New U.S. Wind Installations
Florida Power & Light, a Florida utility, the largest wind farm developer in the U.S., announced plans to add 600 megawatts (MW) of new wind power across U.S. in New Mexico (204 MW), California (150 MW), North Dakota and Iowa (98 MW). All of the farms will be operational by the end of 2003. GE Wind Energy is building the first 100- plus wind farm in Colorado (162 MW). And, a scientific data tower is being installed off the coast of Massachusetts to collect data for the proposed 420-megawatt offshore wind plant there.

Offshore Wind Gets Going
Two UK offshore wind farms got the green light, opening the door for wind energy to power 100,000 homes. They are the first of 18 off shore wind farms to be built there. The offshore wind capital grants program provides £74 million (US$115 Million).

The 30 turbine North Wales site will have a 90 MW capacity. It will be operated by National Windpower, part of UK utility Innogy, which is owned by German energy company RWE. Powergen, owned by German utility E.ON, will operate the other site, which will consist of 39 turbines and an 80 MW capacity.

Brian Wilson, Minister for Energy, remarks, "The greatest benefit from developing sustainable technologies is the possibility of a UK green-manufacturing base. The renewables revolution is not just about energy and the environment. It is about jobs in manufacturing. On the National Wind power project alone, the orders placed with UK companies will be over 85 percent of the project value, creating 140 jobs during the construction phase.

The UK expects to create a £2 billion (US$3 billion) a year market for renewable energy by 2010 through its Renewables Obligation. The UK's target is 10% of electricity generated from renewables electricity by 2010, from the current 2.8%. The country has set aside subsidies totalling almost £300 million (US$469 million) to support all types of renewables.

Germany is the world leader in wind installations with 10,000 MW of capacity in place and 40,000 people employed in the industry. The country is now turning to offshore wind and has plans to add 25,000 MW of offshore capacity by 2030. The first farm, a 1,000 MW Borkum-West project off the North Sea coast is due to start construction next year. Others are in the approval pipeline.

The challenge is to secure financing - which can be as high as $1.5 billion euros - for projects in an untested industry. Building and operating deep sea turbines located far offshore is new: operators needed to gauge environmental costs and sort out how sea cables and grid connections on can be efficiently linked. The sector also needs to make sure it doesn't conflict with industries that use the sea - shipping, fisheries, oil and gas exploration, the military and tourism.

Pacific Hydro Wind Farm Wins Approval
In Australia, the government approved Pacific Hydro's plan to construct the largest wind farm in the southern hemisphere. In this first project, 120 turbines will be built for A$270 million ($146 million). The company expects the first phase of the project to be generating electricity by 2003 and plans to have at least 500 MW of wind generation in operation by 2005.

Spain Still Needs Subsidies
Spanish Energy Minister Jose Folgado says the government believes some forms of renewable fuels are mature enough to prosper without subsidies. The Association of Renewable Energy Producers quickly replied: this would be a "death sentence" for green energy in Spain. "As for wind power, which up till now has enjoyed satisfactory growth with the lowest prices in Europe, the most difficult part is still ahead...if they're saying this has to be done without subsidies, not one more megawatt will ever be produced." Folgado says renewable energy will account for almost 30 percent of electricity generation within a decade, up from the current 17 percent.

Iberdrola, Spain's second-largest utility, which indirectly holds a stake in Gamesa, is buying 1100 MW of wind turbines and 982 MW of wind parks from Gamesa, the largest wind company there. The deal is worth one billion euros ($1 billion). A joint venture between the two companies will operate the farms in Spain, and in various other European countries. Corporacion IBV, a joint venture between Iberdrola and bank Banco Bilbao Vizcaya Argentaria, controls 38% of Gamesa. Gamesa is selling the assets to reduce debt and finance expansion.

Establishing a foothold in the U.S., Gamesa announced in October it purchased 75% of the U.S. wind company, Navitas.

Transalta Purchases Wind Company
TransAlta Corporation, the Canadian utility, acquired Vision Quest Windelectric. Steve Snyder, TransAlta CEO, calls the purchase the cornerstone of their renewable energy strategy to meet the goal of generating 10% of their energy from renewables. Vision Quest owns and operates 67 wind turbine power plants with 44 MW of capacity.

