“Within the renewables space, we are focused on solar and wind energy.”
Ajay Piramal, Businessman
What Are Wind Energy Investments?
Wind energy investments are investments that are made in companies related to the production of wind energy. This includes the actual production process of wind power, but also the manufacturing of components for windmills as well as the disposal of old or broken parts.
Wind energy can be regarded as a promising renewable energy source, which may play a big role in the energy transition process from fossil to green energies.
However, there are also some downsides related to wind energy. In this article, all you have to know before investing in wind energy is summarized.
Types of Wind Power Companies you could invest in
- Wind power producers
- Windmill installers
- Windmill manufacturers
- Component manufacturers
Wind power producers
Wind power producers are the actual generators of sustainable wind energy on large wind farms. They operate windmills and deliver plenty of energy to local households, companies as well as for the public electricity grid. Wind producers rely on windmill installers, manufacturers and component producers in order to achieve their goal to produce sufficient wind energy.
The job of windmill installers is to ensure the proper installation and maintenance of windmills. They are also often responsible for windmill repairs and are also often involved in political discussions for advisory purposes regarding feasibility studies for wind energy expansion plans.
Windmill manufacturers produce all main parts of the actual windmill, including the wind turbines which produce electricity. Therefore, windmill manufacturers can be regarded as the centerpiece of the whole wind energy industry.
Component manufacturers usually specialize in certain components related to the production of wind energy that are not produced by windmill manufacturers themselves.
Usually, this mainly includes smaller components. Therefore, component manufacturers often need large amounts of sales to generate satisfying profits.
Types of Financial Instruments related to Wind Energy
- Wind stocks
- Wind bonds
- Official wind income funds
- Wind derivatives
- Wind power ETFs
- Wind mutual funds
Wind stocks are the most common type of wind energy investments. Like other stocks, they are equity instruments and people who buy those stocks are also owners of a small part of the company.
Owners of wind energy stocks are also often eligible for dividend payments if the wind company makes decent profits.
Contrary to wind stocks, wind bonds are not equity but debt instead. This means that by buying wind stocks, you are not the owner of part of the company but rather provide wind companies with loans and get an interest payment instead of actually participating in the profits of the company.
However, in case of insolvency, bondholders are preferred over shareholders when it comes to paying out obligations. Therefore, although wind bondholders do not participate in profits, bonds may be considered the safer alternative compared to stocks when it comes to hedging against extreme losses.
Official wind income funds
These kinds of funds are often set up by official authorities and governments in order to raise money to be able to accelerate the energy transition process towards renewable energies. If you invest in official income funds, you get a certain interest payment similar to wind bonds.
Wind derivatives can be considered to be an advanced investment tool for experienced investors who seek higher returns compared to conventional stock investments.
However, since wind derivatives also often imply a higher risk compared to other financial instruments, you should not invest in such instruments if you are an investment beginner since risks may be simply too high and you might not be able to evaluate these risks correctly, which may lead to significant losses.
Wind power ETFs
Wind energy ETFs are a great way to hedge against the risks of an individual stock since these instruments are composed of many different wind power stocks.
Therefore, if one company fails, it will not have a tremendous impact since the ETF is composed of many different companies.
Thus, instead of losing all your money by investing in one wind company, you could invest in ETFs instead in order to reduce financial swings and to get a stable return.
Wind mutual funds
A mutual fund is a financial tool where large amounts of money are collected from a variety of investors and then pooled to make investments. Mutual funds can be both actively or also passively managed funds.
However, in case of actively managed funds, often large fees apply for administrative reasons. Therefore, most long-term investors may be better off by choosing wind ETFs over mutual funds.
Top 10 Wind Investment Opportunities
Below, some of the most popular wind investment instruments are given. Please note that this is not an investment advice but should rather give you a rough overview of the investment opportunities in this alternative energy niche.
|Name||Company Type||Investment Type|
|TransAlta Renewables Inc||Wind power producer||Stock|
|Vestas Wind Systems A/S||Wind turbine manufacturer||Stock|
|Northland Power Inc||Wind power producer||Stock|
|Boralex Inc||Turbine & component producer||Stock|
|Pattern Energy Group Inc||Wind power producer||Stock|
|First Trust Global Wind ETF||Mixed||Wind ETF|
|Orsted A/S||Wind power producer||Stock|
|Bloomberg Wind Energy Index||Mixed||Wind Energy Index|
|NaiKun Wind Energy Group||Wind power producer||Stock|
|NextEra Energy Inc||Wind power producer||Stock|
Chances of Wind Energy Investments
- Completely sustainable technology
- One of the most promising renewable energy sources right now
- Huge profit potential if wind energy wins the race
- Investments in ETFs or other funds could hedge certain risks
- Subsidies may make wind investments even more attractive
- Positive ecological impact compared to conventional energies
Completely sustainable technology
Wind energy is regarded as a sustainable technology since wind will never vanish from our planet. Therefore, if wind becomes a pillar source for the transition to renewable energies, the profits from wind energy production could be made in perpetuity.
Thus, wind energy might be a smart investment and could generate high returns for investors, depending on if wind energy is strong enough to establish itself against solar energy and other promising renewable energies.
