Is it worth investing in wind turbines?

Last year, renewables like wind and solar accounted for over 10% of global electricity generation for the first time. That’s up from 1.6% twenty years ago and 4.7% ten years ago, and is by that measure, already bigger than nuclear.

Renewables are the fastest growing source of electricity, while fossil fuels are going nowhere.

And, thanks to Scotland, the UK is the windiest country in Europe. That is a great source of energy – just like the North Sea is for gas.

For a thousand years, the wind has powered Britain’s ambitions across the waves. Now, thanks to wind turbines that are 1,500 times more powerful than the windmills of old, we can sail into a cleaner energy future.

Former Prime Minister Boris Johnson pledged to make Britain the “Saudi Arabia of wind”.

Luckily, at the most recent UK power auction, in the midst of an energy crisis which is sending our electricity bills soaring, wind power projects were auctioned off at prices 75% cheaper than prevailing gas prices. That’s right, wind is going to save us 75% on our energy bills in the future, compared to gas at current prices. And it emits next to no carbon. Backing wind is a no brainer.

IRENA, the International Renewable Energy Agency, estimates that wind power could alone make up for 35% of global energy needs in the future.

This would require our generating capacity to increase tenfold in the next 30 years. Think about it: that is an enormous growth opportunity.

Judging by the heatwave this summer, climate change is happening faster than any of us thought.

Wind turbines, the key technology in all this, have come along massively in recent years. They now tower up to 300m tall and are generating immense amounts of power. The diameter of the rotor blades on the largest turbines (installed in the UK) is over 100m! Some of these mega turbines can generate enough power for 18,000 homes each year.

How do wind turbines work?

Three propeller-like blades are attached like a fan to the top of a tall metal pylon.

These blades are pushed by the wind to spin around a rotor, which spins a generator, which creates electricity.

This electricity can be used to power homes and business, by feeding into the national grid.

How has the industry developed?

Over time, the blades have been placed on ever higher pylons, as the higher you go, the more powerful the wind speeds are, generating more electricity.

Blade length has also increased hugely over the last couple of decades, with the largest turbine blades now over 100m long. This allows them to sweep huge areas and generate massive amounts of power.

So blades, turbines, and pylon height have all increased over time, leading to the kind of turbines which can power 18,000 homes each.

Can you invest in wind turbines?

The one-word answer is yes.

There are many ways to invest in the wind sector – stocks and bonds in all kinds of companies. Firstly, some companies specialise in onshore wind, or offshore. And there are fixed offshore wind turbines, and also floating offshore turbines. 

For example, some companies own or operate whole farms of wind turbines, and earn money by selling power to businesses or utility companies.

In the UK, wind power prices were recently auctioned off at prices 75% below the current gas price, so they are a much cheaper option, which is driving many people to invest in building more.

You can also invest in companies that build the turbines themselves, before selling them to the wind farm owners and operators mentioned above.

There are also companies that specialise in offshore wind installation, maintenance, repair and operation. You can invest directly in these companies, in their shares or bonds, or they are also held in active funds or ETFs.

You can also invest in the raw materials that are needed to manufacture wind turbines. If you think we are going to build a lot of them, then we are going to need a lot of the raw materials they are made from. Shortages in these materials could offer a profitable investment opportunity.

Watch out for…

Wind turbines are manufactured and installed over a few years, and so the competition between companies often sees heavy investment and competition followed by oversupply and reduced profits. Investment needs to slow again before profits can rise once more.

This is called the “Capital Cycle” and it’s worth getting to grips with how much the sector is investing as a whole before making assumptions about revenue or profit growth in the short and medium term.

So… what’s our verdict?

In summary, wind turbine investment is a huge opportunity, and a rapidly growing trend, as these cheap and clean sources of electricity have become one of the best technologies for generating power for our homes and business. Reducing our bills and saving the planet is a powerful combination.

Wind turbines are a long-term investment as the coming decades will see many more installed as we race to get to net zero carbon emissions.

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Kit Winder
Research Analyst, Southbank Investment Research