Wind Power Market Expanding While Wind Power Stocks Weather the Storm

Of the alternative energy sectors, wind power seemed to be getting the best headlines in recent weeks. First came the report from Pike Research Oct. 3 that government incentives and “an expanded awareness of small wind technologies as an alternative source of electrical power” will help double the global small wind power market to $634 million by 2015. The report adds that the payback period for “a small wind system can be 5 to 10 years in a region with adequate wind resources.”

The came the report in the Los Angeles Times that “Kansas is to wind as Saudi Arabia is to oil,’ noted in a story focused on British Petroleum’s plans to build an $800 million, 252-turbine wind farm in the state (http://latimesblogs.latimes.com/nationnow/). The farm is called Flat Ridge 2 and will sprawl out on 66,000 acres. BP Wind Energy is expected to start constrution this year and complete the project by 2013. An estimated 500 construction jobs will be generated. The 200 landowners whose property will be part of the farm will get $1 million a year for 20 years. Local governments will also get funded.

More wind news came last Sept. 20 in the Wall Street Journal where it was reported that a Chinese wind turbine maker, Xinjian Goldwind Science and Technology Co. (China’s second largest wind turbine producer judging by new capacity sold, according to the WSJ), has plans to build a $200 million wind farm in Illinois. Gov. Pat Quinn’s office suggests that the project will generate more than 100 construction jobs and about 12 permanent ones (http://online.wsj.com/article/SB10001424053111904106704576579741179230646.html?KEYWORDS=brian+spegele+xinjiang).

Is this kind of good news doing anything to bolster smallcap wind power-related stocks? Like most small caps in this market, they’ve been beaten down, but at some point they will have bottomed out. We’ve been following a few (please send us any others you can suggest). They include:

China-based China Ming Yang Wind Power Group Ltd. (NYSE: MY, http://www.mywind.com.cn/) makes, services and sells wind power turbines in China. Formerly China Wind Power Equipment Group Ltd., the company has a market cap of $334 million and trades about 170,000 shares a day. Investopedia recently named it one of five wind energy stocks to watch. Its stock was more than $14 about a year ago but has dropped considerably, closing Oct. 7 at $2.45, down 21 cents on the day.

Ann Arbor, MI-based Kaydon (NYSE:KDN, http://www.kaydon.com/) 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. On Aug. 9 KDN was trading for $32.48. It closed Oct. 7 at $28.81, down 92 cents on the day. Its 52-week range is $26.45-$41.71.

St. Louis-based Zoltec Companies (Nasdaq :ZOLT, http://www.zoltec.com/) was also mentioned in the Investopedia article as another way to play the wind energy market. ZOLT makes carbon fibers used to reduce weight in turbine blades so they spin faster and recently won a $3.7 million grant from the US Department of Energy for carbine fiber research. Its stock closed at $5.93, down 28 cents on Oct. 7 but was a high as $16 in February.

Another way to play might be two ETFs that offer a group of wind energy companies to invest in. They include PowerShares Global Wind Energy (Nasdaq:PWND), which closed Oct. 7 at $7.09, down 15 cents (52-week range is $6.63-$11.76) and First Trust Global Wind Energy (NYSE: FAN) which closed Oct. 7 at $8.31, up 1 cent (52-week range is $7.59-$12.28).

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If Cape Wind Flies, Small Caps Could Follow

Late Breaking Comment

Andrew Tarsy and Mitch Tyson wrote an interesting cost-benefit analysis commentary on the Cape Wind project. http://www.boston.com/bostonglobe/editorial_opinion/letters/articles/2010/05/12/our_energy_use_calls_for_a_transformation/

After nine years of regulatory review, the nation’s first offshore wind farm, known as Cape Wind, won approval from the federal government (http://www.nytimes.com/2010/04/27/business/energyenvironment/27wind.html?ref=earth). While challenges remain to be heard, there’s little doubt that the announcement that Cape Wind will fly will be a tremendous boon to the burgeoning wind power industry. Indeed, Interior Secretary Ken Salazar told the media throng at a news conference that “this will be the first of many projects up and down the Atlantic Coast.”

Cape Wind CEO Jim Gordon told CNN that his company has spent more than $45 million–most of it from his own pockets–to get this far since 2001 when he first sought a permit (http://www.cnn.com/2010/TECH/04/29/cape.wind.ceo.profile/index/html). Gordon has refused to disclose potential earnings for his company; critics say Cape Wind stands to gain hundreds of millions in tax credits and subsidies. Among the hurdles still to clear is a final purchase power agreement with a utility. However, Tom King, the president of National Grid, the utility company that covers the area, said in a statement that negotiations with Cape Wind were “going very well…”

Some of the Cape Wind statistics are intriguing:

–Developers claim the wind farm will produce about 75 percent of the power for Cape Cod, Nantucket and Martha’s Vineyard.

–Cape Wind will stretch across 25 square miles of Nantucket Sound, like about 5 miles from the nearest shore on the mainland and about 14 miles from Nantucket.

–The tip of the highest blade of each of the 130 turbines would reach 440 feet above the water.

–Carbon dioxide emissions will be reduced by the equivalent of taking 175,000 cars off the road.

–1,000 construction jobs will be provided.

–Outside the U.S. there are more than 800 giant wind turbines off the coasts of Denmark, Great Britain and seven other European countries. China’s first offshore wind farm goes online this month with more in the pipeline.

Several large household names have jumped into the windpower business including Siemens, General Electric and Vestas, a Danish company that has the largest installed base. But there are small caps involved, too, and privately held companies that should benefit from the progress in Cape Cod.

Kaydon (NYSE:KDN, http://www.kaydon.com) is a fair sized ($1.3 billion market cap) Ann Arbor, MI-based company that 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. Investors seem to be connecting them to the Cape Cod news. The stock is now trading at more than $45, well over its 52-week high of $42.56.

Otter Tail Corp. (Nasdaq: OTTR, http://www.ottertail.com) is a Fergus Falls, Minn.-based electric utility ($807 million market cap) that manufactures and markets wind towers and also distributes electricity in Minnesota, North Dakota and South Dakota. Nearly a week after the Cape Wind announcement their stock was trading at $22.50. Its 52-week range is $18.63–$25.40.

Western Wind Energy (TSX:WND, http://www.westernwindenergy.com) is a Canadian company ($75 million market cap) with more than 500 wind turbines in California. Shortly following the announcement shares were trading at $1.52, up $.06, and headed toward their 52-week high of $1.99.

Two other non-U.S. companies might deserve a look. In Japan, an interesting windmill company is Loopwing (www.loopwing.co.jp). It’s unusal design is said to greatly reduce vibration an noise as compared to more traditional designs. And across the pond, privately-held, Suffolk-based Wind Power Ltd. (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.