The US wind power industry is facing huge problems that have led analysts to forecast a 60% drop in installations this year. This will be the first year since 2004 that the industry will not grow. The main reason for this set back is that we have nearly run out of high wind areas with easy access to transmission. This combined with extremely low prices for natural gas have led the industry back to the drawing board.
Luckily, several companies, such as Siemens and Vestas are responding with more efficient turbines that can function in lower wind areas. While innovation is certainly coming, it is difficult to say how long it will take before the industry rebounds. It is not out of the question that US wind could continue to struggle for the next few years especially if Washington does not take more assertive measures to support them.
The governments of Great Britain and China, however, have taken bold steps to support wind power with plans to develop 25 and 30 GW of offshore capacity by 2020 respectively. Given this situation, the ideal wind company for an investor today would be a British or Chinese firm that is financially healthy and efficiently managed. If one could be found that was also trading at a discount, all the better.
A-Power Generation Systems, Ltd (APWR), a Chinese firm based in Shenyang, has a market cap of 414 million and 167 million of cash to only 21 million of debt. They are rapidly expanding with 54% year-on-year quarterly revenue growth. All of this amounts to a very healthy company. With a 35% return on invested capital, it is also meets our criterion of being efficiently run. Finally, its price-to-earnings ratio is below 6, which makes it an extremely good bargain. It is my belief that the market overreacted to the possibility of this company going under during the global financial meltdown of 2008 (the stock dropped from over $30 in June ’08 to under $4 by Nov). The stock has not fully recovered and still has a lot of room to grow.
Article by Ambrose Desmond, a green investment advisor who also runs sustainablog’s green investment subdomain, and specializes in holistic financial counseling.
photo: Chris Lim at Wikimedia Commons under a Creative Commons license