get the tax credit for the first ten years of a project's operation.

"You can be sure that 2004 is going to be slow for wind energy in the United States unless we get an extension fairly early on in the year," said Ms. Real de Azua.

 

 
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