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A recent report from the U.S. Energy Information Administration (EIA) estimates that U.S. electricity demand will increase by almost 40% from 2005 to 2030.  Meanwhile, the U.S. Department of Energy (DOE) recently published a lengthy report; 20% Wind Energy by 2030: Increasing Wind Energy’s Contribution to U.S. Electricity Supply. That report is just one scenario for how our country could meet the 20% wind energy goal over that time frame. At present, oil and natural gas pricing has retreated from the highs experienced over the past couple of years. But, those measures appear to have reached the bottom of their respective cycles and, sooner or later, they will rebound, potentially reaching new heights.

The current weakness in fossil fuel pricing has put many alternative energy plays somewhat out of favor, which poses a great opportunity for contrarian value investors.  Larger conglomerates like General Electric (GE - Free Analyst Report) have units devoted to Wind Power. The only problem with investing in GE is that it would not be a pure wind play.  Other companies that are primarily focused on wind power may prove to be a better bet.  For example:  Vestas Wind (VWDRY.PK), Renewable Energy Generation Ltd. (WIND), Renewable Energy Holding Plc. (REH), Clipper Wind Power Plc. (CWP), and Zoltek Companies Inc. (ZOLT) are all potential candidates. The first three are electrical producers that focus on harnessing the wind and distributing it as a renewable alternative power source. The latter two develop and manufacture key inputs utilized by wind energy producers. Clipper Wind designs, engineers, and manufactures wind turbines, as well as develops wind energy projects, and even goes so far as to participate in the construction and operation of plants. Zoltek is a little more removed from the business. However, they do produce high-performance carbon fiber that is used in a range of commercial products. One of those products is the wind turbines utilized in wind farms. Carbon fiber is very strong, lightweight, corrosive resistant, and heat resistant. This makes it ideal to stand up to the sometimes harsh environments that are prevalent in wind fields. 

The main roadblocks to energy independence stem from the weakness of the current technology and the transmission system.  As with any new technology, wind turbines work well, but there is room for improvement. The other major problem is how to bring that power to market. Many areas that are well suited to house wind farms are in more remote locations of our country.  Meanwhile, the electric grid is getting older and more strained by the day, as summer blackouts and brownouts have proven.  Power lines would need to be upgraded in order to bring renewable energy to the coastal city regions where it is needed most. There are a few offshore locations that our country is beginning to utilize for wind farms, mainly along the northeastern coast - Cape Wind in the Nantucket Sound being a prime example.  The best offshore locations are in areas where water depths are relatively shallow. For obvious reasons, the costs associated with wind farms located in deeper water increase substantially. But, these challenges are not too difficult to overcome.

On balance, we feel that over the longer term the United States will have to loosen its reliance on fossil fuels. Wind energy is cost effective and environmentally friendly. We also like solar, hydro, tidal, and geothermal alternatives. Moreover, it appears that now may be an a propitious time to enter these markets. Choosing a handful of alternative energy companies to add to your portfolio may well prove to be a wise decision down the road.  

At the time of this article’s writing, the author had positions in: ZOLT.