Nordex

Nordex is a German company that constructs and services wind power systems. In 2006 their production capacity was 584 MW which is about 3% to 4% of the industry’s global capacity. Nordex manufacture wind turbines primarily for onshore use. 99% of new wind installations are onshore. They have a range of turbines, the largest generating 2.5 MW of electricity. Rostock, Germany is the site for Nordex’s main manufacturing facility which currently has an annual capacity of 800 MW of turbine assembly. It is planned to increase capacity to 2,500 MW by 2011. There is also a turbine assembly facility in China which will undergo expansion in 2008 and a production facility is planned for the USA in 2009.

Sales

As at November 2007, Nordex had an outstanding order book of €2.5 billion. This is sufficient to keep them operating at full capacity until the second half of 2009. Europe is the dominant sales market for Nordex. Approximately 20% of sales are derived from their home market of Germany. They are market leaders in France and also have strong positions in the UK, Italy, Eastern Europe and Scandinavia. Whilst Europe has dominated sales to date, the USA and Asian markets are the fastest growing. Nordex is looking to capitalise on this with the establishment of manufacturing facilities in the USA and China. Some of the projects in the pipeline include 150 MW of new installations in China and a 640 MW project for Babcock & Brown in France and Portugal.

Margins and profitability

Nordex became profitable in 2006. EBIT margins have been steadily increasing and should be 6% in 2007. Market leader Vestas has an EBIT margin of 9%. Over the medium term (3 – 5 years) management forecast the EBIT margin to widen to 9 – 12%.

Downside risks

The biggest risk Nordex faces, along with most of its competitors, is execution risk. The risk of demand falling away is low. As governments and consumers throughout the world become more conscious of climate change risks, governments are increasingly mandating higher proportions of electricity be derived from renewable energy sources. Wind power is seen as one of the most effective ways to meet these requirements. The risk of price falls for turbines is also minimal given the robust demand environment. But the pressures of a high demand, high growth environment increases the level of execution risk. Nordex’s third quarter 2007 results were not well received by the market. During the quarter projects fell behind schedule due to supply difficulties.

Investing in wind

Climate change fears have heightened focus on clean renewable energy sources. Wind power is growing in its importance as a clean source of energy for electricity generation, but at present only accounts for 0.34% of the world's electricity. (Cifuentis, 2007) The wind power generation industry is forecast to grow at 20 - 30% p.a. over the next 3 years. (Economic Times, 2007)
There are two primary ways to gain investment exposure to the wind power sector.

• Investing in wind farms
• Investing in wind turbine manufacturers.

Investing in wind turbine manufacturers

Manufacturing wind turbines is a growth industry. Manufacturers are struggling to keep up with the demand for turbines and there are large order backlogs. This growth is shown by the increasing global capacity of wind power installations. There was 15,200 MW of new wind power installations in 2006 (2005: 11,400 MW) and about 18,800 MW installed during 2007. This represented growth of 33% in 2006 and 24% in 2007. Over the last ten years wind has been growing at an average annual rate of 28%. (GWEC)
The largest markets for wind power are the United States, Germany, India, Spain, China and France. There is over 74,000 MW of capacity installed globally across 70 countries and this is expected to double by 2010. (GWEC) Whilst Europe is starting to mature, China is growing rapidly with growth for 2007 of approximately 70%.
The main impediment to growth for turbine manufacturers is supply bottlenecks and capacity constraints. There is a shortage of supply of some key components and some projects are experiencing delivery delays.

Wind turbine manufacturers

Some of the large wind turbine manufacturing firms include:

• Vestas
• Gamesa
• Suzlon
• Nordex
• GE power

Vestas is a Danish company with its primary listing on the Copenhagen Stock Exchange. It has a market capitalisation of approximately €13 billion. Vestas accounts for 28% of the international wind turbine market and management have stated a goal for 2008 of 30 to 32%.
Gamesa is a Spanish company whose primary focus is on the manufacture of wind turbines. They also develop wind farms and promote them for sale. In addition they have a small solar power business. It has a market capitalisation of approximately €6 billion.
Suzlon is an Indian company with ambitious expansion plans. They are currently one of the largest turbine manufacturers in the world.
Nordex is a German company. It is a lot smaller than the above three companies with a market capitalisation of approximately €2 billion but has been growing very strongly. Management aims to achieve revenue growth of 50% per annum over the next few years. The current order book is sufficient to keep them operating at full capacity until well into 2009. This is a common characteristic across the main wind turbine manufacturers.
GE power is a subsidiary of the huge US conglomerate GE.

Investment options for Australian investors

Australian investors can gain access to some of these companies relatively easily through CFDs. The European companies, Vestas, Gamesa and Nordex all have CFDs available over them. The Indian company Suzlon does not. GE power can be indirectly accessed through the listed company GE but investment in GE includes exposure to a diverse range of other businesses.

References:

Cifuentis, C., 2007, "A Ray of hope: The case for solar energy" Platinum investment management.
Economic Times, Suzlon to triple capacity by 2009, 12 Sep 2009.
GWEC, Global Wind Energy Council

Investing in solar energy

A how to guide for Australian investors

The solar market has been experiencing very high levels of growth in recent years. In 2006, installations grew 19% to 1,744MW, giving a total installed capacity of 9GW. This equates to about 0.05% of total electricity production. (Cifuentis, 2007) The increasing awareness about climate change, and the growing trend for governments around the world to set targets for renewable energy, is creating the framework for the solar market to expand exponentially.
Germany and Japan already have a well established solar industry. South Korea, China, other parts of Europe and the USA are rapidly taking it up. So how can Australian investors capitalise on this growth sector.

Australian Stocks

Australians looking to invest in solar energy stocks have limited choice in the domestic market. There are no major players in the solar market listed in the Australian market. There are some small cap listed stocks in the solar space including:

International Stocks

Most of the large, pure play solar stocks are listed in overseas markets. Germany and the USA dominate. There are also Chinese stocks listed in the USA and London. Australians wishing to access these stocks can purchase them directly or alternatively gain direct exposure to them through CFDs. There are at least 18 pure play solar energy stocks that can be accessed through Australian CFD providers.

Company Code Mkt Cap (m)* USA (traded in USD) First Solar FSLR 17,932 Sunpower SPWR 10,643 J.A. Solar holdings JASO 2,580 Evergreen Solar ESLR 1,314 Trina Solar TSL 1,114 Solarfun Power SOLF 943 Germany (traded in Euro) Q-Cells QCE 10,105 Solarworld SWV 4,496 Solon SOO1 897 Ersol solar energy ES6 742 Conergy CGY 926 Aleo Solar AS1 191 Sunways SWW 94 China (traded on the NYSE in USD) Suntech STP 12,431 Yingli green energy YGE 3,396 (traded on AIM in GBP) Renesola SOLA 354 Jetion JHL 69 Norway (traded in NOK) Renewable Energy Corp REC 130,416 approx €16,155

*As at 4 December 2007.

References:
Cifuentis, C., (2007), "A Ray of hope: The case for solar energy" Platinum investment management. www.platinum.com.au