FIM Group's Energy Focus

By Suzanne Stepan

Posted February 10, 2010

Current Observations

February Edition

New Tax Laws - IRA

by Kevin Mahyoney

Values and Virtue

by Paul Sutherland

PDF Version

A report released last year estimated the United States’ wind energy market at $150 billion. The 2009 U.S. wind market is dwarfed, however, by the amount spent on wind and alternative energy sources in other parts of the world. Wind energy is used in more than 70 countries and generates just under 2% of world energy use, so there is significant growth potential. On January 11, the United Kingdom announced an initiative that they would be deploying 32 gigawatts (GW) of capacity by 2020. To put that into perspective, 32 GW can supply power to 7.2 million to 9.6 million households in a single year. The U.K. has roughly 22 million households, so if all goes to plan the U.K. will have up to 44% of households utilizing windproduced energy by 2020.

In 2009, the American Wind Energy Association reported that the U.S. broke a record by adding 10,000 MW of new capacity that can serve more than 2.4 million homes. The U.S. Department of Energy recently announced its goal of obtaining 6% of U.S. electricity from wind by 2020 – a goal that is consistent with the current rate of growth of wind energy nationwide.

At FIM Group, we believe wind energy will be a strong sector in the future; therefore, we devote time to actively research, analyze and invest in both the wind and energy sectors. Many FIM Group portfolios hold numerous companies that are involved in wind energy and other areas of energy creation and distribution Many companies, like the U.S.-based Otter Tail Corporation, operate with several subsidiaries that provide diversified energy product offerings. Otter Tail’s subsidiaries include:

Otter Tail Power Company, which provides electricity for DMI Industries, which manufactures giant steel towers for the wind energy industry Aevenia, Inc., which provides design, procurement, project management, installation, maintenance and safety to cover every vital phase of a project. Companies like the U.S.’s Exel Energy, Australia’s Infigen Energy and Europe’s Energias De Portugal all invested in wind farms and sell energy resources to customers in their respective markets.

What do we look for in our wind and alternative energy investments?

  • 1.) Stellar management
  • 2.) Good market area
  • 3.) Conservatively managed balance sheet
  • 4.) Reasonable regulations
  • 5.) Riversified product offerings (gas, hydro, wind, solar, etc.) and/or geographic diversification
  • 6.) Solid cash dividend supported by current cash flow and future earnings New Tax Law Regarding IRAs
  • 7.) Priced right – this area has a tendency to get overpriced as overzealous “Wall Street marketers” hype stock prices to unreasonable levels

Thankfully the market tsunami of early last year brought energy stocks down to reasonable levels and in some ways separated the common-sense winning strategies from those that were inflated on hype. We are pleased that we were able to buy such a quality portfolio of solid energy companies at great prices. Some of FIM Group’s client holdings include: Criteria Corp, Pargesa and Cheung Kong Holdings, which provide exposure to both traditional and alternative channels of energy. For example, Hong Kong-based Cheung Kong Holdings owns a large chunk of Hong Kong Electric, which built Hong Kong’s first commercial-scale wind farm – Lamma Winds.