Bipartisan Support in Senate Points to Bull Market for Wind Power

Thanks to high-profile bankruptcies like Solyndra and Evergreen Solar, good news has been in short supply this year for companies in alternative energy. But the wind energy industry bucked that tide earlier this month.

On Aug. 2, the Senate Finance Committee voted to renew a tax credit for wind power for one more year, according to

Photo courtesy of Knowledge-Allianz.com

the New York Times (http://www.nytimes.com/2012/08/03/business/wind-industry-wins-senate-panels-support-for-a-tax-break.html). The provision to renew the tax break is part of a $200 billion package that still must be passed by Congress when it returns from summer break. Furthermore, the vote was bipartisan (19-5) with several Republicans from key wind power states joining the Democrats in favor.

While still not a done deal, it is clear that “the wind industry convinced a key Senate committee that green can be good politics in red states as well as blue states,” the Times noted.

A week after the vote, the American Wind Energy Association announced that the U.S. “hit 50 gigawatts of wind-powered electric capacity in the second quarter of this year.” Energy and Capital noted that so far in 2012, “the nation has had 2,800 megawatts and 1,400 wind turbines installed countrywide, chiefly across Nevada, Idaho, Iowa, Hawaii, Oklahoma and California.” A total of 39 states now have “utility-scale wind facilities” with most of the growth in the industry is coming from domestically manufactured turbines and materials, according to Energy and Capital.

Let’s take a look at a few randomly chosen small cap companies that are involved in wind turbines and wind power.

Newbury Park, CA-based Sauer Energy (OTC: SENY, http://www.sauerenergy.com/) is a development stage company developing vertical axis wind turbines for commercial and residential uses. Formerly BCO Hydrocarbon Ltd., the company disposed of its oil and gas interests and in July 2010 purchased Sauer Energy and in May 2012 purchased Helix Wind Corp. SENY currently has a market cap of $20.6 million and a 52-week trading range o $0.10-$0.95. It closed trading Aug. 27 at $0.26, up 2 cents on the day.

China-based China Ming Yang Wind Power Group (NYSE: MY, http://www.mywind.com.cn/) is a wind turbine manufacturer focused on designing, manufacturing, selling and servicing megawatt-class wind turbines. In July, MY announced it was considering a joint venture with China-based Huaneng Renewables Corp. to develop wind power and solar power projects in China and overseas markets. MY’s market cap is $147.5 million and 52-week trading range is $1.10-$3.73. It closed Aug. 27 at $1.21, down 4 cents for the day.

Chatsworth, CA-based Capstone Turbine Co. (Nasdaq: CPST, http://www.capstoneturbine.com/) develops and markets microturbine technologies, including technologies used to provide on-site power generation for wind power. On Aug. 23, CPST shares crossed their 50-day moving average and closed the day at $1.05 with 2.8 million shares sold. Its market cap is $302.6 million and 52-week trading range is $0.85-$1.53. It closed Aug. 27 at $1.01, down 1 cent for the day.

One company in the news lately is Italy-based Enel Green Power, which trades on the Milan Exchange (EGPW.MI) and is Italy’s biggest renewable energy company (http://www.enelgreenpower.com/) . EGPW announced in early August that it will partner with GE Capital to build the Prairie Rose wind farm in Minnesota, expected to have a total installed capacity of 200 megawatts. The farm is scheduled to commercially operational  in this year’s fourth quarter. This follows earlier announcements of other investments in wind farms in Oklahoma, Mexico, Denmark and Croatia.

Finally, Naperville, IL-based Broadwind Energy (Nasdaq: BWEN, http://www.bwen.com/) announced Aug. 23 that it was reducing its manufacturing footprint and shifting its “capacity and marketing focus to non-wind sectors.” In early August the company reported a $4.2 million loss for the fourth quarter. It also made a 1-10 reverse split of its common stock. BWEN closed Aug. 27 at $2, down 26 cents for the day.

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Research Report: Wind Power Capacity to Triple by 2017

The wind energy industry may have experienced a slowdown in 2010, due largely to the recession, but the future remains healthy and overall wind power capacity is expected to “rise at a healthy pace” and triple by 2017. That’s among the conclusions contained in a comprehensive report prepared by Pike Research (http://www.pikeresearch.com/research/global-wind-energy-outlook).

When we last took a look at wind energy and smallcap companies in May, Google had just plunked down $55 million for a major wind farm venture in Central California, which directly followed Google’s $100 million investment in what is called the world’s biggest wind farm–the 845-megawatt Shepherds Flat Wind Farm now being built near Arlington, Oregon scheduled to be finished in 2012.

