The winds of change are gathering force

Stocks in the Spotlight: Vestas Wind Systems

While we hear a lot of hot air from Canberra on reducing Australia’s greenhouse gas emissions, a revolution within the clean energy sector has been hidden in plain sight. The obvious clue of wind turbines popping up all over the country may have missed our federal politicians’ gaze but not the scrutiny of our investment team who read the headwinds and decided to invest in Vestas Wind Systems late last year.

The Danish company designs, manufactures, installs, and services wind turbines and is the global leader in wind installations with 102 gigawatts (GW) in place across 80 countries. It recently passed the 1GW milestone in Australia which is helping multiple states meet their renewable energy targets.

Wind's phenomenal growth

Its turbines are in demand because wind power is the cheapest source of large-scale renewable energy. New wind projects—even those backed by batteries—are now cheaper than new coal generation and are expected to be cheaper even than existing coal generation within a couple of years. This is already starting to pull down the wholesale price of power.

The global outlook for the wind industry is encouraging. Peak body for the sector, Global Wind Energy Council, expects over 300 GW of new capacity to be added over the next five years. That is more than 55 GW of new installations each year until 2023.

That potential is already coming to pass with multiple power-hungry economies getting the bulk of their power needs from wind. In March last year, Portugal produced 104 per cent of its needs from wind while in November, wind provided Scotland with enough power to meet 109 per cent of its needs. Across 2018, wind supplied over 40 per cent of all electricity in Vestas’ home country of Denmark.

Although Australia has some of the best wind resources in the world, the lack of supportive federal policies mean we are still playing catchup. Yet major projects keep on coming such as the first offshore wind farm in the southern hemisphere being planned for the Bass Strait. With a projected capacity of 2,200 MW, its generating capacity will match the output of the decommissioned Hazelwood brown coal plant.

In response to these tailwinds, last year Australia built over 850 MW of wind power, making it the best ever year for the industry. Wind currently supplies 7.1 per cent of our total electricity needs and counts for over a third of renewable generation.

Vestas in Australia

To meet the demand, in February, Vestas announced it would establish a facility for assembling turbine components in Geelong where it can tap into the availability of skilled former auto workers and support the growth of an industry with a current workforce of 11,200.

Another game-changing development is coupling of wind farms with energy storage technologies to circumvent wind’s inherent inability to meet demand on calm days.

In June Vestas bought into the massive wind and pumped hydro Walcha project in NSW’s New England region. At 4GW (4000MW), it will be the biggest renewables project on the Australian grid.

While the company appeals to us for its long term returns potential, we also have a strong ethical justification for investing. Vestas is focusing on six of the Sustainable Development Goals (SDGs) including Goal 7, 'Affordable and Clean Energy’, and Goal 13, ‘Climate Action’. And crucially for an ethical fund manager, the holding helps us fulfill the 10 per cent of our portfolio we direct to sectors in our positive screen—which includes clean energy.

When asked to forecast future energy trends we believe: “the answer is blowing in the wind.”