Despite Trump’s Protests, $51 Billion Floods Into This Subsector

David Fessler By David Fessler, Energy and Infrastructure Strategist, The Oxford Club

Alternative Energy

The average investor doesn’t think the offshore wind industry will gain traction in the U.S. They think President Trump’s policies – which favor fossil fuels – will keep the industry in neutral.

They couldn’t be more wrong.

Over the last three years, the Bureau of Ocean Energy Management has leased 12 commercial wind energy sites off the East Coast of the U.S…

All of which are in federal waters.

Most states’ jurisdictions end 3 miles from shore. Siting wind farms in federal waters means no interference from state or local authorities… They can take five to 10 years to issue permits for transmission line right-of-ways.

That’s not the case in federal waters, where only one permit from the Department of Energy is required.

That’s great news for U.S. offshore wind. And it’s even better news for energy investors.

To understand the opportunities, let’s look at the offshore wind sites.

Most sites are located off the coast of the Mid-Atlantic states. Would-be wind farm developers consider New York and New England acreage the best.

Why? Because it’s very windy there. In fact, the northeastern coast is regarded by industry experts as the best offshore wind area in the entire country, if not the world.

Even better, the water is shallow (less than 100 feet deep), making it much simpler to build the towers that support offshore wind turbines.

More importantly, the Mid-Atlantic is densely populated. Its power grid is congested. It’s constantly on the brink of an overload, and power prices are high. Electricity from offshore wind farms would provide much-needed relief.

The turbines would be 20 to 30 miles offshore. They would be well out of sight of shore dwellers. And hooking them up to the onshore grid would be relatively simple. Submersible power cables would connect individual wind farms to the grid at strategic points along the East Coast.

A $51 Billion Investment

Unfortunately, the Trump administration is seemingly unaware of climate change. Our president is pushing to bring back dirty power.

But that’s not the case at the state level. Individual states are looking to promote sustainable wind energy.

Northeastern states are well aware of the advantages of wind energy. And in spite of the federal government’s pro-coal policies, states are moving forward with wind via individual state mandates.

For instance, Massachusetts passed legislation mandating that 1,600 megawatts (MW) of power be generated by offshore wind by June 2027. New York is mandating 2,400 MW by 2030.

In terms of an offshore wind development road map, the Clean Energy States Alliance is handling things for Massachusetts, Rhode Island, New York and Maine.

Navigant, a global consulting firm, is doing some research for the consortium. It estimates that a large-scale offshore wind farm that could generate 500 MW of power per year for 20 years could create 225,000 direct and indirect jobs.

The total investment could be more than $51 billion.

One of the largest proposed wind farms is between Martha’s Vineyard and the eastern tip of Long Island. The Long Island Power Authority (LIPA) approved the project in January.

It will be the country’s largest offshore wind farm to date.

Initially, the project will have 15 turbines that can power 50,000 average homes.

Thomas Falcone, LIPA’s CEO, vowed that while this project may be the largest so far, it won’t be the last that LIPA is going to do. Eventually, the 256-square-mile parcel could see 200 turbines.

The timing of this project couldn’t be better, especially given New York’s goal of generating 50% of its electricity from renewable sources by 2030.

Before certain states started issuing renewable energy mandates about a decade ago, U.S. offshore wind was going nowhere. Now it’s taking off at a blistering pace…

22.44% EPS Growth

Some wind turbines are made by large corporations like General Electric (NYSE: GE). But there are still several wind turbine pure plays out there.

The largest is Vestas Wind Systems (OTC: VWSYF), a Danish maker of wind turbines.

With a market cap of $18.17 billion, Vestas is a big player in the wind business. And it’s only getting bigger…

Revenue for the last 12 months was $11.33 billion. Last quarter, revenue grew 10.22% over the previous quarter. Net income for the last 12 months totaled $1.092 billion. Earnings per share grew 22.44% last quarter over the prior quarter.

Even though Vestas is a Danish company, it has a thriving business here in the U.S. That prompted it to build a manufacturing facility in Colorado.

And that’s about to pay off in spades. About a week ago, one of the largest utilities in the U.S., Xcel Energy Inc. (NYSE: XEL), announced it is going to spend between $3.5 billion and $4.4 billion on 11 new wind farms in seven states.

Vestas will be supplying all the wind turbines. When completed, the 11 wind farms will generate up to 3,380 MW of renewable energy. That’s enough to power more than 1 million homes.

In a statement announcing the investment, Ben Fowke, Xcel’s CEO, said, “We’re investing big in wind because of the tremendous economic value it brings to our customers. With wind energy at historic low prices, we can secure savings that will benefit customers now and for decades to come.”

I like Fowke’s thinking. Fortunately, plenty of other CEOs feel the same way.

That’s all good news for wind companies like Vestas. It’s also a great reason to add them to your energy portfolio.

Good investing,

Dave