Governmental policy and customer demand are moving inexorably towards greater use of alternative energy; wind power is at the center. The Reduce Inflation Act of 2022, passed by the Senate and awaiting a vote in the House of Representatives, is set to boost supply further. How has the wind power developed and where can it go from here?
For nearly 50 years, the commercial application of wind grew quietly with the help of government support. From a standing start when the first U.S. wind farm was connected to the electricity grid, wind power generation has increased to represent 7% of global electricity capacity in 2021.
At the same time, coal declined to 36%. Dry Fork Station near Gillette, WY, which opened in 2011, may turn out to be the last coal power plant built in the U.S. According to the Energy Information Administration, of the operating coal-fired power plants in the U.S., 28% plan to retire by 2035. By contrast, forecasts expect global wind generating capacity to grow 7% annually through 2026.
Government support for wind power in the form of subsidies nudged developers to discover economic opportunities when they otherwise would not initiate the first steps. The growing number of renewable power mandates alongside a slow march down in cost per kilowatt-hour forced electricity suppliers and their regulators to find ways to meet those directives.
Manufacturer research and development, combined with practical experience with innovative technologies, increased efficiencies and reduced the costs associated with wind power. Wind power is becoming more cost-competitive than newly-built coal or gas plants today; the Netherlands and Germany now have zero-subsidy wind power projects.
The market for creating wind power remains fragmented. As recently as 2021, 30 manufacturers delivered wind turbines to the global power market, with ten firms claiming 85% market share. Participants come mainly from Europe, the U.S., and China. Many are parts of larger organizations, while others solely focus on wind power. As fragmented markets grow, competitors acquire and merge to better position themselves to capture an increasing share of a growing pie. Three years ago, 37 manufacturers competed in this space, and we expect consolidation to continue.
While land-based developments have been most common so far, offshore wind developments represent the fastest-growing corner of wind power. In the case of the U.S., technical estimates suggest developable offshore capacity is twice the amount of electricity the nation currently uses. The first U.S. commercial offshore wind farm went into production in 2016 off the coast of Rhode Island; another was completed recently off the coast of Virginia, and more are in development.
Offshore turbines in certain parts of the world require different engineering. Turbine designs generally account for gusts of 150 miles per hour, but some hurricane-prone locations must handle gusts up to 225 miles per hour. Bigger is better here, too, with some offshore rotor diameters reaching 185 yards, or nearly two football fields, compared to 140 yards for land-based turbines.
Despite having installed merely 1% of potential capacity, North America is the most mature and competitive wind generating market. The greatest opportunities for wind development lie outside the U.S. In particular, Southeast Asia and Africa expect to be the fastest-growing regions over the next five years. China already has the most installed wind capacity of any nation. Since becoming the biggest energy consumer in 2010, China has aggressively invested in renewable energy and has ambitious plans to do more.
Wind power faces challenges too. Many projects can’t get completed without political support like sourcing requirements or financial subsidies that prioritize movement toward a cleaner energy portfolio. Good land-based wind sites are often in remote locations far from cities where power is needed. Slow permitting from regulatory authorities is problematic for on and offshore wind projects and especially transmission lines required to get the power where it is needed. And despite declining production costs for wind power, it isn’t always competitive against traditional energy sources.
Wind power has evolved into an industry ready to thrive on its own and provide an opportunity for investors. Continued subsidies are designed to accelerate the process in the face of a changing climate. Financial markets are giving more attention to the wind power industry and will reward those who capture the most value.
Disclosure: This is for informational purposes only and any reference to a specific company (or industry) does not constitute a recommendation to buy or sell that company (or a company in that industry). The reader should not assume that an investment in a security in the industry identified or described, was or will, be profitable.