Things in the renewable energy sector are moving fast. Like really fast.
In 2008, wind farms contributed just 1.5% of all electricity in the U.S.
But as nuclear and coal plants close across the U.S., wind power is gaining traction and is set to become a dominant energy source across the country in the next few years. In fact, by 2019, wind power is expected to supply 6.9% of this country’s electricity, overtaking hydropower as the top renewable energy source.
Today, there are only five wind turbines operating in U.S. waters. But 8 states now have federally approved plans to build offshore wind farms, and those farms will generate approximately 600,000 jobs by 2050.
In 2016, Massachusetts became the first state to set offshore wind goals, with an aim to install at least 1,600 megawatts (MW) by 2027. New York then approved an even more ambitious plan to install 2,400 MW by 2030. And then New Jersey committed to a 3,500 MW goal by 2030.
Maryland, Virginia, Rhode Island, North Carolina, and Delaware are also moving forward with federally approved leases to develop offshore wind farms, and Hawaii plans to rely heavily on offshore wind as part of its aim to get all of its power from renewable sources by 2045.
The growth in the wind power industry is thanks to a mix of improved technology and economics. Today’s wind turbines are more efficient at producing power, making 1 gigawatt (GW) installed today more valuable than 1 GW installed 10 years ago. And the new analytics software that help make this possible can even boost the output of older generation turbines.
But from an economic perspective, tax credits on production provide predictable cash flow for years, even after the completion of the project. Wind farm owners have also been able to actually lower electricity costs over time since they don’t need to purchase fuel, unlike coal plants.
In Europe, the one region where the industry has really gained critical mass, the cost of generating electricity through offshore wind farms has decreased sharply, and the plunging prices there have made the offshore wind industry far more attractive in the U.S.
While many companies are catching on to wind power’s potential, these four companies are the ones to watch in the sector.
NextEra Energy (NYSE: NEE) is the undisputed king of low-carbon utilities.
The company is the largest owner of wind capacity in North America, and supplies approximately 16% of America’s total wind energy with 14 GW installed, with a significant pipeline of future growth opportunities.
NEE’s market cap at present is $75.55 billion, and the company’s sales have increased by 3.80% annually on average.
NextEra’s massive bet on wind energy has paid off in a big way for shareholders, with 10-year returns of around 235%.
The company has a healthy operating cash flow, and has plans to invest $40 billion across its wind and other assets by 2020. As NEE continues to invest in low-carbon energy sources, you can expect that the stock will continue to rise.
Vestas Wind Systems
If you’re looking for a pure wind play, that also happens to be a global company, the Danish Vestas Wind Systems (OTC: VWDRY) should be on your radar.
The company is 100% focused on wind energy and recently became the largest wind turbine manufacturer in the world, edging out China’s Xinjiang GoldWind Science and Technology Co.
While the company is based in Denmark, it manufacturers its turbines in facilities in Colorado. In October 2017, Vestas partnered with Tesla on a $160 million project in Australia that will integrate wind, solar, and battery storage technologies.
The company’s market cap is around $14.35 billion, and unlike many renewable energy companies, Vestas has demonstrated consistent profitability with 1.6 billion euros in operating cash flow, and 1.2 billion euros in free cash flow last year.
Pattern Energy (NASDAQ: PEGI) currently has 2,700 MW in its portfolio with 20 wind power facilities in the U.S., Canada, and Chile, and has grown aggressively through third-party acquisitions and its own project development.
In total, the company’s pipeline of renewable projects is around 10,000 MW, which could dramatically increase the company’s size in the next few years, and provide growth in cash flows for investors.
The San Francisco-based Pattern is dedicated to generating environmentally responsible power, and sells electricity and renewable energy credits to local utilities.
At today’s prices, the stock has declined roughly 20% in the last year, however, considering the growth potential, this pullback offers investors an attractive entry point.
Xcel Energy (NASDAQ: XEL) is the second largest owner of wind capacity in the U.S., just behind NextEra. The company owns roughly 6.7 GW of wind capacity and delivered 9% of the nation’s total wind-supplied electricity in 2017.
The company is working on an ambitious plan to gradually replace the country’s coal production with renewable energy, and the first phase of the project is already well underway. If all goes according to the company’s plan, it will go from generating 56% of its power from coal in 2005 to just 20% by 2027. And in the same time frame, renewables—of which most is wind—will skyrocket from 3% to 47%.
Xcel’s heavy investments in wind power have paid off for shareholders with the stock rising 229% in the last 10 years. The company’s EPS has grown from $1.95 in 2013 to $2.30 last year, and it has given guidance for EPS at $2.42 by the midpoint of 2018.
With the company’s plans to continue to grow its wind power generation for at least the next 10 years, this stock looks poised to continue generating value for shareholders for the foreseeable future.