Wind power: not such a breeze for investors

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Slow wind speeds are one of the factors responsible for surging natural gas prices. This has revived nervousness over renewables encapsulated in the old question “how will we keep the lights on when the wind doesn’t blow and the sun won’t shine?”

Fears that climate change itself has caused a structural change to wind patterns are overblown: there is no evidence that wind speeds have slowed permanently. Indeed, recent academic research point to more, rather than less, breeziness. One 2019 study concluded that average global wind speeds have picked up roughly 5 per cent since 2010, after decades of decline.

Global warming trends and wind speeds have little correlation, says Bernstein analyst Deepa Venkateswaran. Temperature variations create wind, not temperatures that are higher.

All this should cheer offshore wind developer Orsted’s chief executive Mads Nipper. He has had to warn repeatedly in recent quarters of the earnings hit from less wind, or “terrestrial stilling” as scientists call it. Orsted shares were already pricey. By the end of last year, Orsted traded at an enterprise value of over 30 times its forward ebitda, more than double its five-year average. Its shares have fallen nearly a third this year.

Understandably, investors in Orsted and other wind power groups such as Siemens Gamesa and Vestas would like some comfort on future wind speeds. Unfortunately, that looks as hard to forecast as any weather.

Instead, investors should take solace from capacity increases. Many onshore and offshore wind farms in Europe and America have plans to increase turbine sizes in the next five years or so. That added power capacity could increase annual energy outputs by up to 30 per cent, well ahead of any worst-case scenario drop in wind speeds.

No one worried much about above-average wind velocity last year. This year it is shortages and price increases of more traditional forms of energy that is spooking investors and consumers. Any issues in wind power are a breeze compared with the problems facing electricity challengers slammed by higher gas prices.

The Lex team is interested in hearing more from readers. Please tell us what you think of ‘terrestrial stilling’ in the comments section below.