Central US Leads Wind Industry Growth: Stocks to Watch

The wind industry in the United States, over the years, has made notable progress, with total annual electricity generation from wind electricity generation increasing from about 6 billion kilowatthours (kWh) in 2000 to about 300 billion kWh in 2019.

The central part of the nation is leading this transition of the U.S. power sector toward a greener future. In 2019, wind power catered to 29% of electricity demand in Southwest Power Pool (SPP), the regional transmission organization that manages the electric grid for much of central United States. Further, central U.S. set a record with wind penetration rate, expressed as the share of electricity demand supplied by wind generation, reached 62% in SPP, in March 2020.

Factors Driving Wind Power Growth

With advancement in technologies, wind turbines’ size and capacity has increased over time. Such efficient turbines have dragged down the cost of wind power generation. Per a report by Forbes, Lazard’s Levelized Cost of Energy (LCOE) analysis shows that U.S. renewable energy prices continued to fall in 2019, with wind and solar hitting new lows, after renewables fell below the cost of coal in 2018.

Such declining cost has set the stage for more Utilities shunning coal and adopting wind energy, as well as for corporates to invest heavily in the U.S. wind industry. Notably, commercial and industrial companies bought 4,447 megawatts (MW) of U.S. wind capacity last year, setting a new record for annual procurements and bringing total corporate agreements for wind power to 16,857 MW, according to the first Wind Powers American Business report from the American Wind Energy Association (AWEA). These factors along with favorable federal tax incentives have been boosting the wind industry in the United States.

Central America in Focus

In 2019, 42 states had utility-scale wind power projects. The four states with the most electricity generation from wind in 2019 were Texas, Oklahoma, Iowa and Kansas, all parts of Central America. Again, Texas leads American states in terms of installed wind capacity, followed by Iowa and Oklahoma.

According to data from the U.S. Energy Information Administration’s (EIA) inventory of utility-scale power plants, SPP had 21 gigawatts of nameplate wind generating capacity as of March 2020, representing 24% of total SPP power generating capacity and 20% of the total utility-scale wind generating capacity in the United States. Therefore, we expect the Central American states to continue leading wind power generation in the coming days.

Stocks to Watch

Considering the aforementioned forecast, we expect Utility stocks that are expanding their wind energy portfolio, particularly in Texas, Iowa and Oklahoma to benefit substantially. Moreover their favorable Zacks Rank and positive long-term earnings growth estimates place them in investors’ watchlist.

Duke Energy DUK: In January 2020, Duke Energy said that its 200 megawatt Mesteno Windpower project in Starr County, TX commenced operation. The facility, with its 56 3.6 megawatt (MW) wind turbines will generate energy to power roughly 60,000 typical homes each year. This Zacks Rank #3 (Hold) company has a long-term earnings growth rate of 4.6%.

American Electric Power AEP: In May 2020, American Electric announced that it received approvals to enable the company to acquire the entire planned 1,485 megawatts (MW) of North Central wind farm in Oklahoma. It will invest approximately $2 billion in this project. This Zacks Rank #3 company has a long-term earnings growth rate of 5.8%.

RWE AG RWEOY: In March 2020, this company commenced commercial operations for its Texas-based 151MW Peyton Creek onshore wind farm. The company’s other U.S. onshore wind farms such as the 220MW Cranell and 440MW Big Raymond facilities located in Texas, and the 150MW Boiling Springs project in Oklahoma are currently under various stages of construction. This Zacks Rank #2 (Buy) company has a long-term earnings growth rate of 13.1%.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alliant Energy LNT: This company is building up to 1,000 MW of additional wind generation in Iowa from 2018 through 2020. Overall, this represents an investment of approximately $1.8 billion. Once complete, Alliant Energy’s Iowa energy company will own and operate 1,299 megawatts of wind generation in Iowa. This Zacks Rank #3 company has a long-term earnings growth rate of 5.5%.

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