Investing in Wind Energy

Wind energy has been growing rapidly in the U.S. Wind turbines produced 8.4% of the country's power in 2020 -- almost double 2014's level -- powered in part by record wind capacity additions. The wind industry expects 2022 to be another record year as declining costs and government incentives power continued growth in new wind capacity additions.

With wind energy demand expected to keep growing, companies focused on the sector should benefit. Here's a closer look at some of the best ways to invest in wind energy.

Top Wind Energy Stocks to Watch

Companies in the wind industry tend to fall into the following categories:

• Wind turbine and component manufacturers: These companies benefit from growing wind demand because it helps drive sales growth. However, they face potential demand, competitive, and cost pressures.
• Wind power producers: These companies own and operate turbines that produce wind energy, which they sell to end users. Most wind producers sell power under government-regulated rate structures or long-term, fixed-rate contracts that generate steady revenue.

While wind energy is growing in importance, few companies focus solely on manufacturing wind turbines and components or producing wind energy. Of those that do, only a couple trade on major U.S. stock exchanges. That leaves investors with few domestic pure-play wind energy investment opportunities.

Because of that, investors need to cast a wider net when looking for ways to invest in the wind energy sector. With that in mind, here are some of the top wind energy stocks to consider:

Data source: Google and Yahoo finance and company websites. Market cap/AUM data as of Jan. 23, 2022.

Here's a closer look at these top wind energy stocks:

NextEra Energy

NextEra Energy is a major renewable energy company. It operates the largest electric utility in Florida and a large-scale energy resources business. NextEra Energy Resources is one of the largest producers of wind power in the world. As of early 2022, it operated 119 wind projects in the U.S. and Canada with 18 gigawatts (GW) of combined generation capacity – enough for 13.5 million homes. Overall, 69% of its subsidiary’s generation capacity is wind energy.

The company is an active developer of new wind energy projects. It expects to build up to 7.9 GW of new wind energy capacity by 2024. In addition, it has more than 1.4 GW of wind repowering projects in its pipeline. These investments replace older wind turbines with newer, larger ones capable of generating more electricity. NextEra Energy is also a leader in using battery storage to help reduce the intermittency of its wind and solar energy assets. While not a pure play on wind energy, NextEra is a leader in the sector, making it a solid option to consider.

General Electric

General Electric is a leading industrial company focused on the aviation, healthcare, and energy sectors. The conglomerate is in the process of breaking up into three separate companies focused on those industries. It plans to spin off its healthcare business in early 2023 and its renewable energy, power, and digital business in early 2024, allowing the remaining entity to focus on aviation.

GE's renewable energy business is one of the global leaders in manufacturing, installing, and servicing wind turbines. It has installed more than 49,000 units around the world. The installed base generates recurring service revenue. In addition, GE has a large and growing backlog of onshore and offshore wind development projects that should produce steady growth in the coming years. While not a pure play on wind energy, GE gives investors exposure to the sector in the near term, with a more focused option coming when it breaks up.

Vestas Wind Systems

Denmark-based Vestas is a global leader in the wind energy sector. It designs, manufactures, installs, develops, and services wind energy and hybrid projects worldwide. It has installed more than 145 GW of wind turbines across 85 countries.

Like GE, Vestas doesn't just sell and install wind turbines; it generates some recurring income from servicing them after installation. The company has service contracts covering at least 124 GW of wind power for an average length of 10 years. These contracts help to offset some of the variability in wind turbine sales. Its focus on wind turbines makes Vestas one of the few large-scale pure plays on wind energy.

Siemens Gamesa Renewable Energy

Siemens Gamesa is a leading wind energy company based in Spain. It manufactures, installs, and services onshore and offshore wind turbines, with more than 99 GW of capacity installed worldwide. The company is working with Siemens Energy (OTC:SMEG.F), its majority owner, on green hydrogen developments using wind power.

