The year 2010 was a momentous one in the world of green energy. It was the year when China overtook the US to become the global leader in wind energy.
During 2010, China installed no less than 16,482 MW in new capacity to bring its total to 42,287 MW. By contrast, the US installed just 5,115 MW in new capacity to bring its total to 40,180 MW.
Chinese growth in wind power capacity has been dramatic. Just 10 years ago it had total capacity that was less than 10 percent of the figure for the US. Even as recently as 2008, it had less than half the US' capacity. China hopes to generate 15 percent of its power needs from renewable sources by 2020, and the outlook is equally dramatic. Some forecasts are for as much as 20,000 MW of new wind power capacity during 2011, although the general consensus is for between 14,000 MW and 19,000 MW.
Looking further ahead, some forecasts are that China could have an installed capacity of as much as 200,000 MW by 2020, implying around 13,000 MW to 14,000 MW of new capacity annually. Along with this growth has come a leap in the capabilities and output of the Chinese wind turbine industry. At least 15 companies are producing turbines, and dozens more provide components.
Market share figures from BTM Consult show that in 2010 Chinese company Sinovel Wind Group displaced General Electric (GE) to become the world's second-largest supplier of wind turbines, behind only Danish giant Vestas VWDRY.PK). Three other Chinese companies were in the global top 10, and an amazing seven were in the top 15.
Most of their business to date has been inside China. But increasingly, they are looking to sell abroad. If they can prove that their products are technologically as advanced as those from Western rivals, then the opportunities are huge, as they operate from substantially lower cost bases. The example of the Chinese solar power industry, which has displaced many fancied Western companies, shows what is possible.
This is an exciting theme, one that offers great possibilities for astute investors. Nevertheless, it is important to tread carefully. For a start, the range of stocks available to investors is constrained. State-owned enterprises remain responsible for much power generation activity in China. Of the private companies, most are not listed on any stock exchange.
Of the stocks that are available, some are thinly traded, and there is not always the depth of data available about them that investors expect from publicly listed American companies. Few pay dividends; some do not make profits. This is a sector for the brave.
There are other issues: Competition in the Chinese wind turbine industry is now fierce, and prices are falling. Not all companies will survive, even in a growing market. And the leading Western turbine makers are not sitting on their hands: They are boosting their activities in China and are realizing success with what are still viewed as superior products.
Another problem is that wind energy developments in China are very much a result of government policy, and this can change quite abruptly. Further, the power grid in China remains under-developed, and some new wind power capacity is not even getting connected. One reason is that 80 percent of wind power development occurs in just three north-eastern provinces, Inner Mongolia, Hebei and Gansu, and often in quite remote sites. This lack of connectivity has proven to be a disincentive for some new projects.
So with the above caveats in mind, here are the 10 stocks that investors interested in this sector should be monitoring.
A-Power Energy Generation Systems (APWR) is producing wind turbines, using technology from German and Danish companies. It has also entered into a joint venture company with General Electric to produce wind turbine gearboxes, though it is now trying to acquire GE's interest, and there are concerns that problems have arisen. It is involved in the Texas $1.5 billion Spinning Star wind energy project, although this appears to have stalled. The company has delayed issuing its December 2010 fourth-quarter and full-year results amid fears that it is trying to hide some bad news. Nevertheless, it is a leading Chinese supplier of small-scale distributed generation power systems, and this business continues to grow.
American Superconductor (AMSC) announced in March that its primary customer, China's Sinovel Wind Group, was refusing to accept contracted shipments of 1.5 MW and 3 MW wind turbine core electrical components and spare parts. As a result, the company expected March 2011 fourth-quarter and full-year results to fall well below earlier forecasts. The news sent the company's shares sharply lower and led to a flurry of class action suits. The outlook remains cloudy. Yet American Superconductor boasts some excellent technology, and as it diversifies its customer base, its profits (and share price) should bounce back.
China Longyuan Power Group Corporation (CLPXF.PK) was founded by the Chinese Ministry of Energy to carry out new energy research. It is now China's largest wind farm operator, with 6,556 MW of installed capacity at the end of 2010. It expects to triple this figure by 2015, and is also looking to expand overseas.
China Ming Yang Wind Power Group (MY) is one of China's -- and the world's -- leading wind turbine producers. Sales and profits are rising rapidly. In its March 2011 first-quarter results, its gross profit rose from 20.5 percent to 26.0 percent, thanks to its continuing efforts to cut costs and to bring inhouse the production of components, and despite rising levels of competition that are forcing turbine prices down.
China Wind Power International (CNW.V) is a small Toronto-based company that has completed its first wind farm development in China, and has plans for several more, with an eventual total capacity of approximately 800 MW.
China Wind Systems (CWS) is a fast-growing components supplier to the wind turbine industry. I have written previously of its efforts to achieve superior growth through its moves into electro slag remelting (ESR) technology, which results in high-margin products that are of higher quality than regular forged components. It is one of only three large-scale ESR producers supplying the Chinese wind industry.
China Windpower Group (CWPWF.PK) is a Hong Kong holding and investment company that operates 19 wind power plants in China with total installed capacity of 1,064 MW. It also produces wind tower tube equipment. Sales and profits are growing rapidly.
Far East Wind Power Corporation (FEW.OBP) is a Beijing-based company that is working to develop a portfolio of wind farms, with a total installed capacity of at least 1,000 MW. Various contractual arrangements have been entered into, but no project is yet up and running, and it appears that financing remains an issue.
GC China Turbine Corporation (GCHT.OB) is a small turbine manufacturer using Swedish two-blade technology, rather than the mainstream three-blade models. It maintains a research facility in Sweden. Business is growing, although the company is dependent on just a small number of customers.
Xinjiang Goldwind Science and Technology Company (XJNGF.PK) in 2010 became the world's fourth-largest wind turbine supplier. It occupies a prominent place within the Chinese wind power industry as one of the country's pioneers. With growing competition at home, it is increasingly looking to expand abroad. It has developed a particular expertise in direct-drive permanent magnet (DDPM) technology, which obviates the need for a gearbox. DDPM could become the dominant technology for large-scale turbines, and Goldwind is developing models up to 6.0 MW in capacity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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