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Industry Growth & Markets

Wind energy is the world's fastest growing energy source, growing at about 35% annually for the past 5 years. It is expected to continue growing between 22-30% per annum over the next five years. About 35 million people around the world get their electricity from wind today, creating jobs for 70,000 people in the process. It's about a US$8 billion industry with over 55,000 wind turbines installed. BTM Consult, authors of the most widely quoted wind market status reports, are ebullient about future growth for the industry and predict wind will deliver 2% of the world's electricity within a decade.

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Basic Wind Facts

Pros
* wind energy companies are profitable now
* wind energy is the most competitively priced source of green energy
* the cost of conventional forms of energy are bound to rise with time, the costs of wind energy are dropping.
* wind power can deliver industrial- scale, on-grid capacity and small scale, distributed capacity

Cons
* the industry's growth is linked to government incentives and subsidies

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Why is wind energy further ahead than other renewable energies? Wind is the most mature of the renewable industry sectors and its technology is most advanced; its costs are competitive with coal, and in windy locations, with natural gas. Solar, biomass and fuel cells may outpace wind in the long run, but wind is in its heyday now. Wind companies are profitable now.

The world's wind resources are vast - distributed over every region and country. The industry will never run out of "material." While the world's wind resources are estimated to be 53,000TWh/year, predictions for world electricity consumption for 2020 are about half that - 25,818 TWh/year.

Through favorable legislation and an early commitment to renewable energy, Europe opened the door to the wind industry. Two thirds of the world's installations are there as are 90% of the world's wind turbine manufacturers. In 2001, 40% of the world's installations were in Germany! The country added an amazing 2600 MW, an increase of 60% in one year. The U.S. came in second, riding a tax credit-driven wind rush and Spain was third, adding 1,050MW. [Note: 1 Megawatt (MW) powers about 1000 homes].

The U.S. added 1600 MW of new wind power in 2001, a 90% jump from the previous year. Texas alone installed 900 MW. With some 1100 MW in place, Texas now has as much wind power as many countries, surpassed only by Germany, Spain, Denmark and India. Another boom is expected in 2003 before the U.S. tax credit expires again.

Experts believe the greatest growth over the next five or so years will continue to be in Germany and Spain - an average of 40% for both countries - because of favorable government incentives already in place. After that, since they are small countries with limited land, they may run out of space for windmills. But offshore wind is expected to be the biggest market of all, and developers are staking claims off the coast of Germany. The Spanish market is already running up against limited transmission capability.

Wind markets in the U.K., France, and U.S. are just starting to take off and may well surpass Germany and Spain in the long term. The U.K., the windiest country in Europe, has enough wind to fulfill current national electricity demand seven times over. Both France and the UK have aggressive goals for generating electricity from renewable sources (10 and 21% respectively by 2010). Over the next couple of years, both countries are expected to have the regulatory framework in place to support their goals, removing remaining barriers to the wind marketplace.

The U.S. has tremendous wind resources, lots of land and lots of coast. The on-again, off-again tax credit feeds a boom bust cycle in the U.S. and of course, the uncertainty associated with the political winds in this country. Many experts portend that because of the groundwork that's been laid, when the current tax credit expires in 2003, 1000 MW a year to be added regardless of future subsidies. All the major wind turbine manufacturers are planning to expand into the huge U.S. market, intensifying competition and putting pressure on prices. Vestas is currently the leading wind turbine manufacturer in the U.S. with almost a 40% market share (and a new assembly plant in Portland, OR.), followed by GE WindPower (formerly Enron Wind) with a 26% market share.

India is another important market with 22% of the world's wind installations as of 2001, thanks to extensive government incentives. India is home to Suzlon, one of the world's top ten wind turbine manufacturers. Australia and Japan also have abundant wind resources, but are far behind in developing the kind of support necessary for wind to really take off there.

Offshore wind is just getting started with 300 MW under development off the coast of Denmark. The Danes were expected to set the pace, but with the new conservative government in the once predictably stable Denmark, the offshore market may take off near Germany first.

