Offshore Wind Blows Into The US: Seven Stocks To Catch The Breeze

Both are projects of Deepwater Wind, the country's leading offshore wind developer.

Offshore Wind Stocks: Over The Horizon

Investors looking for a way to invest in offshore wind will be disappointed to note that Deepwater Wind is principally owned by the D.E. Shaw group, a privately held partnership. The best investment opportunities in offshore wind stocks are, like offshore wind itself, often located beyond the horizon.

One place to look for stock market investments are the suppliers to wind farms. Offshore wind turbine suppliers are a natural first choice.

GE (NYSE: GE) is supplying the turbines for Block Island Wind. Again, this will be a little disappointing to stock market investors. While GE is a publicly traded company, offshore wind turbines are not a significant part of its business. The company's Renewable Energy segment accounts for less than 20% of total revenue, and offshore wind is a tiny fraction of that.

Offshore wind turbines tend to be larger and more rugged than their onshore counter parts. The large size is due to the expense of foundations, making it important for an offshore farm to generate as much power as possible from each turbine. A typical onshore wind farm uses turbines with peak power output of around 2 MW each. Block Island is using just five 6 MW turbines.

These large sizes make it difficult for new entrants to challenge established manufacturers. This means that offshore wind manufacturers a very elite bunch. This is good for offshore wind investors because it means that industry incumbents (which are often public) are likely to remain leaders for far into the future. But it is bad for investors looking for a pure-play exposure to offshore wind. Offshore wind turbine manufactures simply do not exist without a large onshore wind business to support the investment in manufacturing and R&D.

Most wind turbine manufacturers serve both the onshore and offshore market, but the ones with the biggest names in offshore wind are European players Siemens AG (OTC: SIEGY) and Vestas (OTC: VWDRY).

It's not particularly surprising that European manufacturers lead the offshore wind turbine market, since Europe has long been the leading offshore wind market. Because offshore wind sites are almost by definition accessible by ship, I expect that the early dominance of European offshore wind manufacturers will prove to be more durable than the early dominance of European solar manufacturers proved to be in the early 2000s.

Wires

Another way offshore wind is different from its onshore cousin is the need for underwater electrical connection to shore. Again, investors will not find pure-play offshore wind companies, but underwater cables need to be strong and durable enough to survive decades under salt water and the occasional encounter with a ship's anchor or other submarine hazard.

Submarine cables are expected to be the fastest growing segment for electrical cable manufacturers over the next five years. US-Based General Cable (NYSE: BGC) and European Prysmian S.P.A. (OTC: PRYMF) both have large submarine cable businesses.

Owners and Developers

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