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The wind industry is past its growing pains. It hardly needs subsidies anymore and is showing much better returns on invested capital and free cash flow generation. It’s finally investment worthy.
‘Wind energy can go without subsidies soon’The era of subsidies for wind energy is slowly coming to an end. In fact, the only reason why subsidies are still needed is because the ‘old’ conventional technologies are almost fully depreciated, hence operate against lower costs. The subsidies are actually used for the end-customer (e.g. a utility) that needs to invest in transmission infrastructure, as wind parks might be located quite far from the utility and its distribution network. An important incentive scheme in place is the Production Tax Credit (PTC) in the United States. As the PTC makes it very attractive for developers to start new projects, the wind market will continue to enjoy significant tailwinds in the coming years. No pun intended.
‘We are out of the hype cycle and players have matured’The wind industry, however, is still a fragmented place. The top five players – Vestas, GE, Enercon, Gamesa, Siemens – account for about 75% of the global installed base (ex-China), with a long tail of smaller players making up the rest of the market. In China, the landscape is even more dispersed and completely dominated by nineteen (!) domestic companies with a combined 98% market share. Ever since China implemented a ‘buy-local’ policy in 2004, the country basically turned into a no-go area for Western suppliers. This also works the other way around, making it very hard for Chinese players to enter markets such as Europe and the United States. Hence, the current wind industry appears to be fragmented, but stable.
‘Better ROIC and FCF equals attractive investments’Wind energy will remain a driving force of a more sustainable future. Offshore wind becoming more economic, continued coal plant retirements and improved grid storage solutions all act as long-term drivers. Record order backlogs and higher service content support solid growth and margin expansion. From a sustainability point of view, wind energy is an attractive theme to play. But now that companies’ business models are more sustainable and returns on invested capital and free cash flow generation have improved, ‘wind’ has become an interesting financial investment too. It seems the ‘wind of change’ has indeed arrived. And it’s here to stay.
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