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Will Wind Beat Hydro in the US Energy Generation Race?

Zacks Equity Research

Usage of renewable energy sources to produce electricity is constantly increasing in the United States. The rising awareness of utility operators has resulted in ramped-up investments in research and development in the renewable space. New technology and advanced products have lowered the cost of operating utility-scale renewable power plants.

Per a recent forecast from the Energy Information Administration (EIA), wind, solar, and hydropower will collectively produce 18% of domestic electricity in 2019 and almost 20% in 2020. It foresees renewables as the fastest growing source of electricity production in the United States.

EIA expects energy-related carbon dioxide (CO2) emissions to decline 2.0% in 2019 and 0.9% in 2020 after the 2.7% rise in 2018. Electricity from wind sources is predicted to grow 12% and 14% in the next two years. EIA expects the share of total electricity generation from wind to increase from 7% in 2018 to 9% in 2020. Electricity generated from wind in 2019 will surpass hydropower generation.

The U.S. Department of Energy’s (DOE) latest Wind Vision Study Scenario projects 10% of the nation's end-use demand will be served by wind by 2020, 20% by 2030 and 35% by 2050. DOE also announced funding of up to $28.1 million targeted to advance wind energy nationwide across the land-based, offshore, and distributed wind sectors.

Utilities Show More Interest in Wind

Wind is gradually becoming the preferred renewable source of electricity generation in the United States owing to declining cost of production and usage of bigger turbines which allow production of greater volumes compared with earlier times. Innovation in the wind power generation technology will further bring down cost of operation.

Though flow and direction of wind is still a pressing concern, power generation from wind is on the rise. Utility players like Xcel Energy XEL, NextEra Energy, Inc. NEE and WEC Energy Group, Inc. WEC are focusing on wind generation with extensive plans to produce more.

Xcel Energy aims to provide 100% carbon-free electricity to customers by 2050. The company’s steel-for-fuel initiative enables the addition of renewables. Nearly 3,000 MW of its new wind projects has received regulatory approval, with construction underway. The stock carries a Zacks Rank #3 (Hold) and has returned 30.2% in the past 12 months compared with industry’s return of 12.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NextEra Energy has decided to invest $39.5 billion in the 2019-2023 time frame in various projects. During 2018, the company added in excess of 6,500 MW renewable projects to its backlog, which includes 1,300 MW of wind repowering and in the first quarter of 2019, the backlog was 953 MW, which includes 195 MW of wind repowering. The stock carries a Zacks Rank #3 and has returned 21.7% in the past 12 months.

WEC Energy is focused on reducing carbon emissions by approximately 40% below 2005 levels by 2030 and 80% by 2050. The company is pursuing acquisitions to expand its wind operations. After acquiring Forward Wind Energy Center and Bishop Hill III, the company took over an 80% ownership in Coyote Ridge Wind Farm, which has a capacity of 97 MW. The stock carries a Zacks Rank #3 and has returned 29.3% in a year’s time.

Is the Focus on Wind Long-Term?

A few market experts opine that the focus on renewable sources like wind is primarily due to the incentives provided by the government. Experts believe, once the Production Tax Credit (PTC) is phased out, interest of utility operators will shift from the renewable energy space.

However, we expect the interest of utility operators to remain despite the gradual phasing out of PTC. Few utilities have already chalked out long-term plans to provide 100% electricity from clean sources with or without PTC.

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