Wind energy generates almost 10% of U.S. electricity and in a land of endless plains that appears likely to increase. Unlike some emerging technologies, wind energy is also a relatively mature market, so there are several options for public stocks, equity-related investments, materials, bonds and even real estate. Here are a few things to know about investing in the future of wind. To know if it’s right for you, consider working with a financial advisor.
Why Wind Could Be a Good Investment
The economy of the United States and much of the western world is gradually decarbonizing. Since the industrial revolution, every major economy has come to depend on fossil fuels because of one key feature: portability. However, concerns about climate change has led some governments to subsidize alternatives to fossil fuels, and wind is one such alternative.
Power generation is one part of the economy that has been adapted to wind energy, thanks to advances in many fields, from conducting materials to capacitor batteries. It is now possible to build a power grid that can easily and efficiently transfer electricity from where it was generated to where it’s needed. The portability advantage of hydrocarbon-based fuels remains a bottleneck in some industries, most notably in aerospace and vehicles where it is still easier to put gas in a tank than electrons in a battery. However, where the electric grid is concerned fossil fuels increasingly look like the dinosaurs they once were.
How to Invest in Wind
There are multiple ways you can consider investing in wind. Here are a few different options.
Of the emerging energy sources, wind is currently the largest. If you want to invest in this sector, one of the first places to go is through stocks, funds and related investments. There are several ways to invest in wind energy through stocks. Most notably, you can invest in companies that build turbines and other essential equipment for building wind farms. You can invest in companies that generate and sell wind energy. Or you can invest in an exchange-traded fund (ETF) or mutual fund built around this industry as a whole.
For investing in the companies that build equipment, you can consider looking for major manufacturers like TPI Composites (TPIC), Vestas Wind Systems (VWDRY) or General Electric (GE). All of these firms and many more, build the turbines, engines and other major components necessary to make the large generators that provide wind energy. Note that neither these nor any other assets listed in this article should be taken as specific investment recommendations. These are simply representative companies working in the space.
By contrast, you can look for companies like NextEra Energy (NEE) that actually generate electricity through wind farms. For companies like this, the business model is to produce wind energy and sell this electricity back to public utilities.
Finally, you can invest through equity-based funds and indices. This means either ETFs or mutual funds that focus their investments in and around the wind energy space. While these are rare, ETFs like the Global X Wind Energy ETF (WNDY) are good examples. Or you can look into the ISE Clean Energy Global Wind Energy Index (GWE), which tracks the wind energy market at large, giving you essentially an S&P 500 for the wind.
2. Real Estate
You can also invest in wind energy by investing in the underlying land. Like solar power, a wind farm requires a very large footprint. Some communities will build turbines, even entire farms, and that land has to come from somewhere.
At the same time, the transition to renewable energy sources will require a new and upgraded power grid. This will involve building large transmission towers, substations and other infrastructure across the country, all on land that someone will have to purchase or lease. All of this creates an opportunity for real estate investment and speculation.
While this requires more legwork, occasionally real estate investment firms will coalesce around this investment area through REITS. By researching emerging trends in the real estate market, you can look for real estate investment opportunities that buy mortgages and real estate related to wind farms.
You can invest in wind projects by investing in the underlying debt. Bonds in this field tend to come in two categories. First, you can invest in the bonds sold by wind energy companies as they grow and expand. As with all corporate debt, this will tend to pay a higher rate of interest than Treasury or municipal bonds.
In addition to the creditworthiness of the company itself, your investment will also be secured by the fact that this is an asset-intensive industry. Even if the company fails, it will still hold large property and real estate assets with which to make debtors hold.
Second, you can invest in government bonds for projects to build wind farms. These will typically be municipal bonds for local governments looking to expand their alternative energy footprint. As a result, they will tend to pay less interest but have significant tax advantages. Bond investments in this space should be pursued on an individual basis.
4. Side Investments
Finally, as with all emerging technologies, you can side-invest in this industry. Side investing refers to investing in the materials and products that technology needs to succeed. As the industry grows, those related fields will profit as well. In the case of wind energy, there are several fields to consider, but perhaps the most important two areas are next-generation power lines and next-generation batteries/capacitors. Like most non-fossil fuel energy sources, to succeed wind energy must solve two problems.
First, it must efficiently transmit energy from the (generally remote) farms where wind energy is produced to the communities where it is needed. This will require companies to build and maintain new high-capacity power lines and it will require next-generation conduction materials to efficiently carry that much electricity without significant loss.
Second, the wind grid must store energy for when the wind isn’t blowing. This means creating large batteries that can store excess energy during times of high generation and consume that energy during low periods.
This is an area that requires research, in part because it is vast. New companies are emerging to develop carbon materials and semi-superconductors for building power lines. Batteries are sometimes built out of cobalt and rare earth capacitors and sometimes they are built out of caves in a mountain. Investors looking to get into this space will need to research exactly what the right investment is at the right time before trying to jump in.
But, for investors looking to make a higher-risk/higher-reward investment, the right choices have the potential to score huge. Alternative energy conversion will require a near-total rebuild of the power grid, making some people very rich.
The Bottom Line
Wind energy is a relatively mature technology, but one that is growing quickly. Investors can get into this field through traditional stocks or funds or by investing in many of the assets and materials that this industry will rely on to succeed.
Alternative Energy Investment Tips
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Don’t just think about what to buy, think about where to buy. Let’s start by reviewing which states are leading the charge when it comes to renewable energy.
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