In 1999, EWEA (the European Wind Energy Association) and Greenpeace released Wind Force 10, a report showing how wind power can generate 10% of the world's electricity demand by 2020. The wind industry outpaced their projections so much (and projected energy demand dropped slightly too) that this year they released Wind Force 12, increasing their projection to 12%.

Back in 1991, EWEA predicted that worldwide wind installations would reach 4,000 MW by 2000. When that benchmark was topped three years ahead of schedule (1997: 4,600 MW), they doubled the target to 8000 MW. By 1999, that target too was old news - 9,500 MW of wind was in place.

In 1997, EWEA set a target of 40,000 MW to be installed by 2010. The next year, EWEA raised the bar to 60,000MW. By early 2002, global wind installations reached 25,000 MW. EWEA's 2020 goal now stands at 150,000 MW, an amount equal to the energy all of Europe uses today. And 1.48 million sustainable business jobs are being created in the process.

The Barriers & Drivers
In the foreword to Wind Force 12, Mark Moody Stuart, former Chairman of Shell and Co-Chair of the G8 Renewable Energy Task Force writes, "for wind and other renewable energy sources to spread worldwide, international finance institutions and export credit agencies must be as willing to finance renewable energy projects as they are for conventional power.... and market distorting subsidies must also be removed." According to EWEA, "if governments cease their perverse subsidies to fossil fuels and nuclear power - $250-300 billion worldwide a year - we will have clean affordable energy for the world."

Wind turbines are becoming bigger and bigger, increasing their efficiency and lowering the cost. Turbine sizes range between 750kW and 1.5MW; one MW-size turbines are now used about half the time. Offshore turbines will be huge - 4-5 MW in size. Because of these technological advances the cost for wind energy is a fifth of what it was 20 years ago.

It is uncertain regulatory environments and cheap fossil fuels that hold the wind industry back. When the Kyoto Protocol goes into force the wind market will stabilize. Nations around the world will create laws and policies to stimulate and support renewable energy, providing the platform the industry needs to grow unimpeded.

The U.S. Production Tax Credit (PTC) is the key federal incentive in the U.S. In 2000, this generous subsidy paid almost 25% of the residential electric price. Developers held off on about 900 MW of projects for 2002- 2003 until the tax credit was extended in early 2002. A growing number of states - 13 so far - are instituting Renewable Portfolio Standards which, by requiring a certain percentage of electricity to come from renewable sources, creates a reliable base for wind development.

What kinds of companies are in the wind industry?
Two types of companies compose the wind industry - wind turbine manufacturers, and wind farm developers. Wind turbine components are either made by the wind turbine manufacturers or are a very small part of an industrial conglomerate's business. Wind farm developers and operators tend to be utilities. Many utilities are taking a small stake in wind by purchasing and operating wind farms. These too, tend to be a very small part of their overall business.

The utility FPL (Florida Power & Light), owns more than half of the megawatts installed in the US last year. Yet, wind is probably about 3% of its business. The UK utility, Innogy, owns National Wind Power, who is leading a large off-shore wind project there. Iberdrola, a large utility in Spain is purchasing wind parks, and Japan's largest utility, Tokyo Electric Power has a 50% stake in Tomen Corporation's wind power unit.

The only "pure plays" - companies for whom wind is their predominant product - are the wind turbine manufacturers. The four public wind companies, all European - Vestas, NEG Micon, Gamesa, and Nordex - dominate the market. Since 1997, they have installed over half of all new capacity.

Vestas Wind Systems of Denmark is the largest wind company and the clear industry leader, capturing 24% of the global market in 2001 (18% in 2000). The company went public in 1998 and NEG Micon, also from Denmark, followed soon after. Both companies' shares rose between 1600 - 1700%, peaking at the end of 2000. Over the past 18 months or so, their stock prices have been beaten down along with the energy sector in general. The fact that the U.S. Energy Bill has yet to be passed, and with it, uncertainty about the all important tax credit affects Vestas because of its large presence here, much more so than the three other public wind companies.

