Can't stop the wind

Investment Analysis Clubs Macro Economic Trends and Risks
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The comes a time in the development of a new technology when the economic benefits become so large that its adoption becomes inevitable regardless of politics. That’s been the case with everything from automobiles to online shopping. Wind energy seems to have reached that point according to Mr. Market.

Politically we are in down times for wind energy. Yet look at the 6-month performance of the First Trust Global Wind Energy ETF (FAN)

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Compare that with the 6-month performance of the United State oil fund (USO)

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I think the market sees wind energy adoption as inevitable with the current administration only capable of short term delays. The only thing the repubs are accomplishing is making it more likely that the wind turbines that will be installed over the next 10 years will be made in China.

I would take a good hard look at GE Vernova (GEV) whose core businesses of wind energy, grid modernization, and replacing coal with gas seems like a good fit for future growth. GEV reminds me a bit of BYD, which is using its hybrid and battery profits to grow its unprofitable BEV business. GEV is using gas and grid profits to keep competitive in wind, which will be where most future revenue growth will occur. Here is 6-month GEV performance during an idiotic energy policy:

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Well, it has been dead money for three years, and is still 35% below its initial price 17 years ago (2008). Orsted is down almost 80% since the beginning of 2021.

Subsidies to build, produce energy and even to not produce energy add up. Even before the IRA, per unit of energy produced wind got 29x the subsidies for gas and oil.

DB2

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To repeat, “There comes a time in the development of a new technology when the economic benefits become so large that its adoption becomes inevitable.” That time came in the past couple of years and the market is now recognizing it.

That’s a tired old argument. Two simple replies.

First, dumping untreated industrial waste into the water and air is really cheap if one doesn’t include the cost of clean up. We know from every industry that health and environmental costs matter. The fossil fuel industry still isn’t close to paying for the impact of its product on health and the environment.

Second, what counts as a “subsidy” is pretty variable. Where would the gasoline industry be without the government building a national highway system? How much did it cost to protect Kuwaiti oil fields? Let’s see how competitive gas/oil would be if companies like Exxon had to pay their share of the costs for the higher frequency of wildfires, drought, floods etc due to climate change. These are costs currently being paid by the general public in the form of higher insurance and utility rates.

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GEV is doing well, but not because of its wind business. Their power segment showed strong growth with orders up 45%. This is AI data center driven. The wind segment is expected to approach breakeven in the second half of the year.

DB2

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Wall Street has seen a significant decline in its financing of fossil fuel projects, as markets prove more powerful than net zero goals in shaping loan and bond portfolios.

In all, financing provided to oil, gas and coal projects by Wall Street’s top six banks fell 25% to $73 billion this year through Aug. 1 from the same period in 2024, according to data compiled by Bloomberg. The biggest decline was at Morgan Stanley, where fossil-fuel financing dropped 54%. The smallest was at JPMorgan Chase & Co, which saw a roughly 7% decline.

The development coincides with what JPMorgan analysts say looks to be the first decline in global upstream oil and gas development spending since 2020. It also follows a period during which Wall Street’s top lenders all made headlines by walking away from the Net-Zero Banking Alliance after the reelection of Donald Trump to the White House.

Trump’s anti-climate and pro-fossil fuel policies have piled pressure on US banks and asset managers to publicly toe the line of the White House’s energy agenda. Yet behind the scenes, the data paint a more nuanced picture.

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The U.S. Department of the Interior announced Wednesday that the Lava Ridge Wind Project is officially canceled.

Department of the Interior Secretary Doug Burgum said he would reverse approval of the large wind farm projectthat had been approved to be built outside of Twin Falls on land managed by the federal Bureau of Land Management, or BLM…

President Donald Trump temporarily halted the project through an executive order in January, the Idaho Capital Sun reported. His order directed the federal agency to review the project.

DB2

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And in Germany, last week’s offshore wind auction failed to receive any bids.

Two offshore wind farm areas in the North Sea failed to attract any bids in the latest auction held by Germany’s Federal Network Agency, which industry groups on Wednesday called unprecedented.

