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Dale Jackson

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Drifting in the wind

Dale Jackson

 

TORONTO (GlobeinvestorGOLD) — Across the Atlantic, wind power is blowing its way into European households like a hurricane. The German government reports that in 2004, wind power overtook hydroelectricity as the nation’s top source of renewable energy. Almost 10 per cent of Germany’s power supply is generated by renewable resources thanks to a 20-per-cent jump in wind-power generation over the past year.

Germany’s success with wind power is no coincidence. The fledgling renewable power industry is promoted through a federal law that guarantees above-market rates for green power sold on the electricity network. Renewable energy includes wind, hydro, solar and biomass — but as Germany has proven, the biggest growth is in the wind. The actual size of the turbines used to generate the power has tripled in size in the past five years, bringing down the cost of wind energy by between 2.5 per cent and four per cent a year. The government estimates that by 2020 wind energy will cover 20 per cent of German power use and will be cheaper than traditional power sources.

In Canada, wind power is still drifting in the breeze. In February’s federal budget, Ottawa committed almost $1-billion over 15 years to help spur the building of wind-power turbines across the country. The plan calls for a per-kilowatt subsidy for wind power producers and tax write-offs for businesses that invest in wind-power technology. By 2010, Ottawa is hoping the wind turbines will power a million homes — a far cry from the amount generated in Germany today.

Ottawa’s wind power initiative was spurred by the Kyoto Accord to reduce greenhouse gas emissions. Some countries, including the United States, have yet to sign on and even Canada’s efforts appear to be getting bogged down in politics. In February, Hydro Quebec pulled out of talks with the national electricity industry association over how to implement Kyoto in the area of wind power. Hydro Quebec, which is currently investing in privately owned wind power in that province, argues Ottawa is focusing too much on existing polluters and should be providing greater incentives for “clean” energy producers.

Even if the government gets its act together, there are few choices in the private sector for investors looking to get in on wind power. Some of the big publicly traded companies include Vestas Wind Systems of Denmark and Gamesa Corp. Technologica of Spain. In the U.S., General Electric Corp. has a wind-power division, and Canadian energy companies such as TransAlta Corp. and Suncor Energy Inc. are dabbling with wind. Non-energy companies such as Stelco Inc. and Brascan Corp. are also looking into the prospect of lowering their energy costs by implementing wind power technology.

A Toronto-based, closely held company called AIM PowerGen Corp. has created partnerships with Southern Ontario farmers to establish “wind farms” along the northern shore of Lake Erie. What little power is generated is sold into the Ontario power grid, and the farmers pocket a few thousand dollars a year.

The Clean Power Energy Fund is one of the largest publicly traded pure-play producers of renewable energy. With a market cap of $265-million, about 10 per cent of the fund’s assets are invested in wind power, mostly giant turbines in the U.S. Midwest.

Clean Power’s financials are not so rosy, however. After a record of steady payouts, monthly distributions were trimmed last November, and yields now stand at about 9.5 per cent. All four analysts who cover the fund have sell recommendations, and investors have been even less understanding. Once news of the distribution cut got out, the fund’s unit value fell 32 per cent in one day.

Clean Power Income Fund is currently trading at about $7.40 — up slightly from its November low of $6.11.

There are a couple of small companies on the Venture Exchange for investors who believe in the future of wind power enough to take some risks. With a total market cap of $23.5-million, Western Wind Energy Corp. produces wind energy and wind energy only. The company holds the rights for potential wind farm sites in Arizona and eastern Canada. Trading is all over the map with Western Wind Energy. At $1.60 a share, it’s up almost 19 per cent so far this year but down almost 50 per cent from last year at this time.

Vector Wind Energy Inc. has a less-proven track record, only commencing public trading this year. It has a market capitalization of $12-million and trades in a wide range on low volume. Since Western Wind and Vector Wind are so small, they don’t attract any serious analyst coverage. Still, you might want to put them on your GlobeinvestorGOLD “stocklist” and keep an eye on them in the event Canadian governments start taking wind power more seriously.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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