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  • Writer's pictureRealFacts Editorial Team

Navigating the Turbulent Weather of the Wind Industry


Windmills

The ride of wind energy stocks through 2023 has left investors overall a poor performance. grappling with the aftermath of supply chain disruptions, inflationary pressures, and the sector's rising interest rates. As the dust settles, there is room to believe there are potential bargains on price to invest now and see long term success later down the road. This turbulence has led investors to unearth opportunities for growth and stories of resilience.


In the realm of renewable energy, wind has had perhaps the harshest blows. The challenges it faces, from supply chain disruptions to escalating costs and geopolitical tensions, have cast a shadow of doubt and poor performance over its once-promising prospects. As you can see below from the many ETFs that invest in the space, and solar, they have seen a downward performance especially these last two years while SPY has returned positive.


Wind energy takes a large amount of upfront investment. It needs a large amount of open land to capture wind gusts and each turbine costs around 2 million dollars. It is needed to

have at least 10 turbines on a farm to not be considered small to have an impact and generate a reasonable amount of energy. Therefore the wind space is very capital-intensive, against more scalable renewable options like solar energy. However, the attraction to wind energy lies in its relationship with local governments, with several global governments backing the sector it offers a more stable environment and less volatile for investors, in turbulent times.


Despite the gloom of recent under performance, there are glimmers of hope from the realm of policy and regulation. In the COP28 meeting, which you can read more about here, COP 28 UAE – UN Climate Change Conference 2023 (globalmediainsight.com), global governments and policymakers remain steadfast in their commitment to renewable energy goals by 2030, after the meeting in December of 2023, we have seen record installations. In the meeting they have pledged to triple new wind gigawatt production by 2030. Globally we hit a record 116.6GW of new production edging closer and closer to the 320GW target in 2030 by COP28. This would mean increasing the production by 9.4-10% CAGR every year till then, with a focus on implementing offshore wind farms as well as on land.




From that pie chart above you may have noticed the 65% share of new production that China has produced last year. China surprisingly has had a large dominance in wind energy production from the beginning. The government first realized they needed change after looking into the over reliance on coal production, in the mid 2000’s. Coal accounts for 60% of their total total energy usage now and they are being aggressive at setting goals and relatively meeting those goals to make the switch to more sustainable options. For example in 2020 China has committed to reach 1,200 GW of renewable energy by 2030 which is currently more than double their current production and at the rate they are going they could actually meet that goal by 2025.



China's ascendance as a renewable powerhouse, despite its historical reliance on coal, is a paradigm shift in global energy dynamics. Investment decisions made in the mid-2000s, to switch to renewable sources of energy coupled with strategic planning and ambitious targets, have propelled China to the forefront of renewable energy innovation. President Xi Jinping's pledge to peak emissions and achieve carbon neutrality by 2060 heralds a new era of sustainability.


China has recently been in the news with their price wars between Tesla, Rivian, Lucid, and other EV manufacturers in the US, rivaled with Chinese EVs like BYD. Now China has been having the same price wars with production and manufacturing of wind turbines against the US wind industry. The price wars and geopolitical tensions, have for one led Chinese wind stocks and ETFs with exposure to perform relatively well these past 2 or 3 years. However there have been efforts to curb China's influence through protectionist measures and tariffs. These pressures may offer a rebound for local US manufacturers but risk disrupting global supply chains, overall costs, and inflationary pressures.


After the revised projections of the Global Wind Energy Council from COP28, targeting 320 GW of wind energy by 2030, is a collective commitment to combating climate change. Despite the looming specter of geopolitical uncertainties and the potential for policy reversals,

the imperative of achieving net-zero emissions remains, and several governments are strongly backing this which offers more stability in this renewable sector.



Amidst the turbulence of the wind energy market, the saga of GE Vernova which had the recent split early this month from the once power house of General Electric (GE) splitting into 3 companies. GE Vernova (GE’s Energy arm) emerges as a beacon of resilience and innovation. The company's strategic pivot towards diversified revenue streams, offers potential as a hidden gem amidst the volatility. The company had earned 33 billion in revenue which is 50% of GE’s total revenue in 2023. It was very close to reporting positive earnings in 2023 however it reported negative -438 million last year. With the strong cash flows it is very likely to have a turnaround. And it did, on Thursday April 25th they reported earnings for the first quarter of 2024, increasing their cash flows by ~200 million, increasing revenue by 6% for a total of 7.3 billion for the first quarter, and a better but still negative net earnings of about -100 million. Overall the company stock price saw a rise of about 6.66% on the day of earnings on the 23rd, and about 9.26% since then, this week.



Advances in battery storage technology and the potential extension of turbine lifespans offer glimmers of hope, heralding a future of enhanced efficiency and sustainability. Beyond manufacturers and operators, stand to benefit from the wind energy boom. From installation vessels to electrical infrastructure providers, the ecosystem of wind energy presents a myriad of investment opportunities for investors. Companies focused in the wind sector such as Quanta Services, Itron, and ABB offer diversified exposure to the sector, poised to ride the wave of renewable energy growth.


The winds of change sweeping through the renewable energy landscape herald both challenges and opportunities for investors. While the storm clouds of geopolitical tensions and market volatility may loom large, beneath the surface lies a realm of untapped potential and transformative change. Navigating these turbulent winds requires a blend of

foresight, resilience, and strategic acumen, as investors seek to harness the power of wind energy to propel towards a sustainable future.


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