The trade groups said this was the first time an auction for offshore wind farm areas in Germany has failed.

The Bonn-based agency announced that no bids had been submitted by early August. The areas are set to be re-tendered in June 2026, as stipulated by law.

DB2

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You can’t compare it to this! USO is a completely different type of financial instrument. It invests in oil futures/options and has an inherent loss with almost every rollover. This is why such ETFs like this one (USO), that attempt to daily track a commodity, are terrible. And they are terrible for other reasons as well. Because they are structured as a partnership of sorts, you get a K-1 each year. And not only do you get a K-1 each year, but you even get a K-1 for years after you’ve already sold it! How do I know? Because I owned USO a number of years ago, and still received a K-1 two years after I sold it! I wrote about that saga here on MF at the time.

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You need to better understand GE Vernova’s business model, which states “…GE Vernova is uniquely positioned to help lead the energy transition by continuing to electrify the world while simultaneously working to decarbonize it.”

The energy needs of data centers are such that a multifaceted approach is needed where renewables and storage (batteries) are supplemented with high-efficiency gas turbines. These inputs are coordinated by AI through software/hardware improvements in the electricity management/distribution network. GEV can provide all these services.

An example is GEV’s multibillion dollar partnership with Amazon to decarbonized the vast AWS data center network.

GE Vernova and Amazon Web Services (AWS) have signed a strategic framework agreement to support AWS’s data centre expansion and collaborate on global energy challenges, including grid security, reliability, and decarbonisation of power systems. Windtech International - GE Vernova and AWS partner to support data centre expansion and energy transition

Over the past year renewables reached an economic tipping point where both wind and solar are now consistently less expensive than fossil fuels. Around 90% of renewables cheaper than fossil fuels worldwide, IRENA says | Reuters

This means that the transition to wind power is now being driven by the market and so will only temporarily be delayed by reactionary politics. It is all about economics.

All that means is that the US falls further behind the rest of the world in wind tech. For example, Taiwan is going all in on offshore wind. Taiwan is creating an offshore wind industry to fuel its semiconductor factories - Rest of World

Orsted, a Danish company, is building several of the Taiwanese offshore windfarms. Ørsted starts offshore construction of 920 MW offshore wind farms in Taiwan

With data centers taking up so much energy it is difficult for most nations to be energy independent if they rely on fossil fuels. Most nations also understand the security/economic risks of being dependent on energy imports. Renewables and nuclear are the only way to attain energy independence. Both are becoming cheaper with time and that is why these will be the global future energy growth industries. Unfortunately this industry will probably not be led by American companies, with GE Verona and Tesla the possible exceptions.

FYI, I am dollar cost averaging into GEV.

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I think you are missing the forest for the moss on the north side of the fifth tree from the left. At issue is simply whether USO performance acts as a general proxy for the US oil industry. Here is USO 5-year performance.

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Here is Exxon’s 5-year performance:

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Here is Chevron’s 5-year performance:

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Seems like a valid comparison to me.

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It doesn’t over the long term. If you want to use an ETF proxy for the oil industry, try VDE or XLE or similar.

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Fortunately FAN does not seem to have a position in Orsted.

DB2

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And in Australia…

“In the first half of 2025, Australia saw $556 million of investment in utility-scale solar, falling sharply from $1.6 billion in the same period in 2024,” the report says. No wind projects at all reached financial close over the period…

“Key transmission projects like the VNI West and Marinus Link are delayed and are experiencing cost overruns. The permitting and grid connection process remains tedious, and social licensing issues are causing significant delays and cost overruns for big projects…

But the report also notes that the slowdown in wind farm development has come despite government support for wind being at an all-time high…

DB2

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Which is of course sad news for those of us who believe that climate change is a clear and present danger.

The good news is that in one region where much future economic growth is likely to occur, renewables are booming. India has favorable age demographics with a large, young workforce while all the other economic powers are aging quickly.