The Pike Research report includes a forecast that total wind generation capacity will jump from 194.3 gigawatts (GW) in 2010 to 562.9 GW by 2017 when wind power installations will be a $153 billion industry, compared to $56 billion in 2010. China, of course, is expected to continue to lead in wind energy deployment with Europe a technology leader and the most expansive explorer of offshore deployment.

While the future looks bright, according to Pike, the small caps we have been following were beaten down in early August, along with the rest of the market, until they joined the big rally on Aug. 9. 

Ann Arbor, MI-based Kaydon (NYSE:KDN, http://www.kaydon.com/), like many small caps recently, has seen its market cap drop from $1.2 billion in May to $989 million Aug. 8. The company makes parts such as custom bearings for windmills. In 2008 they built a manufacturing facility in Monterrey, Mexico devoted to servicing the wind energy industry. In 2010 the stock was trading for $45; in July its price was nearly $36. At the end of trading Aug. 8 KDN was trading for $30.60 but rebounded with the Aug. 9 rally to $32.48.

Fergus Falls, Minn-based Otter Tail Corp. (Nasdaq: OTTR, http://www.ottertail.com/) is an electric utility ($674 million market cap) that manufactures and markets wind towers and also distributes electricity in Minnesota, North Dakota and South Dakota. On May 25 the stock was trading at about $21.39. On Aug. 8, after dropping $1.28 on the day the market was pummeled in all directors, OTTR closed at $18.70. But it rallied on Aug. 9 to $21.44.

Canada-based Western Wind Energy (TSX:WNDEF.PK, http://www.westernwindenergy.com/) is a small company ($82 million market cap) that owns and operates wind and solar farms in Southern California and Arizona. About 15 months ago their thinly-traded shares were selling for $1.52 and the price hasn’t changed much since. In late May the shares were trading for $1.63. They largely escaped the market onslaught in early August and closed Aug. 9 at $1.39.

In our previous posts on wind power we have also mentioned two other non-U.S. companies. Japan’s Loopwing (http://www.loopwing.co.jp/) has created a design to greatly reduce vibration and noise compared to more traditional designs. And across the pond, privately-held, Suffolk-based Wind Power Ltd. (http://www.windpower.ltd.uk/) develops large scale vertical axis wind turbine technology. The company began as a small research group but now offers a range of products and services

Offshore Wind Energy Projects Generating a Buzz

Wind energy and its potential to power a large swath of the East Coast has generated a surge of news activity in recent weeks. First, in late September, conservation advocacy group Oceana released a study suggesting that offshore wind over the Atlantic Ocean could indeed power much of the East Coast and at the same time be much friendlier to the environment than other energy alternatives including natural gas, coal, oil or nuclear energy. The Oceana study (http://na.oceana.org/en/our-work/climate-energy/clean-energy/offshore-wind-report/report) came on the heels of a U.S. Department of Energy draft plan for creating a offshore wind energy program for the U.S.

Wind Turbines, photo courtesy of Western Wind Energy

Those studies were followed by a blockbuster New York Times piece on October 12 (http://www.nytimes.com/2010/10/12/science/earth/12wind.html?_r=1&scp=1&sq=matthew%20wald&st=cse) reporting that Google and two other companies, one a New York financial firm, have agreed to invest millions of dollars in a 350-mile underwater transmission “spine” cable along the Atlantic coast that would transfer the energy created by offshore wind turbines to what the Wall Street Journal estimated to be 1.9 million households along the East Coast from Virginia to New Jersey. Along with Google, the investment firm Good Energies and Marubeni, a Japanese trading company, have all agreed to invest in what is called the Atlantic Wind Connection.

As now envisioned, the five-phase project would begin in 2013, be completed in 2020 and be constructed 15 to 20 miles offshore, thereby eliminating much of the criticism of visual blight from the turbines that has plagued other high-profile wind turbine projects such as the country’s first offshore wind project called Cape Wind off Cape Cod.  The cable would have a 6,000 megawatt capacity, which The Times says is equal to the output of five large nuclear reactors.

Most experts agree that an offshore transmission line would spur the construction of various offshore wind farms since developers would not need to create their own individual transmission lines, according to the Journal story.

This has to be good news for the burgeoning smallcap companies involved in wind farms and turbines, but just who might capitalize is hard to say at this point. Here is a short list of some of those smallcaps:

Fergus Falls, MN-based Otter Tail Corporation (Nasdaq: OTTR, http://www.ottertail.com) is involved in wind energy transmission but is now focused soley on Minnesota and the Dakotas. The stock price ($21.27 this week) has rallied with the rest of the market since September but is still off its 52-week high of $52.39 set last January. Since wind energy is a small part of its business and its base is in the heartland, not the coast, this could be a stretch.

