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European Wind Energy

Striking Gold in Orange's Green Solution

Written by Brian Hicks
Posted October 10, 2007

Give credit—Renewable Energy Credits, to be precise—where credit is due. Dutch-based global financial institution ING , which gave us Orange Direct and capitalized on the tremendous potential of full online banking, has announced that plans to use wind power for 100% of its electricity at all of its U.S. locations. That's 11 large facilities and more than 100 regional offices powered by the wind.

Of course, you're not going to find a hundred-odd windmills popping up beside ING's office buildings. Besides being eminently impractical, at this point it's practically impossible—there aren't nearly enough windmills to go around. (More on that in a minute.)

Instead, ING (NYSE: ING) will purchase clean, emission-free renewable energy credits—wind credits, specifically—equal to 100% of its electricity usage. Community Energy, Inc., a wind energy marketer and developer headquartered near Philadelphia, will sell 70 million kilowatt-hours of energy credits to ING.

Renewable Energy Credits, or RECs, represent the environmental and economic value of electricity produced from wind, solar, and other renewable resources. Companies use them to reduce their carbon footprint—ING has pledged to be completely carbon-neutral worldwide by the end of the year—with something that can in turn be sold separately.

The U.S., with its vast-but-shrinking non-renewable resources (think peak oil) is a latecomer to the green party. Just one percent of its power comes from wind.

European countries and their global companies have been on the wind bandwagon for decades. And they're seeing the U.S., with its lackadaisical corporate and governmental commitment to renewable, as a wind power goldmine. They're buying up U.S. energy firms, gaining an important foothold in a country with seemingly unlimited renewable potential.

Take Community Energy, wind supplier to ING. Started in 1999 to build the first wind farms east of the Mississippi, Community hit a wall in 2005: economies of scale required projects that would be beyond the ability and the company's private holders to finance them.

So Community went east, to Spain, and struck a deal with Iberdrola, a Madrid-based utility (Madrid: IBE.MC) that's recognized as a world leader in renewable energy. Community Energy needed financing. Iberdrola needed a foothold in the U.S.

$40 million dollars later, Community Energy had the money it needed. And Iberdrola was on its way, through Community, to a meeting with ING—and a dominant position in the U.S. renewable energy market. (According to the Wall Street Journal, European companies now own 20% of U.S. wind energy.)

Iberdrola, as it turned out, brought something else to the table besides money: windmills or more specifically, wind turbines. Global demand and a U.S. market ready to boom have outstripped supply and made the complicated, million-dollar wind turbine a hard-to-get commodity.

For example, Community Energy contacted GE before they contacted Iberdrola, but found out that it would take years before GE could deliver what they needed. In the meantime, according to the Wall Street Journal, Iberdrola spent $4 billion to lock up most of the order book of the world's second largest turbine maker, Gamesa SA (FTSE: GAMQ.L), through 2009. And not coincidentally, Iberdrola holds a 24% equity stake in Gamesa. For Community Energy, that made Iberdrola a very attractive suitor.

The wind turbine shortage is turning into a major windfall for investors smart enough to have had an idea which way the wind was blowing. Just this year alone, Gamesa's stock price has climbed by more than 50%:

Charting Wind Energy Growth: London Stock Exchange FTSE

(Chart: GAMQ: FTSE London Stock Exchange)

And if you think that's impressive, consider the performance of the world's top wind turbine maker, Denmark's Vestas (OMX: WVS.CO). Stockholders have to be happy with shares that have more than tripled in price since the first of the year:

Copenhagen Stock Exchange

(Chart: WVS:OMX Copenhagen Stock Exchange)

Wind power is booming, and while it has a long way to go before it becomes a viable source of power here in the U.S., it's establishing itself nicely a sustainable financial resource. With initiatives like ING's creating demand that's rapidly outstripping supply, it will be some time before the global wind market hits the doldrums.

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