Is Wind Energy A Good Long-Term Investment?

Is wind energy a good long-term investment? As our family considered building a wind turbine on our ranch, this became a defining question. Having witnessed the droughts and wildfires worsening yearly in our area, we felt compelled to act – both for our children’s future and to build a sustainable business.

Yet high initial costs and permit complexities left us uncertain on risks. That experience of balancing hope and anxiety shaped my research into the economics around wind.

By scrutinizing growth projections, cost curves, incentive policies and more, I gained true clarity. The findings surprised even my inner skeptic.

While real obstacles exist, macro trends and levelized value potential convincingly support wind investment. If approached carefully, wind can deliver enduring clean energy income.

In this post, we’ll explore the current state and future outlook for the wind energy market, the financial benefits and returns from investing in wind projects, key considerations before investing, and the opportunities emerging in the wind sector.

Read on to learn why wind energy seems poised to deliver robust, long-lasting returns.

The Growth Trajectory of Wind Power is Hard to Ignore

Wind power capacity has increased over 10 fold in the last 15 years, and is expected to be one of the biggest sources of new electricity generation going forward.

Several key stats highlight the current scale and potential of the global wind energy industry:

• Over 700 gigawatts (GW) of installed wind power capacity at the end of 2020
• Generated over 1.2% of global electricity demand in 2020
• Seen as a $1 trillion revenue opportunity for the wind power sector by 2040

Bloomberg New Energy Finance (BNEF) projects that over $10 trillion total will be invested in new renewable energy capacity like wind and solar by 2050–more than 75% of total power sector investments.

Several interconnecting trends are driving rapid growth in adoption of wind energy globally:

Significant Growth Forecast in Wind Energy

• The International Energy Agency (IEA) estimates over 1700 GW of total wind capacity will be online by 2030 in their forecast (source)
• Representing close to 60% average annual market growth in installations
• Onshore wind is expected to see 129 GW added per year on average–more than natural gas

So there is still huge runway for growth even from current capacity levels.

Year	New Wind Power Capacity Added	Total Capacity
2022	93 gigawatts	837 gigawatts
2023	114 gigawatts	951 gigawatts
2024	121 gigawatts	1,072 gigawatts

Declining Costs of Wind Turbines and Farms

The cost to build new wind power capacity has dropped dramatically in recent decades:

• Average levelized cost is down over 40% since 2015
• In part thanks to much bigger and more efficient modern wind turbines
• Making unsubsidized wind cost competitive with even the cheapest new fossil fuel plants in some markets already

This means operators can generate and sell wind energy profitability at ever lower prices.

Incentives and Support Driving Adoption

Wind projects still benefit from subsidies and supportive regulations in most areas like:

• Production Tax Credit (PTC) – provides a tax rebate per kilowatt-hour generated
• Investment Tax Credit (ITC)– rebates percentage of project capital costs
• Renewable Portfolio Standards – require utilities source portion of power from renewables
• Feed-in tariffs – set above-market rates for green power producers

These types of mechanisms help improve project returns and offset higher initial capital expenditures. Corporate renewable energy buyers also provide a strong tailwind for new wind capacity growth.

So from market forecasts, cost declines unlocking competitiveness, and policy incentives–the macro trends all signal significant continued expansion ahead globally for wind power.

The Revenue Streams and Returns from Wind Can be Substantial

Given wind farms have relatively high upfront investment requirements, what kind of financial returns can investors expect on these projects? The good news is revenues can be stable and healthy if developed in an optimal location.

Project developers will usually estimate returns over 20 years when evaluating potential new wind farm developments or acquisitions. The levelized cost of energy and revenue sources are key variables.

There are a few typical ways operators can monetize the clean power generated by wind farms:

• Power purchase agreements – selling electricity to local utilities
• Wholesale market sales – real-time pricing for energy and ancillary services
• Corporate buyers – companies like Google, Amazon directly buying the wind power
• Renewable energy credits – representing green attributes unbundled from energy

Based on prevailing conditions–a wind project could generate 15-25% unlevered returns over two decades. With ideal positioning and power sales contracts in place, some projects foresee even higher investor IRRs.

Tax Credits and Additional Savings

• The production tax credit (PTC) entitles wind projects to $0.015 per kWh federal rebate (for first 10 years)
• The investment tax credit (ITC) allows projects to deduct 26% of initial capital costs
• Provides 10-20% extra value for investors and operators

These credits make wind power projects financially viable in cases when wholesale power market prices alone are still too low to justify the expense. In terms of relative incentives for renewables–wind energy receives over 10x the net tax breaks and subsidies of traditional energy sources like natural gas or coal.

