It's Not Just Blowin' in the Wind

05/19/2009 10:53 am EST

Focus: ETFS

Vaughn Scully of Standard & Poor’s says wind power companies should benefit most from the Obama Administration’s new energy initiatives.

With oil prices down by [almost] $100 per barrel since July 2008 and recently trading in the familiar $45 to $60 per barrel territory, enthusiasm for renewable energy quieted significantly.

Renewable energy companies’ shares fell to record lows, and new venture capital investments slowed to a trickle. [But] interest among investors may start to build later in 2009 and early 2010 as legislation now working its way through Congress likely improves the operating environment.

As the largest and most established source of renewable energy, wind power developers and operators are likely to be the top beneficiaries when conditions improve. Federal regulators are moving to clear the way for offshore wind and wave power projects by streamlining the approval process, and the Federal Energy Regulatory Commission [may be able] to overrule local opponents of new power-transmission lines needed to reach wind and solar facilities.

While we think all types of renewable energy projects, as well as battery makers, “smart grid” technology suppliers, and even power utilities that burn coal stand to benefit from the new tax breaks and direct spending in the stimulus package and new budget funding, optimism about prospects for wind power developers, equipment suppliers, and even existing operators is starting to grow. Vestas Wind Systems (OTC: VWSYF.PK) issued an upbeat forecast in April that called for 20% revenue growth in 2009.

In the US, wind power capacity totaled 25,300 megawatts (MW/million watts) at the end of 2008, according to the American Wind Energy Association (AWEA), compared with only about 500 MW of utility-scale solar power—and each of those megawatts is eligible for a 2.1-cent-per-kilowatt-hour production tax credit.

Companies that plan on building some of the 6,200 MW of new wind-generating capacity that will be brought online in 2009, as well as any other projects that are started before the end of 2010 and enter service by 2013, are eligible for a 30% investment tax credit.

Furthermore, legislation is expected to pass in 2009 or 2010 that would require all electric utilities nationwide to acquire 25% of their power supply from renewable sources by 2025. Utility-scale solar power projects are most economical in the southwestern United States, leaving wind power as the only realistic choice for utilities located elsewhere, in our view.

Wind power technologies are also further developed than solar or other alternative energy sources. Plus, wind power is cheaper than other renewable sources, at least for now.

Overall, 2009 should be a fairly good year for wind power development. AWEA estimates that new US wind power installations will grow by 20% in 2009 to more than 13,000 MW, which is nonetheless slower than the 50% growth in installations in 2008. (Two wind power ETFs cited by S&P are First Trust ISE Global Wind Energy (NYSEArca: FAN), which closed above $14 Monday, and PowerShares Global Wind Energy (Nasdaq: PWND), which closed above $14—Editor.)

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