Wind Industry Will Do Just Fine Regardless of U.S. Clean-Energy Subsidy

NEW YORK ( TheStreet) -- Whether or not the U.S. wind industry secures a hefty and attractive clean-energy federal subsidy shouldn't be a concern for those looking to invest in this segment of alternative energy.

If energy independence and lowering carbon dioxide emissions are truly goals of U.S. policymakers from both political parties, the decision to maintain the wind production tax credit should be a no-brainer. It should help stocks such as SunEdison  (SUNE) .

But regardless of whether the production tax credit is extended, the future looks bright for wind even though energy sector investors have been spending much of their time lately immersed in the details of the Halliburton  (HAL)  and Baker Hughes (BHI)  merger and the Keystone XL pipeline votes.

Two recent events warrant further attention: One was an approval by Deepwater Wind, the privately held wind developer headquartered in Providence, R.I., to connect an offshore wind farm to its home state's power grid. The project, which could meet the electricity needs for over 17,000 households, is slated to begin construction next year. The other major news item that didn't get much attention was SunEdison's $2.4 billion buyout of First Wind, one of the largest wind developers in the U.S.

While both events were important, SunEdison's move could signal that the wind sector is moving closer to progressing successfully even without the production tax credit. The latter scenario, one German-based Siemens (SI) is targeting, is making renewable energy economically viable with coal and natural gas even independent of subsidies.

Speaking of being more viable, at $0.04 per kilowatt-hour, renewed optimism regarding the future of wind is being helped by the fast evolution of technology. Technological innovation, from blade design, gears, sensors and energy storage solutions are driving costs lower and helping to make wind more price competitive with fossil fuels. This may be why David Einhorn, hedge fund manager of Greenlight Capital, holds a 7.85% stake or 21 million shares in SunEdison and believes the shares are worth $32.

As for Siemens, the company has shown considerable commitment to wind energy in 2014 and it appears this power source will be an even bigger focus for the company in 2015. Siemens is the supplier of the largest onshore wind turbine deal in the world (448 turbines), an order from Warren Buffett's MidAmerican Energy to be located in Iowa. According to the company's Web site, Siemens has over 11,500 wind turbines operating globally with nearly half installed at wind farms throughout the U.S. Therefore any positive spotlight on the wind sector should benefit Siemens.

Continued positive momentum for wind investment should also bode well for turbine makers such as General Electric (GE) , the largest deployed turbine maker in the world (16,500+ turbines) and Emerson Electric (EMR) , the parent of SSB Wind Systems.

Italy's Enel Green Power  (ELPSF) is another name that stands to benefit if wind power usage grows in the States since the company announced in late 2013 it was investing $250 million in a 150 megawatt wind warm in Oklahoma.

American Superconductor (AMSC) is a more speculative investment long idea due to its valuation. However, they are making the brains of the wind turbines which could see increased demand. Additionally, since rare earth materials are being more widely integrated into advanced blade technology, investors may want to keep Molycorp MCP on the radar as well.

The move to cut the wind subsidy is likely to happen in coming years, but for now it's still premature. Furthermore, taking away the subsidy will result in the loss of tens of thousands of American jobs during a critical time in our country's economic recovery coming out of the worst recession since the Great Depression.

It doesn't make sense at the present time for the U.S. to risk losing out on further research and development advancements presently being made in the wind sector, especially at a time when the government recently announced an increased focus to lower CO2 emissions.

Then there's rates. Interest rates are likely going higher within the next 12 months so the uncertainty that reality may finally bring to the U.S. financial system is one the wind sector needs to show it can withstand before it can completely stand up tall on its own two feet without subsidies.

So while everyone tries to figure out who will cut oil production first to prop up prices, allocating capital in the wind sector, even before the subsidy decision early in 2015, is one investors shouldn't just let fly away in the breeze.

Attempts to reach SunEdison for comment for this article were not answered. 

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @bluephoenixinc

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates SUNEDISON INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate SUNEDISON INC (SUNE) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and poor profit margins."

You can view the full analysis from the report here: SUNE Ratings Report

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