El Niño Buffers U.S. Wind Power Dreams

The National Oceanic and Atmospheric Administration (NOAA) made it official last week. The current El Niño is classified as a strong event.

An El Niño falls into the “strong” category if weekly sea surface temperatures depart from the average by more than two degrees Celsius.

In fact, this El Niño has nudged ahead of the 1997 El Niño as the strongest in the modern era!

Meteorologists believe this occurrence is actually the most potent since 1948. And it’s expected to persist through winter and into spring.

Every El Niño’s effects are different. At the moment, this one is having a surprisingly negative effect on the wind power industry in the United States.

A Little Too Quiet

You see, this occurrence of El Niño has produced the weakest winds across the United States in 40 years. Forecasters say this situation will continue and may even worsen through the spring of 2016.

This might not seem like such a big deal, at first. Wind isn’t a huge part of our country’s power generation, right?

Not so fast.

Wind is no longer just a mere marginal source of power for the electric industry. According to Bloomberg New Energy Finance, wind power installations in the United States surged 800% last year. Our country is now the second largest user of wind power technology, behind only China.

Wind accounted for 4.4% of U.S. power generation in 2014. That’s up from just 1.9% five years ago. In some states, wind makes up an even larger chunk of power generation. Wind provides nearly 10% of electricity production in Texas and 7% in California.

The overall effect of these calm conditions is that electric output from U.S. wind farms fell by 6% in the first half of this year. That happened despite wind power capacity rising by 9%.

Overall, U.S. wind farms operated at only about a third of their total generating capacity in the first half of 2015.

An Ill Wind for Some Utilities

The lack of wind has had very real effects on some utilities, and also on some yieldcos.

These include the likes of NextEra Energy (NEE), NextEra Energy Partners (NEP), NRG Energy (NRG), NRG Yield (NYLD), Pattern Energy (PEGI), and even Duke Energy (DUK).

It’s a serious matter for these firms. The CEO of NRG Energy, David Crane, told analysts last month, “We never anticipated a drop-off in the wind resource as we have witnessed over the past six months.”

Even the rating agency Standard & Poor’s is weighing in. After downgrading some wind farm bonds, S&P stated, “Although our current expectation is that the wind resource will revert back to historical averages, at this time it is unclear when this will happen.”

It’s already been a tough 2015. Year to date, NEE is 10 % lower, PEGI fell 16.5%, DUK is down 18%, NEP fell 23%, NRG is down 31.5%, and NYLD is down a whopping 69%.

Of course, utilities have been hit by the rising interest rate expectations. But the lack of strong breezes in the United States has given a little tailwind to the downside for the wind power-related stocks.

Obviously, El Niño will eventually subside and wind patterns across the country will return to normal.

But until then, the wind power generation industry in the United States will continue to suffer. Shareholders in the wind-related yieldcos and utilities will continue to take a battering for an unknown amount of time.

Maybe they can somehow tap into the hot air generated by opponents of President Obama’s Clean Power Plan. They’re having a field day right now with the Plan’s heavy reliance on fickle breezes.

Good investing,

Tim Maverick

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The National Oceanic and Atmospheric Administration (NOAA) made it official last week. The current El Niño is classified as a strong event. An El Niño falls into the “strong” category if weekly sea surface temperatures depart from the average by more than two degrees Celsius. In fact, this El Niño has nudged ahead of the...

Tim Maverick

, Senior Correspondent

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