Vancouver-based Western Wind Energy (CDNX: WND.V, http://www.westernwindenergy.com) is also based far west of the Atlantic. It’s currently trading for about $1.20 but since it doesn’t trade on a U.S. exchange there is little news on progress. The last headline noted that the company had closed a $2 million corporate loan but otherwise there is not much to go on.

London-based Clipper Windpower (OTC: CRPWF.PK, http://www.clipperwind.com) is a pure wind energy play but is another small stock with very little trading. It seems to be sitting at about $0.78 with no recent activity. While it’s based overseas, it does have operations in the Americas.

Some Renewables Charge Ahead; Others Face Stiff Headwinds

Yesterday, Provo UT-based Raser Technologies Inc (NYSE: RZ, http://www.rasertech.com), a geothermal power development company, announced yesterday (http://www.rasertech.com/news/scripts/full-news.php?1236266640) that it has completed final preparations to transmit power to the City of Anaheim (CA) from its thermal plant in Utah next week. Raser said that it has already been supplying about 3.5MW to a local utility, and will ramp up to 10 to 11MW. Raser’s market cap is about $165 million; its shares are trading at $2.74 with daily volume of about 475,000.

At the same time, Detroit-based DTE Energy (NYSE:DTE, http://www.dteenergy.com) today said that it has filed renewable energy proposals with Michigan that would significantly increase renewable energy in the state (http://www.reuters.com/article/marketsNews/idAFN0516450120090305?rpc=44). It proposes to add 1,200MW of renewables, with most to come from wind, and a small fraction from solar. DTE has acquired easements on more than 50,000 acres in Huron County for a large-scale wind farm. DTE trades at about $23.90 with a market cap of $3.9 billion.

London-based The Crown Estate, the regal entity that controls UK sea-bed leases for renewable energy projects (among many other holdings), was reported by RenewableEnergyWorld recently to have granted “exclusivity agreements” for 10 offshore wind development projects in Scotland (http://www.renewableenergyworld.com/rea/news/article/2009/02/crown-estate-awards-scottish-offshore-wind-sites). The combined projects could potentially produce 6GW, or enough electricity to supply 3 million homes.

Skeptics abound, however.  Yes, coastal dwellers love offshore wind power that doesn’t clutter up the views.  But offshore turbines cost more to erect and to maintain.  Last week it was reported that Lyme Regis, a coastal town in England familiar to many who saw the film, “The French Lieutenant’s Woman,” is not enthusiastic about having a wind farm in its sightlines.  According to a local official, “I have seen a lot of wind farms around the world and they are incredibly ugly.”  (http://www.energycurrent.com/index.php?id=3&storyid=16379).

There’s also the problem that many wind and renewable power companies are young, some being startups.  Many are clamoring for stimulus dollars in various DOE, DOT and other bail-out budgets.  Some of the challenges they face:

Carpinteria CA-based Clipper Windpower (AIM: CWP, http://www.clipperwind.com) will cut wind turbin production by 15% to 20% this year, and has already furloughed 90 Iowa workers.  Larger turbine companies like the Spanish market leader Gamesa (http://www.gamesacorp.com) and DMI Industries, a subsidiary of Fergus Falls MN-based Otter Tail Corp (Nasdaq:OTTR, http://www.ottertail.com) have announced layoffs already.  Otter Tail shares are trading in the $16 range, down from a high of $46.15.  Even the bigger companies are hurting; Denmark’s Aarhus-based Vestas Wind Systems (http://www.vestas.com), the big daddy of the industry, is seeing reduced demand from the economic situation.  Its shares are trading in Copenhagen in the $35-$40 range, down from $145.00.

Given that global landscape, it makes sense that the Irish Airtricity, the UK-based RWE npower renewables, Norway’s Statkraft (http://www.statkraft.com) and Norway’s StatoilHydro (NYSE: STO, http://www.statoilhydro.com) have formed a consortium called Forewind to better their odds of securing a bid for a Crown Estate license on the Scottish opportunity.  Airtricity’s parent is Scottish and Southern Energy (LSE: SSE and OTC: SSEZY, http://www.scottish-southern.co.uk).  RWE npower renewables is the UK subsidiary of the German firm, RWW Innogy (http://www.rwe.com).

The Scots government still has to look at the environmental impact of the proposed wind farms, but the “exclusivity agreements” allow the developers to start their surveys.  They can award leases for the sites once the environmental studies are complete, and that is expected by January.