Attractive Returns Over Time

Once built, wind turbines also benefit from extremely low maintenance and operational costs–especially compared to conventional power plants.

• Minimal expenditures for fuel, waste handling, water usage etc.
• Plants mainly require periodic turbine inspections and repairs
• Translates to excellent returns on ongoing invested capital

Estimates find the levelized cost per MWh falls by ~40% over a project’s 25 year lifetime–helping to surface value. So while wind developments demand large initial construction capital and planning, they can provide reliable 20%+ returns for decades to come.

Key Factors to Examine Before Investing in Wind

Of course, successfully developing revenue-generating wind projects is complex with many variables to assess from selecting locations to financing and navigating regulatory issues.

Below are a few of the most crucial considerations for investors eyeing new wind energy investments:

Upfront Costs and Financing Options

• Constructing modern, utility-scale wind turbines runs over $3 million per MW capacity on average
• Requiring minimum $50-$100+ million project size to benefit from scale economies
• Partnership structures involving tax equity investors help fund projects
• Debt availability increasing from infrastructure funds and green bonds

Tapping incentives can help improve equity IRRs by hundreds of basis points. So utilizing available tax credits, subsidiary support, and tailored financing is key.

Ideal Locations for Wind Farms

Identifying sites with superb wind profiles is vital to profitability:

• Consistent, moderate to high wind speeds = more kWh generation
• Currently Midwest, Plains, Offshore Coasts look most promising in US
• Texas wind energy projects particularly attractive

Plotting multiple years of detailed wind data during development helps minimize weather-related performance risk. Favorable transmission infrastructure and power market dynamics also factor when screening potential wind farm geography.

Transmission and Storage Challenges

Delivering electricity from turbines to end users brings certain technological hurdles:

• New high voltage transmission lines often needed to reach cities
• Energy storage required to smooth intermittent wind availability
• But battery costs falling quickly and transmission being built out

So investors want exposure to projects where power logistics and infrastructure needs have been addressed.

Policy and Regulatory Changes

Incentives and energy sector regulations shifting add uncertainty:

• PTC for wind set to phase out over next 5 years
• General clean electricity standard could replace it
• State renewable portfolio standards evolving

Understanding outlooks for key jurisdictions’ standards and subsidies slated for renewal allows investors to assess policy risks.

Bright Future as Tailwinds Remain Strong for Wind

Despite some lingering challenges around deploying immense amounts of new wind capacity globally, the long-term trends point to an undeniably strong outlook.

Let’s look at a few particularly promising areas that should deliver exceptional wind energy investment opportunities over the next 5-10 years at least.

Corporations Turning to Renewables

Big companies have become a key driver of new wind developments to reduce carbon emissions:

• Google, Amazon, Apple striking deals for hundreds of megawatts from new wind farms
• Over 290 Fortune 500 companies have renewable energy or emissions targets
• These corporate buyers provide guaranteed offtake/revenues via Power Purchase Agreements (PPAs)
• Allows wind developers to secure financing and achieve higher profitability

With pressure growing on big corporations to reduce their carbon footprints, this appetite for clean power is projected to swell enormously over the next decade.

Companies signed over 31 GW of clean energy PPAs globally just in 2020–more than tripling 2019’s figure (source). And RE100 now tracks ~370 multinationals committed to 100% renewable electricity for operations.

So the corporate renewables movement provides a very strong, stable revenue stream underpinning growth forecasts.

Offshore Wind Energy Growth Potential

Offshore wind remains more expensive than onshore currently, but costs are declining rapidly:

• Next generation 15+ MW floating turbines coming online
• Benefit from higher, more consistent wind speeds offshore
• Projected to expand at ~20% per year over next decade

With Europe already possessing over 25 GW of offshore wind capacity, analysts see the total global offshore market growing to 234 GW by 2030 (source). Intense activity seen around new leases and planned projects along US coastlines now too.

So offshore wind represents perhaps the most thrilling frontier.

FAQs

Is Wind Energy Good For The Future?

Absolutely. With climate change being an existential threat, shifting to renewable energy like wind power is crucial for our future. Wind turbines produce no greenhouse gas emissions while generating electricity.

The costs of wind technology are declining rapidly too as performance improves. Projections predict over 1700 gigawatts of wind capacity installed globally by 2030 – up over 6X from today.

Corporations like Google, Microsoft, and even oil majors are investing heavily based on the future potential. Sure, wind has some downsides we’ll get into regarding intermittency and location constraints.

But between falling prices, energy independence, and environmental benefits – wind energy is undoubtedly great for the long-term future.