Gamesa, headquarted in Spain, is a Vestas spin-off. The company is growing nicely in the verdant Spanish market. Gamesa enjoys high margins because it is a wind farm developer as well as a turbine manfacturer and because its costs are low operating in Spain. The company plans to shed its aeronautics manufacturing division, positioning it as a pure play renewable energy company.

NEG Micon was the world's leading wind company until, in 1999, it encountered product quality problems. The company is working its way back and experts believe it will continue to be among the top wind companies worldwide. The company builds a range of turbines for different markets and thus has higher R&D costs than its peers, cutting into its cash flow.

Nordex is the smallest of the group. The company specializes in very large turbines. Its stock did well after it went public in April 2001, but has since followed the same steep downward trajectory as its peers.

World Market Share

Turbine Mfr.	Rank	MW Sold	Share 2001	Rank 2000	Rank 1999
Vestas (VWS: Denmark)	1	1,648	24.1%	1	2
Enercon (Private:Germany)	2	1,036	15.2%	3	4
NEG Micon (NEG: Denmark)	3	874	12.8%	4	1
GE Wind (U.S.)	4	865	12.7%	7	5
Gamesa (GAM: Spain)	5	648	9.5%	2	3
Bonus (Private: Denmark)	6	593	8.7%	5	6
Nordex (NDXG: Germany)	7	461	6.7%	6	7
MADE (Endesa Subsidiary: Spain)	8	191	2.8%	11	8
Mitsubishi (Japan)	9	178	2.6%	13	13
REpower (Private: Germany)	10	133	1.9%	12	9
Suzlon (Private: India)	11	122	1.8%	11	-

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Sources for this article include:

BTM Consult: World Market Update 2001 - a one-stop source for a reliable assessment of the size and direction of the wind turbine market. www.btm.dk

Quarterly Wind Report, Reed Wasden Research, www.reedwasden.com

Wind Force 12 - A Blueprint to Achieve 12% of the World's Electricity from Wind Power by 2020, European Wind Energy Association & Greenpeace, May 2002. http://www.ewea.org/src/information.htm

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Vestas (VWS)

Vestas Wind Systems, based in Denmark, is the world's largest wind company and clearly stands out as the industry leader. It is the only wind company of real size, with a market cap of nearly US$3.3 billion. It is the most profitable and most diversified public wind company, operating in all key markets including Germany, Denmark, Italy, and the U.S. It increased its global market share from 18% in 2000 to 24.1% in 2001. Because of its leadership, its shares trade at a premium to its peers.

The company manufactures wind turbines ranging in size from 600kW - 3 MW and is the most vertically integrated manufacturer. It produces all of its rotor blades and controllers, and about a third of its towers.

In 2001, Vestas sold it 40% stake in Gamesa Eolica, the Spanish wind turbine manufacturer, back to its parent company, Grupo Auxiliar Metalurgico (Gamesa), freeing up EU270 million (US$261 million) to establish manufacturing plants in key international markets. VWS secured the first utility-size off-shore project - the 160MW Horns Rev wind farm in Denmark.

The company is well positioned to capture a substantial share of emerging wind markets because of its global presence and strong track record. According to Reed Wasden Research (RWR), Vestas' margins may decrease over the next three to five years as it competes to build more expensive, larger wind turbines. RWR expects Vestas's earnings to grow in the 20% range over the next three years.

VWS differentiates itself from other wind turbine manufacturers by focusing on two main product lines, limiting the number of manufacturing processes, and producing reliable products. It developed a 2.75MW wind turbine to compete with GE WindPower in the U.S. and a larger 3 MW turbine, in line with the growing trend for larger and stronger wind turbines.

When VWS shed Gamesa it conceded the Spanish market, but left the company in a strong position to expand in the US and other emerging markets. Gamesa uses VWS's turbine technology and they may be direct competitors in Latin America, where Gamesa has stronger Spanish ties.

Vestas is well positioned to continue its leadership role, because unlike its competitors who derive much of their revenue from one geographical market, Vestas is well diversified.

www.vestas.com

NEG Micon: (NEG)

NEG Micon is a Danish wind turbine manufacturer formed in 1997 from the merger between Nordtank and Miconin. The company ranked first in the world in 1999, when a wind turbine component failure nearly led it into bankruptcy. In 2001, it was back in third place with 12.8% global market share.

