Post #56: Let the wind blow

Most British and many northern European readers of our Blog may be inclined to disagree with our headline after the blistering impact of Storm Ciara felt over the last 24 hours. With wind speeds reaching almost 100 miles (or 150km) per hour, there was widespread disruption to travel and other services. Although this was clearly an extreme weather circumstance, wind is good, and the outlook for the industry looks attractive.

The world’s leading turbine manufacturing business, Vestas, reported a strong set of results last week. Beyond recording its largest-ever order intake with backlog standing at an all-time high of €34bn (last year’s revenues were €12bn, for context), the more important part of the story was the commentary offered by management. Per, Henrik Andersen, the group’s CEO, the growth outlook for the sector is “very positive.” 

The main driver behind such an assertion is that electricity consumption is expected to grow by more than 40% over the next 15 years (per Bloomberg New Energy Finance). As we have highlighted elsewhere, population growth and increasing urbanisation imply greater energy needs. Crucially, however, renewable energy is set to be “the dominant generation source and lead capacity additions” (in the words of Vestas). Renewables – of which wind is set to be a major part – are forecast to enjoy a five-fold increase in demand over the period through to 2035, more than any other energy source. Correspondingly, annual investments in wind power capacity are expected roughly to double in the next 15 years, reaching more than $200bn.

Vestas describes “renewable focus” as a mega-trend, a message that was also strongly emphasised at the recent World Economic Forum in Davos. While leading turbine manufactures should inevitably benefit from all the above developments, it is important to remember that wind is likely only to be one building block in the energy equation. Looking forward, expect more partnerships between solar and wind businesses with battery storage solutions sitting at the centre, a point also made by Vestas. Storms such as Ciara are fortunately the exception, but it is still far from guaranteed that either the wind blows or the sun shines on a daily basis, hence multi-modal solutions may be the way forward.  

Heptagon Capital is an investor in Vestas. The author of this piece has no personal direct investment in Vestas. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.