Category: Investments

  1. Q3 Fund Manager changes
  2. Towering renewable wind energy Energy production is responsible for two thirds of today’s global emissions; sparing our world from disastrous warming demands a change in how we generate it. Of the renewable energy sources poised to push fossil fuels aside, hydropower is currently the most dominant and cost-effective method. But interrupting the flow of rivers has untold environmental consequences that will likely see hydro lose relevance over time. Wind is vying for its crown. At the end of 2020, the International Renewable Energy Agency (IRENA) calculated the average cost of generating one kilowatt hour (kWh) using either solar panels or wind turbines: $0.057 and $0.039 respectively. To reach those levels, costs have fallen by 85% (solar) and 56% (wind) over the last decade. So, of the two primary contenders, wind is cheaper. Furthermore, according to research by Regen Power, a wind turbine produces just under 5g of CO2/kWh over its life, with nearly all of that attributable to the steel and concrete used in its construction. That compares favourably with solar panels at 70g of CO2/kWh. Both trump coal, which coughs a lung-troubling equivalent of 1000g of CO2/kWh. Wind wins again. It makes both financial and environmental sense to keep building wind turbines. At current costs, each MW of wind power requires about $1.3m of investment. With hundreds of thousands of MW needed in the decades to come, there’s an opportunity to invest. Big spinners Scan the current top 10 holdings of any sizable clean energy ETF and these are the names of the wind energy businesses you’re likely to see: HQ Market cap (11 October 2021) Claim to fame Vestas Denmark $34bn Installed 140GW of world’s 740GW total wind capacity China Longyuan China $17bn Largest wind power producer in China and Asia Ørsted Denmark $56bn Largest producer of offshore wind power globally Nextera US $157bn World’s largest wind and solar energy generator Iberdrola Spain $68bn Largest pipeline of renewable energy projects in the world To give you an idea of the scale involved, the 77 000 turbines that Vestas has installed to date crank out roughly enough generation capacity to power South Africa twice over. It’s hard to get statistics on China Longyuan (the author was denied access to their website) but given that China is the world’s largest producer of wind energy with 282GW of capacity (EU = 202GW; US = 117GW) they will be sizable. Ørsted, which consistently ranks as one of the most sustainable energy companies in the world, is responsible for nearly a third of all offshore wind capacity installed globally. While only 60% of Nextera’s overall generation capacity is renewables based, it operates more than 16GW worth of wind turbines, with plans to increase that by 25% this year. Iberdrola has a renewables pipeline of 81GW, half of which is for wind. This list of companies trying to capture a share of the world’s wind energy is long; the attractive micro and macroeconomics create a fierce playing field. And if there’s a race for anything right now, it’s height. Size matters Wind turbines are getting bigger, for a reason. Extra blade length is shown to generate exponentially more power. Part of the reason is that longer blades sweep a wider area, which means they are less susceptible to pockets of energy-sapping lulls in the wind. It’s also windier the higher you go. Within the next five years, nacelles – the airily named bulbous generation units that sit atop the turbine tower – will be perched at 200 metres or more above ground level. At full stretch, the tip of the blades will extend the height of the turbine to more than 300 metres. For scale, the recently opened Leonardo in Sandton, Africa’s tallest building for the time being, is subordinate at 234 metres. With a generation capacity of 13-16MW per turbine, one of these renewable energy skyscrapers could reasonably be expected to power 10 000 – 20 000 homes. The wind speed needed to keep their blades turning? Anything above the 12-15 km/h range is good enough, although most turbines of this size need an electric jumpstart to overcome inertia. Beyond 90 km/h and they usually shut down to avoid damage. So far, most wind turbines have been built on solid ground. But given the quantum of the wind capacity we need to install to minimise climate disaster, many wind energy companies are casting their eyes and investment to the deep blue. Going offshore It takes a few months to build a wind turbine on land. Cranes are used to erect the tower (its pieces are bolted together on site) after which the nacelle (usually with two blades already attached for stability) is mounted, with the final blade fixed last for a finished product. Things are much trickier at sea. The Hornsea Project One is the largest offshore wind farm with a generation capacity of 1.2GW. Its 174 turbines punch through the surface of the North Sea, about 120 kilometres east of England’s coastline, in water that ranges from 22-72 metres deep. Compared to their dry cousins on land, these turbines: are much costlier to build given the additional transportation and engineering requirements; suffer increased wear and tear and require more frequent maintenance; and need their own aquatic substations and substantial cabling to get the current to land. But peruse the marketing material of the big wind turbine players and you’ll see they all tout offshore wind as their next growth vector. The obvious reason is that the wind is stronger and more consistent at sea, which makes the economics of a seafaring wind turbine more attractive for investors, operators, and electricity consumers. The more subtle benefits are that offshore farms face less public resistance – because they aren’t seen or heard – and there’s more space. This allows the manufacturers to build bigger turbines and bigger farms, both of which result in the more efficient generation of power. This trend towards offshore is set to accelerate with the increased use of floating turbine platforms. Whereas fixed platforms are usually constructed in water depths of 60 metres or less, the floating platforms, moored to the seabed using flexible anchors or cables, will increase that range to 1 kilometre below the surface – with the space that would open up, we could build enough turbines to thwart a hurricane. Anyway the wind blows It’s hard to see the demand for wind energy getting caught in the doldrums. It’s as clean as it comes and capturing it is getting more efficient as bigger turbines venture out into the windswept oceans. As an investment opportunity, it’s endowed with the primary characteristics of sustainable infrastructure: assets with 25-30-year lifespans; long duration, inflation-linked offtake contracts that generate reliable, consistent cash flows; the generation of a positive social (through job creation) and environmental impact. One last stat before you go: wind turbines consume between 0.1% and 14% of the water used in nuclear and coal powered generation respectively – these towering structures could save us in more ways than one. - Graviton
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