NEG Micon manufactures eight different wind turbines ranging from 600kW - 2MW in size.
The company is focused on strengthening its in-house manufacturing capability. It acquired three
suppliers of its wind turbine components in 2001, dramatically cutting its turn-around time.

Unlike Vestas, NEG is not well diversified. Over 70% of last year's revenue came from two markets, Germany and Denmark. The company will need to diversify, especially into the U.S. market to retain its leadership position. In the short term, however, its stock may benefit from the company's absence from the volatile US market.

The fact that NEG manufactures so many turbine types may also not be in its best interest. Its "stall-regulated" wind turbine is less expensive to build but is also less efficient. The trend in the market is toward more efficient "pitch-regulated" turbines. NEG therefore is spending more than its peers on R&D - about 35% of sales in 2001. Because NEG lacks a track record on the new turbines, RWR cautions the company may have to compensate with discounts and extended
warrantees.

NEG also lags behind Vestas on its operating & maintenance services, a very important customer relations tool.

NEG may be attractive as an acquisition for large companies eyeing the wind industry.

www.neg-micon.com

NORDEX: (NDX)

German-based Nordex concentrates on manufacturing very large wind turbines, the leading edge of the industry. Larger turbines are increasingly in demand. Its 2.5MW wind turbine is the largest in the market, and it has a mammoth 5MW turbine, for the offshore market, under development.

The majority of its revenues comes from its home market, Germany, the largest wind industry market. Nordex has built a strong track record there and experts view its focus on a limited number of products as a company strength.

With its new blade manufacturing facility in Germany, the company produces about a third of its blades in-house. Nordex is a much smaller company than its peers and has much lower economies of scale and thus lower margins.

Nordex is known for its strong operating & maintenance services. It is ranked first in Denmark and third in Germany for its quality, reliability, and guarantee services, a very important criteria for customers. Nordex has started to open sales offices in the U.S., U.K., France, Italy and Brazil.

www.nordex.dk

Gamesa (Grupo Auxiliar Metalurgico) (GAM)

Gamesa (GAM) is headquartered in Spain and is the leading wind company there. It has three major business units: Gamesa Eolica, wind turbine manufacturing; Gamesa Energia, wind farm development; and Gamesa Aeronautica, an aeronautic parts manufacturer. The company began in 1976 as an auto-parts supplier and entered the renewable energy business in 1994 when Gamesa Eolica was founded. In 1996, the company opened its first wind farm and in 1998 formed Gamesa Energia to house the wind assets. GAM ranked second in the world in 2000 and fifth in 2001 in market share.

GAM, using Vestas technology, manufactures five wind turbines ranging from 660kW - 2MW. The company is developing its own large scale turbines. GAM's business is very much focused on Spain where 90% of its revenues are in 2002. The company has strong internal manufacturing capability, second only to Vestas. It makes all its rotor blades and towers and acquired a gearbox manufacturer in 2001.

Because of the low costs of doing business in Spain, GAM can offer good prices while maintaining high margins. Because Spain is one of the two strongest growth markets for wind, there is bound to be competition going forward. GE WindPower has a manufacturing facility there and increased its market share from 0.5% - 10.4% in 2001.

Since GAM bought back Vestas's 40% stake in the company it is reorganizing its business to concentrate on renewable energy and to expand into international markets. GAM was restricted to a limited number of markets as part of its joint venture with Vestas. GAM projects a 25% increase in revenue in 2002 (EU928.79 million; (US$847 million), and plans to expand into various European countries in 2002 and the U.S. in 2003.

In early 2002, GAM announced it would concentrate on renewable energy and spin off its aeronautical division in an IPO by the end of the year. Only a third of its revenue came from this division in 2000. GAM is the only wind company that operates has turbine manufacturing side and a wind farm development side.

