Monday, December 12, 2011

What Happened to Wind Power?

What happened to Wind Power?

Wind turbines are everywhere.  We saw a lot of them in Nova Scotia, Newfoundland, California, New York - heck, even my home town has one.

But as of late, the bloom seems off the rose for wind power.  Why is this?

Wind power has always been problematic.  When energy costs soar, it makes economic sense - provided that the government gives it tax breaks.  As I noted earlier in a posting about drug dealing, the real profit in that business is the fact that it has no fixed overhead and is tax-free.  Take any industry, make it tax-free, and it is profitable.  Pssst! Wanna buy a wind turbine, cheap?

But turbines have real costs, and they are rather large and can be eyesores.  And even in places like Politically Correct Ithaca New York, there is opposition to Wind Power.  The local "alternative" paper runs articles railing against wind power, but forgets to white-out the coal industry lobby logo from the accompanying charts and graphs.  Dirty coal is, apparently, politically correct in Ithaca.  Pollution, so long as it remains in West Virginia, is acceptable.

Vestas Wind Systems is the General Motors of wind power, and being the General Motors of anything is generally a bad idea, considering how well General Motors did in the last decade.  While very profitable through the early 2000's, they have been posting very large losses as of late.   Deliveries are down, due to the credit crunch.  And they have struggled with many plants on many continents, including some very high cost labor pools, in the US and UK.  They closed a UK plant a few years back, when local support for the industry wavered and political talk about promoting wind farms withered in view of cheap North Sea oil.  It didn't help any that their workforce sued the company for exposure to epoxy.  Wind workers or coal miners - not much has changed in the UK!  Where's my free hot meal?

All that being said, I foolishly bought the stock a couple of years back, on the premise that given the President's focus on "green energy" as well as the high price of oil, that wind turbines would be a growth industry.

However, since then, the stock has fallen to nearly 1/4 of its value.  What is going on here? 

Cheap oil for one.  Last week, outside of Savannah, I saw it - Gas for below $3 a gallon - $2.95 to be exact.  I predicted this would come, but it came sooner than I thought!  Sales of gas-guzzling cars are already up, because consumers are idiots and their economic memory is about 18 months, tops (most are now convinced that Obama "caused the recession" and can't remember the months leading up to the last Presidential election, when everything melted down.)

So, the urge to "go green" is fading fast, and the Kyoto treaty, set to expire, has met few, if any of its goals, and no one seems to be too concerned about global warming anymore, because, hey there was something on Fox news about how it was all fake, right?  "Climate-gate" - like the "War on Christmas".  If Fox said it, it must be true!

And wind power, in this environment (if you will pardon the pun) seems even less cost-effective.  Without tax breaks, a wind turbine is a money-losing proposition.  And tax breaks are exactly what the GOP is attacking in this election.  Incentives to buy electric cars, wind turbines, and other "green" technology will evaporate faster than E85 on a hot sidewalk in Georgia.

Opposition to wind farms is starting to mount as well.  Naturalists claim that the suction created by the blade cause bats to hemorrhage.  Others call them an eyesore.  Boaters argue that off-shore wind-farms, slated for the coast of Massachusetts, will be a hazard to navigation.

Let's face it.  If you can't sell a wind farm to people in Ithaca, New York (home of flaky liberalism) or Massachusetts (ditto) then you will have a nearly impossible time selling these to people in Iowa or Texas.

Three words:  Ain't. Gonna. Happen.

What does Vestas wind systems need to suceed?  $200 a barrel oil.  But even then, it would be a mixed blessing, as the turbines are made of composites, which use a lot of oil in their production.  Rising oil prices would increase demand - but at the same time increase prices!

And rising oil prices are already driving developments like the oil sands in Alberta, which in turn are driving down oil prices.

Aye, there's the rub!  Every environmentally conscious thing we do, to conserve oil, save energy, and reduce pollution, drives down the demand for oil.  As demand drops, the price drops.  People, seeing prices drop, stop conserving, and demand goes up.  As demand goes up, prices go up, and we start conserving again.  We are doomed to ride a roller-coaster of energy prices, with alternative energies and green technologies always just out of reach, like the brass ring on a carousel to an 8-year-old.

And the oil industry realizes that keeping energy prices high - but not so high as to make alternatives viable in the marketplace - is the key to success.  $5 a gallon gas from 2008 is now manifesting itself in a fleet of small, fuel-efficient cars just hitting the market.  It takes at least three years to get a car from drawing board to market.  But now, gas is cheap again, and everyone wants a 580 HP Camaro.

580 HP?  Is that insane or what?  And people still like to say that the cars made back in the 1960's, which struggled to break the 400 HP barrier, were better.  I think not!

So the question is, do I hang on to Vestas stock, or dump it?  It is a hard question.  No one likes to take a loss on a stock, and when you sell it, you always feel like, "Well, maybe it will go up again!".  And it could, if a lot of things happened just right:
1.  The credit crunch would have to ease, so that people would feel confident borrowing money to buy a wind turbine.

2.  The tax laws would have to remain the same, so that tax credits for wind energy continued for the foreseeable future.  A GOP budget deal could kill these off (Republicans hate wind power, Baby Pandas, and Cute Little Kittens).

3.  Less opposition to the location and placement of wind farms.  When you struggle to install a wind farm in Ithaca, New York, all bets are off!

4.  Oil prices and energy prices in general will have to go high and stay high.
All of this together tells me to sell - and moreover that I should have done the research on this long ago and sold while the stock was higher.  The articles I linked to above were all from 2009-2010 era, when the stock price was much higher.  Even as recently as April of this year, the stock was trading at $45 a share.  What happened?

A lot of things.  Earnings for the second quarter of 2011 were past expectations, causing the price to spike.  But then we were dealt the double-whammy of the debt ceiling "crises" (manufactured courtesy of your local GOP representative!  Be sure to thank him for killing your 401(k)!) and the European Union crises - the latter probably affecting this Denmark company more.

There is also talk of a takeover, as at nearly $10 a share, it is priced attractively for another company to buy out.  And perhaps if they can close more of these plants spread all over the world, consolidate production (in China, where else?) and bring the prices down, they may be able to turn the company around.

So, should I hang on, hoping for a better price in a buyout?  Or perhaps a price recovery when the economy turns around?  Or sell now before it tanks utterly?  My gut reaction is to hold it, as I have lost the majority of my money, and at $10 a share, I am not going to recover much at this point.   I can afford to gamble.

Of course, the stock does not pay any dividends, so I do not even have the consolation of making a little money on that.  Heck, even Bank of America stock pays a dividend, albeit not much!

But all of this illustrates the problem of stock-picking for the average investor.  Data on this company is hard to come by.  Annual reports are impossible for average folks to read.  Press releases and news stories are usually one-sided.  Analysts reports - if they are available - are all over the map.  Buy.  Hold.  Sell.  Who do you believe?

What seemed like a strategic investment, based on news reports and trends at the time, ended up being a bad bet, at least in the short term.  Events have conspired against Vestas, and against me, the small investor.  And these are events that are hard to foresee.

Investing in green energy is risky.

Meanwhile, my Exxon/Mobil stock shows a 17% gain since I bought it, and pays $1.88 a share, like clockwork, in dividends.

Say what you want about bad old oil, it is the better investment, from a personal perspective!