India is well ahead of schedule in fulfilling its Paris Accord agreements with 50% of installed electrical capacity coming from non-fossil fuels. India hits 50% non-fossil power milestone ahead of 2030 clean energy target | Reuters

We can guess which way the future is going by taking a look at Egypt, where the continent’s largest wind farm became commercially operational. Not surprisingly, this wind farm was not built by an American company. It was built by Toyota. The world is passing us by in what is rapidly becoming a major part of the global energy economy. Toyota Tsusho to Commence Commercial Operations at Africa's Largest 654 MW Wind Farm in Egypt | Toyota Tsusho

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That statistic is somewhat misleading. Just looking at capacity doesn’t tell us what actually produces the energy. From the Statistical Review of World Energy, electricity generation in India in 2024 was 77.7% from fossil fuels (the large majority is coal) and 22.3% from other sources.

Similar numbers from the IEA, for 2023 as the latest year.

_Pete

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And from the linked article: “Fossil fuels still accounted for over two-thirds of the increase in power generation last year.”

DB2

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More news from Australia…

Origin Energy, Australia’s biggest energy retailer, appears to have hit the go-slow button on the rollout of new renewable energy projects, and is still mulling options on the already extended Eraring coal generator, the country’s biggest, which is officially due to close in 2027…

It [the annual report] includes no wind or solar projects. The technologies did not even rate a mention in the results presentation, apart from the giant 1.45 gigawatt (GW) Yanco Delta wind project in the south-west of NSW, which has gained grid access rights but is still to complete environmental approvals.

DB2

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True dat. Let’s take a look at China -

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Many in the US view renewable energy adoption as solely a moral obligation to address climate change. It’s become political, like so many other issues that must be addressed. Things are different in China -

“Cultural attitudes reinforce this approach. In China, renewables are framed as a cornerstone of the economy because they make sense economically and strategically, not because they carry moral weight. Coal use isn’t cast as a sign of villainy, as it would be among some circles in the U.S. – it’s simply seen as outdated. This pragmatic framing, Fishman argued, allows policymakers to focus on efficiency and results rather than political battles.”

Instead of moving forward, we’re running backward! The economic consequences will be serious. Many are listening to a dude who calls wind turbines windmills…but I digress.

China consistently maintains around twice the electricity capacity than it needs. From the article -

“They have so much available space that instead of seeing AI data centers as a threat to grid stability, China treats them as a convenient way to “soak up oversupply,” he added.”

China dominates the world in advanced manufacturing. It has become the leader in renewable energy in a short amount of time. They are beginning to dominate EVs and will dominate AI. Their dominance isn’t a result of a higher moral standard, but rather, far less stupidity.

Don’t get me wrong, I believe the US should push renewable energy because it’s the right thing to do for our planet. But, there are clearly other benefits that are not always the focus. When half of the US isn’t interested in doing the right thing (in soooo many areas), we need to find other arguments for renewables.

In other words, we need to follow China’s lead. We should probably get used to following China’s lead for the foreseeable future…

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Need to seems ro indicate choice.. Will indicates a confidence in the future. I think will is the better term.

Even today battery plus solar is a competitive solution for energy installations. However, current installations will be obsoleted by newer technology almost as fast as they can be built. . The leaders in battery tech have already moved fixed storage cost to right at 100 dollars a kilowatt hour at the pack level, and below 50 dollars a kilowatt hour at the cell level. This is not the end. New chemistries will,( notice the lack if weasel words here, ) drop pack level prices below 50 dollars a kilowatt hour by the end of the decade. I don’t know exactly what is happening with the panels but I am hearing of advances along the supply chain from chemistries to manufacturing advances to advances in inverters and control technologies. But, these really will not make a big difference until battery storage becomes overwhelmingly economical.

I am watching fusion closely. If the CEO’s are even close to correct we should see positive energy output from at least two different technologies by the end of the decade. I suspect this will up end the thinking about energy, but with the falling cost of solar plus storage, fusion will have to get real competitive real fast .

Cheers
Qazulight

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It’s like what I told my children when they were younger. You can choose to do anything with your life, but your options will disappear with every bad choice you make. Geesh, I guess I was a Daddy Downer.

I agree, fusion could potentially be a game changer. Even with recent advancements, we won’t see utility scale production anytime soon.

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