Should I Invest In Wind Energy?

Investing in wind energy still does carry risks that need proper evaluation. But for patient investors comfortable with some policy uncertainty, it can provide outstanding diversified returns.

Property owners leasing land for wind developments can benefit from annual lease payments and royalties too. Returns ultimately depend on factors like location wind resource quality, power market prices, incentives in place, etc.

Yet with industry tailwinds so strong, wind energy investment merits consideration, especially as storage tech and transmission infrastructures evolve to manage the clean power. Just be selective in assessing individual project details.

What Are 3 Disadvantages Of Wind Energy?

The most frequently cited wind energy drawbacks include:

• Intermittency – The wind blows sporadically. The power generated fluctuates minute to minute and needs smoothing before feeding grids. This intermittency challenges grid management.
• Suitable Locations – Only certain sites offer consistently strong enough wind to maximize turbine output for economic viability. The best spots can become saturated.
• Upfront Costs – Constructing giant modern turbines runs over $3 million per megawatt capacity in initial outlays. So wind farms demand immense upfront capital vs fossil fuel plants.

Unpredictable supply, specific geography needs, and sheer capital scale requirements pose obstacles. Yet solutions like better forecasting, transmission, and storage tech plus robust policy support are addressing these.

Is Wind Power Long-Term Or Short Term?

Wind power absolutely has to be considered one of the most promising long-term sustainable energy sources available. Once built, wind farms operate for ~25 years with minimal costs for fuel or waste handling.

This means excellent long-duration cashflow. Wind turbines now see regular upgrades to expand nameplate capacities and rotor spans too – allowing improved performance over decades.

Companies invest in wind farms expecting 20+ year lifespans. And because wind itself is free, operational returns tend to surface more value over time rather than diminish like coal/gas plants.

While incentives may shift, the long runway makes wind an outstanding option.

Where Are Most Wind Investments In The World?

Currently China represents over 35% of total global wind energy capacity additions and investments. In fact 5 of the top 10 largest wind turbine manufacturers globally are now Chinese enterprises.

Europe has historically led too – boasting 35% of capacity concentrated especially in Germany, Spain and the U.K. But the United States and burgeoning markets like India, Brazil and Mexico are also seeing enormous capital inflows as costs drop.

Emerging regions where electricity demand is surging offer exciting horizons as well for wind players sitting on maturing position in China. Offshore markets, especially along North Sea and East Asia are pegged next for explosive growth too.

How Do I Start A Wind Turbine Company?

Getting into the wind turbine supply chain or development business demands deep expertise, significant capital, and strong partnerships – but the growth potential makes it enticing.

Most entrepreneurs start by specializing in one vertical like operations/maintenance, construction, electrical systems, or gearboxes before expanding. Building a track record delivering successful projects for utility-scale wind farm owners or manufacturers is key.

Having a background in aerospace, mechanical, civil or electrical engineering is very valuable as well to understand technical considerations.

And partnering with investors able to assist with large equipment purchases or project financing is crucial when ready to scale up into owning full wind turbine manufacturer or wind farm development ventures.

What Are 5 Disadvantages Of Wind?

The main five disadvantages associated with wind power generation involve:

1. Intermittent output requiring integration solutions
2. Restricted geographic regions offer prime conditions
3. Large land footprint and visual/noise impact for some
4. Significant upfront capital expenditure costs
5. Backup capacity still needed during lulls

However, rapid technology advancements and other renewable energy sources combining with wind on grids increasingly mitigate these drawbacks.

What Is The Main Problem With Wind Power?

The unpredictability of wind remains the most fundamental problem which must be overcome with wind power. Wind speeds at any given location vary tremendously day-to-day and even hour-to-hour.

This fluctuating supply must get balanced with demand fluctuations to maintain stable grid supplies. Sophisticated forecasting reduces some uncertainty for operators.

But storage systems helping shift excess wind generation to peak times show the most promise for solving intermittency. As battery technology improves and costs decline, the problem of variable wind output can get solved economically.

Conclusion

In closing, is wind energy a good long-term investment? Given the market forecasts, corporate demand swell, technology improvements, and long-term returns possible – wind power presents a highly promising opportunity for patient, discerning investors.

With due diligence assessing individual project parameters from location suitability to PPAs to policy conditions in key regions, turbines and farms can spin off low-risk cash flows for decades while benefiting the planet.

This remains an evolving landscape with execution risks and regulatory uncertainty. Yet clean energy transition tailwinds blow strongly behind the sails of responsible wind investors. Our world needs wind, and wind offers the returns to back that build-out at scale.

Image: Credit Istock