Given its size and high margins, Gamesa may be undervalued. Its greatest risk is its lack of market diversification. Spain is confronting limited transmission capacity which, if not resolved, will prevent the market from expanding as it otherwise would.

www.gamesa.es

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The wind industry is growing in leaps and bounds, an exciting development for environmental investors. But does that mean the companies are good investments? And if so, which ones? By the end of this issue we think you'll be able to intelligently discuss what's driving the industry forward and holding it back, what to expect going forward, who the main players are and how you might invest in them.

Each month, our feature article is a "conversation" between 3-5 seasoned SRI analysts and advisors on a topic important to sustainability investors. This month, we interviewed five people:

Jack Robinson, Managing Director, Winslow Management Co., Green Growth Fund. The fund invests in small, "environmentally effective" companies -companies that have a beneficial or benign environmental impact. Alternative energy stocks compose 18% of the fund's holdings - wind companies make up 6% of the fund.

Ken Scott, Portfolio Manager & Social Research Analyst, Walden Asset Management's SmallCap Innovations Funds. The portfolios invest in companies that offer innovative solutions to environmental and social challenges, or have innovative corporate cultures.

Carsten Henningsen, Co-Founder & Principal, Portfolio 21 mutual fund. The fund invests in sustainability leaders - companies with ecologically superior product lines and wise use of resources.

Terry Foeke, Principal, Materials Productivity, Inc., a 20-year old clean manufacturing consulting firm. Terry uses his understanding of what goes on inside companies to analyze green investments for private clients and for two environmental mutual funds managed by Riverbridge Partners.

Cary Wasden, Principal, Reed Wasden Research, is an independent research firm focused on energy. They cover the entire energy field and have recently added the various renewable energies to their universe.

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Progressive Investor (PI): Do you consider the wind industry a good investment?

Winslow: Jack Robinson: YES
The renewable energy sector is at what I call a point of inflection. The technologies have been around a long time and finally are reaching a level of sophistication and lower cost so they're becoming economic in more locations. Demand is picking up for environmental and economic reasons. Wind represents 50-60% - the largest segment by far - of the $10B renewable energy industry. Wind is the most economic and most advanced. That's why I think there's good reason to be interested in wind because you can invest in companies that are profitable today and have the opportunity to grow their profits at a rate equal to the industry growth at 25%.

Portfolio 21: Carsten Henningsen; YES
We're definitely very supportive and see wind as a growth industry over the next 5-7 years. The most prudent thing is to have as diversified portfolio of sustainable companies as you can. That's why investing in a mutual fund like Portfolio 21 makes sense (sorry for the plug!) because it would otherwise take at least a half million dollars to have enough money in 40-50 stocks to be diversified. In renewable energy, I'd want a position in wind, hydrogen and solar.

Reed Wasden: Cary Wasden: YES
As a renewable market wind is the only market. The wind industry is a good investment even if your only reason to invest there is for diversification. If you asked me this question 5-6 months ago I would've said the wind stocks look expensive. Now, they've come down to realistic valuations. The whole energy market is in the toilet now. When that turns around and electricity demand rises again these companies will be more visible and their stock prices will pick up again.

People are saying, "If there's no demand for power, there's tons of excess capacity, and power prices are dropping dramatically, how can wind power compete?" Well, prices are down for a number of "perfect storm" reasons: two years of unusually modest winters and summers; a recession; and about 10 times more power generation capacity in the U.S. than we've ever had. If we get into a normal or cold winter and then a normal summer, prices will be up again.

Materials Productivity: Terry Foeke: NO
When you run it by traditional investment advisors, wind looks like a terrible bet. You have all the earmarks of things they avoid: dependence on government subsidies; high valuations; and, while there is a growth spurt, the biggest growth will likely happen in places like China and India with indigenous companies rather than any of the current players. The conventional investment people look at this and say, "I don't care if the wind industry goes from $7B to $70B in the next 10 years this is really messy."

Yes, the wind industry is growing at some 30% a year, but I don't know the growth rate is sustainable. I see the curve flattening out. This is hard for me - the whole alternative energy sector is hard for me - because I work a lot in conventional energy - coal fire power plants especially. And they are rapidly optimizing their processes. They're not only cleaning them up but they're getting cheaper. As they develop cleaner technologies - like ways to capture CO2 off stacks - investors may still choose conventional energy. It's old and stodgy but they know what they're doing vs. alternative energy, which is new and has a lot of perceived risk.

