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Investing in Wind Energy

Written By Brian Hicks

Posted June 24, 2008

As oil prices stay high, the wind power and alternative energy themes are becoming increasingly popular, making the latest ETF issue even more enticing at $30.

Last week the much-anticipated First Trust ISE Global Wind Energy ETF (FAN) launched. And not only will investors will have an opportunity to profit from companies in the wind energy business, they can profit from companies that will soon enter the space.

Sixteen percent of the fund is allocated to the U.S. with some weighting in Denmark, Germany, the U.K. and Spain, including:

· REpowersystems AG – 10.51%

· Vestas Wind Systems – 10.28%

· Gamesa – 8.81%

· Hansen Transmissions – 6.80%

· Japan Wind Dev. Co. – 5.13%

· Babcock & Brown Wind Partners – 4.40%

· Nordex AG – 4.34%

· Theolia SA – 4.28%

· Clipper Windpower – 2.94%

· Gurit Holding AG – 2.81%

Why Are We So Bullish on Wind Energy Investing ?

For one, the U.S. isn’t the only country interested in wind power.

UK ministers want a six-fold increase in the amount of energy generated by wind farms by 2020. That would mean that another 4,000 wind turbines would be build across the UK, adding to the 2,000 onshore turbines already in place.

Just last month, the government announced plans for another 7,000 turbines off the coast.

And as for the U.S., twenty years from now wind energy could produce 20% of America‘s electricity.

An Energy Department study found that wind energy could generate 20% of U.S. electricity by 2030, as compared to today’s one percent.

The good news – The Energy Department report finds that achieving a 20% wind contribution to U.S. electricity supply would:

  • Reduce carbon dioxide emissions from electricity generation by 25 percent in 2030.
  • Reduce natural gas use by 11%;
  • Reduce water consumption associated with electricity generation by 4 trillion gallons by 2030;
  • Increase annual revenues to local communities to more than $1.5 billion by 2030; and
  • Support roughly 500,000 jobs in the U.S., with an average of more than 150,000 workers directly employed by the wind industry.

To achieve 20%, wind turbines would have to produce 300,000 megawatts of power, compared to today’s generated 16,000 megawatts.

It’s doable.

And it should come as no surprise that billionaire investors are lining up for a piece of the coming wind energy boom, including T. Boone Pickens, who believes that by reducing oil imports by 38% would save us nearly $300 billion a year.

"It’s time we got serious about using [wind power]," he said.

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Pickens’ Mesa Power just ordered 667 turbines from General Electric to begin a $10 billion wind far project in Texas. When completed by 2014, the wind farm will be capable of producing 4,000 megawatts, or enough energy to power 1.2 million U.S. homes.

"Oil fields have a declining curve – you find one, it peaks and starts downhill, you’ve got to find another one to replace it. It drives you crazy! With wind, there’s no decline. "You need a giant plan for America," he says. "Not the pissant 83 megawatt [windfarm] deals being stamped all over the country. There needs to be a huge plan from someone with leadership. It’s going to take years to do, but it has to start now."

Fortunately, we’re familiar with the potential as well.

Says Brian Hicks:

"What we simply cannot ignore about the wind energy market is its growth during 2007. Last year, a record-breaking 20,000 megawatts (MW) of wind power were installed around the world. That means that wind energy supplied approximately 94,000 MW of energy. In other words, that’s a growth of around $36 billion."

Let’s put this into perspective…

Between 2005 and 2007, both Germany and Spain’s wind power capacity experienced impressive growth (about 21% and 51%, respectively). Now look back at the U.S. growth.
Our capacity catapulted nearly 84%!

Don’t think for a second that wind energy is about slow down…

Since 2000, wind power production has increased fivefold. Remember that during that period, oil prices have grown nearly the amount. Now that a peak oil is starting to get under the global spotlight, we can expect to see a massive interest in renewables like wind energy.

We’re talking about a source of energy that is a renewable, clean, has a low operating cost and has technology that’s been around for over century (the first power producing windmill was created back in 1887).

But it isn’t just the past growth that we’re impressed with. Over the next two years, the Global Wind Energy Council (GWEC) predicts that the world’s installed wind power capacity will practically double to 149.5 GW. If you notice, the installed capacity in 2007 was 94,000 MW-which was higher than originally forecasted!"

Not only are we bullish on the latest ETF issue, we remain bullish on pure wind play Western Wind Enertgy (WND.V).

Good Investing,

Ian L. Cooper