One of the most promising renewable energy sources right now
Even though there are plenty of alternative resources, wind energy can be regarded as one of the most promising since it is fully sustainable and almost entirely green.
Therefore, compared to other alternative energy sources, wind energy may be in a better position to win the race.
Moreover, the technology behind wind energy has been significantly improved over the past decades so that wind energy has been made much more efficient and profitable.
Huge profit potential if wind energy wins the race
In our future energy mix, only a handful of alternative energies will provide a big fraction of our overall energy supply. Therefore, regarding investments in wind energy, it is crucial that you ask yourself if you see wind energy as a promising future energy source.
If the answer to this question is “yes”, similar to the attitude of many researchers, then wind energy may be a promising investment opportunity for you!
Investments in ETFs or other funds could hedge certain risks
Depending on the wind power stock you want to invest in, this kind of investment can imply serious risks since single wind energy companies may go insolvent over the next years. However, you can effectively hedge against the insolvency of single firms by buying exchange-traded funds (ETFs) instead.
Since ETFs are composed of shares of many different companies, the insolvency of a single company will not hurt you too much since it will only make up a small fraction of the fund. Therefore, you can effectively hedge and still make decent profits by investing in wind energy through wind energy funds.
Subsidies may make wind investments even more attractive
Depending on the country, there may be significant subsidies related to wind energy for companies in this sector.
However, in turn, this means that you can indirectly profit by investing in stocks of those wind companies, since with stocks, you own a small fraction of the company and can directly participate in profits and gains from subsidies.
Therefore, government subsidies may make investments in wind energy stocks even more attractive.
Positive ecological impact compared to conventional energies
Apart from financial gains, you could also improve your ecological footprint by investing in wind energy compared to investments in conventional power companies.
It is crucial for humanity to accelerate the energy transition process from fossil to renewable energies to fight global warming and to mitigate several other issues related to it.
Therefore, by investing in wind energy, you can make a positive environmental impact and contribute your part to ensure a livable future for the next generations.
Risks of Investments in Wind Power Financial Instruments
- Not entirely green since some components are non-recyclable
- Hard to scale due to protests of locals
- Vulnerable to natural disasters
- Regulatory risks
- Political uncertainty
- Fierce competition against other renewable energies
- Large swings in many wind stocks over time
Not entirely green since some components are non-recyclable
Even though wind energy can be considered to be a green energy source, it is not entirely green due to the fact that old or broken parts of windmills or other components often cannot be fully recycled and some parts may end up in landfills.
Therefore, the operation of windmills also implies some kind of waste production and resource depletion. Thus, investing in wind energy may not be the first choice in the context of investing in green energies due to this fact.
Hard to scale due to protests of locals
Moreover, in the past, there had been many protests against the construction of windmills from the local population in several parts of the world. People often do not want to have windmills near their home since they fear visual pollution and other adverse effects from windmills.
However, this attitude could significantly slow down the progress of wind energy and it may be quite hard to scale due to protests and court proceedings regarding the expansion of wind energy.
In turn, this may also turn into significant losses for investors, since wind energy companies will lose significant amounts of money due to delays in expansion.
Vulnerable to natural disasters
Windmills are also quite vulnerable to natural disasters. Depending on the construction quality and also on the severity of the natural disaster, large numbers of windmills can be destroyed if natural disasters like tsunamis or earthquakes hit respective regions.
This may lead to serious losses for wind energy companies, especially if those companies are specialized in certain narrow regions.
Even though wind companies could hedge against those risks through certain insurances, the insurance premiums will be quite high in regions vulnerable to natural disasters, which may significantly lower the profits of wind energy companies operating in those regions.
There may also be a risk for wind energy companies regarding regulations and policy decisions. For instance, if policymakers decide at one point in time that wind energy is no longer be considered as one of the most promising alternative energies, subsidies related to wind energy may be canceled, which may lower wind power companies’ profits and in turn will hurt investors at the same time.
Especially in countries with unstable political conditions, there will be significant risks regarding the expropriation of wind power companies. This can be due to a change of government or also due to significant levels of corruption.
Therefore, wind companies operating in those regions may be at severe risks to suffer from economic damage, including the loss of whole wind energy production facilities.
Thus, investments in wind companies operating in politically unstable regions should be avoided.
Fierce competition against other renewable energies
Even though wind energy has kind of a head start compared to other alternative energies since it is supported by many governments worldwide and plenty of research is done in this field, there is still quite heavy competition in the area of renewable energies.
For instance, solar energy or even hydrogen power may become the leading green energy source in the future and wind energy may lose its importance in the long run, which would lead to the bankruptcy of many wind energy companies.
Large swings in many wind stocks over time
In the past, there had been large swings in stock market prices of many wind companies. Therefore, especially for people who are new to stock market investments, wind energy companies may not be suitable for inexperienced investors.
Instead of investing in single wind energy companies, it would be senseful for beginners, but also for more experienced investors, to make long-term investments in wind power ETFs to hedge against the failure of single companies.
Wind energy can be regarded as a promising alternative energy source. Therefore, it may also be attractive to investors who want to profit from the expansion of wind energy and also want to make a positive impact on our environmental system at the same time.
However, before investing in financial instruments related to wind power, you should take your time and analyze the market in detail in order to make profound investment decisions in line with your individual risk-return profile.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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