With these innovations from the fossil fuel camp, wind may become less cost-competitive and may end up a small sliver market in a developed country like the U.S. and an ongoing, but nearly tapped out market in Europe.

I feel the breakthrough will be when traditional folks see the value of investing in alternative energy. As an investor, you count on more and more people getting interested and thereby either driving up the share price or keeping a company stable. I don't think it's going to happen with wind at least until the government subsidy issue is resolved. By that I mean these companies need to stand on their own two feet and view subsidies as a means to open a market not as what keeps them in a market. If there's one thing these folks tell me it's that they don't trust a company built on subsidies.

Walden Asset Management: Ken Scott: YES
We like the outlook for alternative energy companies in general and wind power in particular. We believe wind is a good investment as part of a diversified portfolio. It's appropriate for a portion of an equity client's portfolio to be in small cap and a portion of that can be in alternative energy, including wind. We believe wind power has strong long term potential for investors because of the drivers for the industry - increasing regulations on utility plant emissions, government support, and ongoing technological improvements and economies of scale.

All forms of energy are subsidized, it's just that it has a different name for wind power - it's called a production tax credit. I can imagine a situation where the PTC goes away but renewable portfolios at the state or even at the federal level are mandated.

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PI: It seems that the wind industry is just gathering steam. It seems a bit early to talk about it leveling off.

Materials Productivity: Terry Foeke
It is just starting and I think it's at a very natural transition point. You see this all the time with technology. We're still coming up to that transition where demand flattens out, subsidies are cut out, and at least in the US, and maybe some other places, that causes a re-ordering of the industry that takes it to the next level. As an investor, do you really want to ride through that turmoil? Is it the best place to put your capital, since we can see all that coming? If I had a clean play in China or India that, absolutely hands down, would be the place to go.

Winslow: Jack Robinson
I think we've just begun. If this country's going to get serious about energy independence we're not going to do it by drilling in Alaska, which would increase reserves by 10%. There's no question the fossil fuel industry is working on cleaner technologies. The primary competitor on the grid today is the natural gas turbine and wind is quite competitive. Tax credits do make the difference.

The traditional view is that the price of fossil fuels drives the energy market - who knows where the prices will go? But there's more interest in decentralizing the power system to avoid all the problems associated with infrastructure. Having alternative energy sources near the point of use has many advantages beyond having to be the cheapest price.

Walden Asset Management: Ken Scott
Even without developing new technologies, the petroleum companies give renewable energy companies a very strong run for their money. If the Kyoto Protocol goes forward and if renewable portfolio standards continue to crop up in the U.S., if you continue to see economies of scale and technical improvements, wind will remain competitive.

I'm not saying everyone should load up on wind power companies - just that it is an appropriate part of a diversified portfolio. Over the mid to long term, unless there's significant movement in reducing emissions associated with fossil fuel combustion there will be room for competitive alternative energy companies, and wind has shown that it is the most able to provide that.

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PI: How would you recommend eople invest in the wind industry? Which companies would you invest in and why? Would you consider investing in utilities that are wind farm developers, like FPL?

Winslow: Jack Robinson: Vestas & NEG
The only way to invest in the wind industry is to buy shares in the wind turbine manufacturers. They are the only "pure plays." All the major brokers can easily buy internationally.

I'd be remiss if I didn't say you could buy into the Winslow Green Growth Fund. We have a significant commitment to alternative energy - we hold both Vestas and NEG Micon in wind.
They are the largest wind companies other than Gamesa.

We haven't invested in Gamesa because they are primarily in Spain - but they trying to expand into other countries. They are also involved in developing wind farms, which in our opinion, can lead to conflicts of interest. If you're developing wind farms and you're making turbines to sell to other wind farm developers, I think you have a conflict. You're competing with your customers. That may inhibit their growth.

There aren't any pure play wind farm development companies - they are all either private or utilities. You can't invest in a utility without getting into other things you don't want. They've got fossil fuel and nuclear plants. There's the infrastructure question, deregulation, dividend questions - lots of questions. If you buy them only a small piece of what you own is related to alternative energy.

