I am retired and take educated guesses on all things financial.

May 23, 2011

May 24, 2011: Gas Breaks Wind (Power)

Ignacio Galan, chief executive of the Spain-based energy group Iberdrola, was quoted in the Financial Times (May 23, 2011)stating that the rise in United States shale gas production has transformed the country's power-generating industry, driving down gas and electricity prices. "Shale gas makes the production of electricity from other sources not attractive enough".

This bodes poorly for investors hoping to profit from further wind power development in the United States, and perhaps elsewhere.Even U.S. government subsidies for wind farm construction is insufficient, "It's hard to make an attractive return on investment on these (subsidized) prices".

Although some analysts and wind power industry executives are more optimistic than Mr. Galan, his viewpoint illustrates the realities of the competitive marketplace facing the U.S. wind industry. The wind power industry in the United States lost an estimated 10,000 jobs last year and now employed an estimated 75,000 workers. Evidently, a percentage of these jobs are now in jeopardy.

According to Alex Klein of IHS Energing Energy Research as expressed to the Financial Times, "It's going to be very challenging for the next couple of years. There are a lot of issues hitting the industry."

Iberdrola (IBDRY) is the largest investor in new wind capacity in the U.S. and the second largest wind generator after NextEra Energy (NEE),the owner of Florida Power and Light.

Other companies with a vested interest in seeing this subsidized energy source remain viable include MidAmerican Energy (owned by Warren Buffett's Berkshire Hathaway BRK.A,BRK.B), EDP (EDPFY) of Portugal and Eon (EONGY) of Germany. General Electric (GE) also has a footprint in this endeavor. Investors should be looking carefully at these companies and ETF Funds that bet the house on wind power, such as FAN and PWND.

For the cynics among us, it would be interesting for a bright investigative journalist to tackle the money trail funding current efforts to discredit shale gas extraction in the United States.

Hat tip to the Financial Times for the thrust of his article.