Post #56: Let the wind blow - Heptagon Capital – Production

Most British and many northern European readers of our Blog may be inclined to disagree with our headline after the blistering impact of Storm Ciara felt over…

Post #56: Let the wind blow

Most British and many northern European readers of our Blog may be inclined to disagree with our headline after the blistering impact of Storm Ciara felt over the last 24 hours. With wind speeds reaching almost 100 miles (or 150km) per hour, there was widespread disruption to travel and other services. Although this was clearly an extreme weather circumstance, wind is good, and the outlook for the industry looks attractive.

The world’s leading turbine manufacturing business, Vestas, reported a strong set of results last week. Beyond recording its largest-ever order intake with backlog standing at an all-time high of €34bn (last year’s revenues were €12bn, for context), the more important part of the story was the commentary offered by management. Per, Henrik Andersen, the group’s CEO, the growth outlook for the sector is “very positive.” 

The main driver behind such an assertion is that electricity consumption is expected to grow by more than 40% over the next 15 years (per Bloomberg New Energy Finance). As we have highlighted elsewhere, population growth and increasing urbanisation imply greater energy needs. Crucially, however, renewable energy is set to be “the dominant generation source and lead capacity additions” (in the words of Vestas). Renewables – of which wind is set to be a major part – are forecast to enjoy a five-fold increase in demand over the period through to 2035, more than any other energy source. Correspondingly, annual investments in wind power capacity are expected roughly to double in the next 15 years, reaching more than $200bn.

Vestas describes “renewable focus” as a mega-trend, a message that was also strongly emphasised at the recent World Economic Forum in Davos. While leading turbine manufactures should inevitably benefit from all the above developments, it is important to remember that wind is likely only to be one building block in the energy equation. Looking forward, expect more partnerships between solar and wind businesses with battery storage solutions sitting at the centre, a point also made by Vestas. Storms such as Ciara are fortunately the exception, but it is still far from guaranteed that either the wind blows or the sun shines on a daily basis, hence multi-modal solutions may be the way forward.  

Heptagon Capital is an investor in Vestas. The author of this piece has no personal direct investment in Vestas. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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