How To Invest in Wind Energy (FAN ETF Review)
Wind is now the top source of renewable energy in the U.S., and the poor recent performance of wind stocks could be a buying opportunity. Learn how you can invest in wind power through ETFs like FAN or WNDY or by buying individual stocks.
SustainFi October 4, 2021
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Why invest in wind energy
As the global shift away from fossil fuels continues, wind power is poised for further growth. A clean energy source, wind power produces no carbon emissions. Wind energy is already around 5% of the global power generation, but capacity is projected to more than double by 2027. In fact, 2020 was the best year in history for the global wind industry as new capacity installations increased by 53%.
Already the cheapest form of energy in many places, wind power is competitive even without government subsidies. Wind turbines are becoming more efficient, helped by larger blades and taller towers, and the cost of producing energy once the turbine is installed is zero.
Policy-makers are increasingly favoring wind energy. In the U.S., the Biden administration wants to double offshore wind power generation by 2030. Offshore wind has not taken off in the U.S., as it has in Europe, due to the difficulty of getting permits. But, in May 2021, the first major offshore wind project in the U.S. was finally approved.
Why wind power stocks have struggled
Despite the boom in wind power and the potential for long-term growth, many of the companies that should be benefiting (like wind turbine makers) have struggled this year. There are several reasons for this:
Rising raw material and shipping costs
More recently, turbine manufacturers have struggled with high transportation costs and increases in the prices of raw materials like steel and copper. Turbines are getting larger and more expensive to transport, and shipping delays and rising fuel costs have not helped.
U.S. wind tax credits are set to expire this year. The federal wind subsidy was implemented in 1992, generating billions in tax credits. It is unclear if the tax credits will be extended further. Anticipating the 2021 tax credit expiration, wind farms ordered more turbines in 2020, pushing demand forward.
Chinese wind subsidies are also expiring in 2021, which led to a surge of new orders in 2020. China, which aims to be carbon-neutral by 2060, is the world’s leader in wind power generation.
Most of these challenges appear to be short-term and could give you a buying opportunity.
Wind Energy Exchange-Traded Funds (ETFs)
There are now two ETFs that invest in wind power stocks.
|Fund||First Trust Global Wind Energy ETF||Global X Wind Energy ETF|
|Assets||$390 million||$2 million|
As of 9/30/2021
First Trust Global Wind Energy ETF (FAN)
- Date launched: 2008
- Assets: $390 million
- Expense ratio: 0.62% ($62 on a $10,000 investment each year)
- Year-to-date performance (through October 2021): -14.5%
- Holdings: 50
- Top three stocks: Vestas Wind Systems, China Longyuan Power Group, Orsted
The First Trust Global Wind Energy ETF (FAN) is the largest global ETF that targets the wind industry. Around 60% of the fund is invested in “pure-play” wind companies.
FAN has 50 holdings, of which the top ten make around 50% of the fund’s assets. This ETF invests globally: Canada, Denmark, and Spain are the top three regions.
Like other clean energy ETFs, FAN has been very volatile. It returned over 60% in 2020 but dropped 14.5% in 2021 (through October). It was also down 22% in 2011 and 11% in 2018.
FAN has nearly $400m in assets and charges a 0.62% expense ratio, which is in line with other renewable energy funds.
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Global X Wind Energy ETF (WNDY)
- Date launched: September 2021
- Assets: $2 million
- Expense ratio: 0.50% ($50 on a $10,000 investment each year)
- Holdings: 25
- Top three stocks: China Longyuan Power Group, Vestas Wind Systems, Northland Power
Launched in September 2021, the Global X Wind Energy ETF (WNDY) is the second ETF to invest in wind power. It buys companies in wind energy systems, wind power production, wind energy technology, and wind power integration and maintenance.
With only 25 stocks (though it aims to hold 50), WNDY fund is more concentrated than FAN. But it is also cheaper, incorporates environmental, social, and governance (ESG) screens, and follows ESG proxy voting guidelines “to affect positive change alongside financial returns.”
Unlike FAN, which invests 60% of the fund in pure-play wind companies, WNDY aims to invest in the entire fund in around 50 pure-plays. WNDY is also able to invest in pre-revenue firms, which will be capped at 10% of the fund in total and at 2% per company.
Wind Energy Stocks
Although it’s easier to get exposure to the wind industry through an ETF, you can also look at individual stocks.
For example, you can invest in onshore and offshore wind turbine manufacturers. Most wind energy is generated by onshore turbines. Although winds blow stronger offshore than onshore, offshore wind is only about 5% of the industry’s capacity. But offshore is growing faster, and offshore turbine-makers should benefit.
Here are several options for both offshore and onshore:
Siemens Gamesa Renewable Energy (GCTAY) is a leading global manufacturer of offshore wind turbines. The Spanish-German company also has a small onshore business. The company recently issued a profit warning because of rising costs and project delays, but the longer-term outlook for offshore wind energy is good.
Vestas Wind Systems (VWS) is the leading onshore wind turbine manufacturer. The market for onshore wind has been around longer, and it’s more stable. Vestas has installed 18% of the world’s wind turbines, more than any other company.
Orsted (ORSTED) is the largest offshore wind developer in the world. The Danish company, which grew out of a national oil and gas company, aims to be a renewable “supermajor.” The company has also entered the onshore wind market.
TPI Composites (TPIC) makes blades for wind turbines. Since 2001, the Scottsdale, Arizona-based company has manufactured over 70,000 wind blades. TPIC also sold about one-third of all onshore wind blades in the world ex-China in 2020.
🔔 Curious about other sustainable ETFs? Read our ETF investing guide.