A year ago, the US Energy Information Administration (EIA) predicted that natural gas would remain the country’s top power source through 2050. The agency, known for its conservative predictions about renewable energy, has since changed its mind. In its latest forecast, the EIA sees renewables dominating the US power mix by 2050.
Although solar is expected to become the top source of electricity in due time, that milestone is still a distant future away. Wind represents a larger share of the power mix than solar and will continue to do so for at least another decade and half. In fact, wind generation recently overtook hydroelectric to become the dominant source of renewable power in the US with 38% market share.
Wind Installation Boom
The rate at which wind power capacity is being added is part of the growth story. A near-record amount of capacity just came online last year, with 9.1 gigawatts of wind power being installed in United States. That’s the most since 2012 when expiring federal tax credits triggered a building boom that resulted in 13.2 gigawatts of capacity being added that year. Nearly two-thirds of 2019’s additions occurred in the states of Texas and Iowa, which installed 4 gigawatts and 1.7 gigawatts, respectively.
2020 could be another boom year as developers rush to add as many megawatts of new capacity in the US as they can before the current set of federal tax credits expires at year-end. The EIA is predicting that a record 14.3 gigawatts of wind power will enter service this year, most of it (about 70%) coming online around the 4th quarter.
Upcoming End to the Wind Drought
All this new capacity (recently-added and upcoming) should help end the so-called “wind drought,” an expression that has been used by electric utilities and power generators to explain the sluggish year-on-year revenue growth that has plagued the industry in recent years. The surge in US electricity production from onshore wind turbines during the second half of 2019 already suggests the wind drought might be subsiding, according to Maxx Chatsko, an expert in environmental and materials sciences. If that is the case, then wind stocks could be on the cusp of a breakout year, allowing the sector to outperform the S&P 500 for the first time in five years.
The US is not the only part of the world enjoying a resurgence in wind power generation. Europe also achieved new records for wind farm installations in 2019, and costs continue to fall significantly in the region. Last year’s auctions – in the UK, France and the Netherlands – delivered prices for consumers in the range of EUR 40-50/MWh, which is cheaper than building new gas, coal or nuclear.
Wind’s Recycling Problem
There are issues to iron out, however. Wind power operates on a simple principle: The energy in wind turns a wind turbine’s propeller-like blades around a rotor; That rotor is connected to the main shaft which spins a generator to create electricity; And the process generates carbon-free power. But carbon-free doesn’t always equate to zero pollution. In fact, the wind industry has an oversized recycling problem that risks constraining growth and broad adoption of wind power.
While 85% of wind turbine components, including steel, copper wire, and electronics, can be recycled or reused, the blades are nearly impossible to dispose of in a sustainable manner. That’s because the massive blades commonly found on wind turbines nowadays are built of fiberglass strong enough to withstand hurricane-force winds. Not only are these blades enormous –– each can be longer than a Boeing 747 wing or even a football field –– they cannot be easily crushed, broken up, or repurposed like other components in the turbine.
Consequently, old retired turbine blades are ending up in landfills. This is the case even in the European union which strictly regulates what materials can go into landfills. In the EU, some blades are being burnt in kilns that create cement or in power plants, but that method is far from ideal since burning fiberglass emits pollutants. Finding a sustainable disposal solution could become an existential necessity for the wind power industry.
One start-up appears to be making progress on that front. US-based Global Fiberglass solutions has reportedly developed a method to break down blades and press them into pellets and fiber boards that can be used for flooring and walls in the construction industry. According to Don Lilly, the company’s CEO, Global Fiberglass Solutions can process “99.9% of a blade and handle about 6,000 to 7,000 blades a year per plant.”
While that number sounds promising, it is not nearly enough. Tens of thousands of wind turbine blades are being replaced around the globe each year, and the annual tally will only increase over time. Most of the blades being retired at the moment were built a decade ago when installations were less than a fifth of what they are now.
The American Wind Energy Association in Washington argues that wind turbine blades are landfill-safe, unlike the waste from some other energy sources, and that they represent only a tiny fraction of municipal solid waste going to landfills. Still, public backlash underscores the industry’s need to find a solution that does not entail burying blades in perpetuity.
As it is, wind power has other environmental strikes against it, including the fact that wind turbines can be noisy, wind farms represent visual pollution to some people, and they are known to pose a threat to wildlife like birds that get injured or killed if they fly into the blades.
How to Invest in Wind
Nevertheless, these disadvantages have yet to halt the rise of wind power. Concerns about climate change, improving technology, and favorable economics continue to drive investment in the sector, helping wind grab a growing share of the world’s energy mix. While the long-term opportunity in wind is not as compelling to MRP as that of solar, which is on our list of active investment themes, the current resurgence of wind provides a good entrypoint for investors who want to diversify from solar within the clean energy space.
Investors can gain exposure to the wind sector through the First Trust Global Wind Energy ETF (FAN). After having lagged the SPY since 2015, FAN appears to be breaking out and has returned +11% on a three-month basis versus +8% for SPY.
Managing Director, Research
McAlinden Research Partners