Despite the growth in wind energy, Siemens Gamesa has struggled in recent years due to a patent dispute with GE, surging steel costs (a key input in wind turbines), and issues with its onshore wind platform. However, better days could lie ahead for the wind turbine maker. The International Trade Commission rejected nearly all of GE's claims against the company in early 2022. If some of its other headwinds fade, the stock could take off. Siemens Gamesa’s upside potential makes it an intriguing wind energy stock to consider.

NextEra Energy Partners

NextEra Energy Partners is a limited partnership formed by NextEra Energy to own clean energy infrastructure assets secured by long-term contracts. As of early 2022, it had almost 7 GW of renewable energy assets and 4.3 billion cubic feet of natural gas pipeline capacity. Wind assets made up more than 80% of its renewable energy generating capacity, with solar and energy storage making up the balance.

NextEra Energy Partners' wind assets supply it with relatively steady cash flow, which the company uses to pay a high-yielding dividend. Meanwhile, it increases its cash flow and that payout by acquiring additional clean energy assets from NextEra Energy and third parties. This strategy makes it an ideal stock for investors seeking a wind-powered passive income stream.

Global X Wind Energy ETF

The Global X Wind Energy ETF is an exchange-traded fund (ETF) focused on wind energy stocks. The ETF includes companies involved in producing wind energy technology, integrating wind into energy systems, and developing wind energy turbines. The ETF also incorporates environmental, social, and governance (ESG) screens and follows ESG proxy voting guidelines to help encourage positive change.

The ETF launched in late 2021 and held almost 30 wind energy stocks as of early 2022. More than half of its holdings are utilities with large wind operations, about 40% are industrial companies that manufacture wind turbines, and 7% are basic materials manufacturers. This ETF also has a heavy concentration of Chinese-listed stocks – almost 43% of the total. Overall, it offers broad exposure to the global wind energy sector.

TPI Composites

TPI Composites is a global wind-blade manufacturer. It sold nearly a third of all onshore wind blades made in 2020 (excluding those produced in China). It enables wind turbine makers to outsource blade production, expanding global capacity.

TPI Composites provides investors with a very concentrated wind energy investment opportunity given its sole focus on manufacturing wind blades. However, like Siemens Gamesa, this focus has had its drawbacks in recent years. A turbulent economy and supply chain issues have affected its growth and profitability. But, with demand for wind energy expected to grow in the future, TPI Composites could see stronger sales and higher profits as demand materializes.

First Trust Global Wind Energy ETF

First Trust Global Wind Energy is another ETF focused solely on investing in wind energy stocks. The ETF invests in pure-play wind companies that get at least 50% of their revenue from wind-related activities (60% of the fund) and diversified companies involved in some aspect of the wind energy industry (40% of the fund). As of early 2022, it held almost 50 wind energy stocks.

This ETF also has a heavy concentration on foreign-listed wind energy stocks. Of note, its top 10 holdings included Vestas Wind Systems and Siemens Gamesa Renewable Energy. It's much more diversified by country than the Global X Wind Energy ETF, with Spain-listed wind stocks making up the largest country in its portfolio, at 15%. The ETF's broad focus across the wind energy sector makes it an ideal option for investors who want to bet on the long-term global growth of wind energy but don't want to select individual wind energy stocks.

Learn more about renewable energy

Wind energy should be a good long-term investment

Wind energy plays an important role in reducing carbon emissions and the long-term impact of climate change. Because of that, wind capacity additions should continue rising in the coming years, which should benefit the wind sector.

However, it isn’t likely to be a smooth ride. Rising steel prices, slowing economic growth, and changing government incentives are all headwinds that could hurt the wind sector in the coming years. That's why investors should consider taking a basket approach and investing in more than one wind stock. They could purchase an ETF to gain exposure to the broader sector or buy shares in several wind-focused stocks. This strategy would help reduce risk and put investors in a better position to benefit from the upside ahead for the wind sector.