How Can I Invest in Windmill Energy Farms?

Wind turbines are under attack by environmentalists concerned about danger to birds and bats.

Wind turbines are under attack by environmentalists concerned about danger to birds and bats.

Wind turbines, or windmills, come in two varieties: those made for commercial use and those made for residential use. Among the public companies you might consider for investment are wind developers who own and operate wind farms and sell their power to public utilities; the public utilities, transmission companies that operate transmission lines that bring the energy to market; and the manufacturers and installers of the turbine equipment. You could also invest in an exchange traded fund or mutual fund that specializes in wind or alternative energy stocks.

Wind Generated Power

Wind generation in the United States has a problem with the lack of transmission facilities that bring wind-generated electricity from the relatively remote open farmlands where wind farms are located to the major metropolitan areas where the power is needed. This presents a difficult decision for you if you intend to invest in wind generation, or the stocks of companies that are part of the wind industry. Europe and China lead the U.S. in the popular use of wind generated power, so a global mutual fund or ETF that emphasizes companies in the wind industry might be an investment to consider. A fund would provide geographical and company diversification, somewhat controlling the risk inherent in investing in new technologies. Most mutual funds have minimum investments ranging from $1,000 to $5,000, or higher. ETFs trade as individual stocks, so you can invest whatever amount you wish, and take advantage of dollar cost averaging by investing a specific amount regularly over time. Both ETFs and mutual funds also present the ability to reinvest any dividend income.

Wind Energy ETFs and Funds

The Invesco PowerShares Global Wind Energy Portfolio is an ETF that is based on the NASDAQ OMX Clean Edge Global Wind Energy Index. Another ETF specializing in wind energy is First Trust Global Wind Energy Index, which is based on the ISE Global Wind Energy Index. The International Securities Exchange is a U.S. options exchange that trades on more than 2,000 underlying equity, ETF, index, and foreign exchange products, and which has a stock index devoted to wind energy much like the NASDAQ OMX Clean Edge Global Wind Energy Index. In mutual funds, the New Alternatives Fund and the Guinness Atkinson Alternative Energy Fund both manage mixed portfolios of alternative energy stocks and have had significant positions in wind energy in the past. However, there are other ETFs and mutual funds that may suit your investing requirements. Before investing, check the prospectus and performance record of any fund you are considering.

Wind Generator Manufacturers

If your interest is in the windmills, General Electric is the largest wind turbine manufacturer in the United States. In the world, the largest turbine manufacturer is Vestas of Denmark. Other manufacturers can be found in Germany, but by far, the country with the biggest share of wind turbine manufacturing capacity is China, with over 100 companies turning out wind turbines. An investment in General Electric would include other product lines and not specifically target wind energy, and it would not present the diversification available in a fund. Managed mutual funds, or index ETFs, also present a way to take advantage of professional investment research and analysis of overseas companies that do not have to comply with the strict Securities and Exchange Commission and Financial Industry Regulatory Authority rules and regulations applied to U.S. companies.

Utilities and Wind Farms

If you would rather invest in a company that provides the energy rather than the machinery, consider electric utilities. They either own wind farms or they purchase the electricity generated by wind farms. The cost of wind-generated power has been steadily decreasing. In 1993, wind generated power cost about 7.5 cents per kilowatt/hour but newer technologies can produce power at half the cost, increasing the profitability of using wind power. According to the American Wind Energy Association, 35 percent of all new power-generating capacity since 2007 has been from wind power. New power added, generated by coal and nuclear fired generation, was half that amount. Electric utilities often pay attractive dividends, so an investment in a utility that is committed to wind generation will provide you with an easy way to accumulate stock over time if you have your dividends reinvested. The company's investor relations department can tell you about their dividend reinvestment program, called DRIP, or your broker can suggest a few public utilities to consider. Major public utility users of wind energy include Pacific Gas and Electric, Texas Utilities and Central and South West Services, among others.

Investment Caveats

If you don't have professional familiarity with the wind turbine industry and wind power generation, invest in managed funds such as mutual funds and ETFs that provide diversification of your assets in the industry as well as professional stock selection. Wind energy is still a very new industry and a certain amount of consolidation is likely, not to mention the probability of improved or industry-disruptive technology development. For these reasons, investing in one or two companies would be risky. Mounting a project to finance and build a wind farm might actually turn out to be a more conservative investment than stock picking at this stage of the industry's development. A wind turbine costs approximately $3.5 million, installed, for a commercial size machine. Small residential and farm windmills or turbines large enough to power an average size home cost about $35,000 to $50,000. However, residential wind generators often have zoning problems due to noise and height restrictions in most residential areas.


About the Author

Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.

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