Even for FPL, the largest wind developer in the U.S., wind makes up a very small percentage of operations. It's not that they are doing a bad job in wind, but they've got so many other things going on that more than likely will offset the wind portion.

My suggestion is to buy the leader, Vestas. If you want to make a bigger commitment then spread it out among more companies. NEG is smaller and has a more complex balance sheet. If I had to pick one that would be a candidate for consolidation it would be NEG.

What differentiates the wind turbine manufacturers from each other is not the turbines - they are becoming more like a commodity. If you're going to spend a lot of money developing a wind farm, the one thing that's crucial to you is service, maintenance and warranties - keeping those turbines going efficiently. You want the highest quality and the most dependable service. Vestas has that. You're not going to work with a company that's doing a one-off on them; you're going to want to work with someone that's going to be around. Everybody's doing business with Vestas.

Speaking of commodities, there's no bigger commodity than oil.

PI: What does it look like for Vestas over the next 10 years?

Vestas is a strong company financially and I think its prospects for the next 5 years are good, but they are dependent on tax credits in this country and the current administration, of course, has another agenda. Unfortunately, that is part and parcel in investing in wind stocks. It's becoming an increasingly important part of the stable of energy producers in many European countries.

We invested in Vestas when they did their first deal in the U.S., about four years ago. Their stock went up a lot and then they sold off a lot but overall we're making money. Its valuation is quite cheap now, at about 12 times next year's earnings. They have an opportunity to grow in excess of that - I think we're talking about 20% annual growth for the foreseeable future. I think the industry is a long way from becoming mature.

Portfolio 21: Carsten Henningsen: We like Vestas and NEG!
Our style is to pick a couple of the best companies in a sector that are positioned to take advantage of the growth. We invest in Vestas and NEG Micon.

Vestas and NEG are well positioned as leaders, but we expect Gamesa and Nordex to thrive as well. These stocks will continue to exhibit volatility due to concern over whether the U.S. tax credit will be renewed. Wind is an immature industry that will go up and down with growth expectations ranging from positive to negative as time goes by. Over recent years, growth expectations have sometimes been too optimistic, common to an immature industry.

Vestas has a stronghold in terms of market share with a superior business model. It's a very well run company. They've done an excellent job of building their market share by being at the right place at the right time with the right product. It's true that turbines are pretty much the same. So, a company gets the largest market share by having the best distribution, transportation, and marketing. What comes to mind with Vestas is superior execution.

NEG is much smaller and stumbled due to product quality issues, but we still think they will do well. We hold 2-3 times more of Vestas stock as we do NEG. Both companies are strong environmentally in their internal operations. NEG came out publicly strongly supporting the Kyoto Protocol. The company wrote a letter to President Bush and VP Cheney. They are willing to take a stand.

Both NEG and Vestas are good buys right now with the caveat that with any immature industry like renewable energy, one has to think long term. I think it will pay off if an investor picks up shares of either company on the weakness in this kind of market environment. The longer you can hold the stock the less risk you're taking - I would say in the 5-7 year range.

We haven't included Gamesa because it is so focused on one market - Spain. The other problem is that a significant portion of their business is in aircraft parts so it's not a pure play. We don't invest in Nordex because they are so small.

Even though FPL is a well-run company, the fact that they have nuclear plants screens them out immediately for us. If you are OK with that and want a lower risk stock you might include FPL for diversification. Ideally, we'd like to invest in both wind farm developers and turbine manufacturers to get the most diversification. There's just no one to invest in on the wind farm side.

Walden Asset Management: Ken Scott: Vestas is the one!
We only invest in Vestas in the wind sector. They are the global market leader and the U.S. leader. We believe the most potential for wind expansion is in the U.S. and Vestas stands to benefit the most. Also they're integrated - they make a lot of their own components like blades.

NEG has a wider range of wind turbine technologies so they have higher R&D and operating costs. They aren't integrated but they've been buying some suppliers, so they've definitely been doing their work. One of the concerns for SRI investors with Gamesa is their aeronautics unit - they are trying to get rid of it. Hopefully that will happen in the next couple of months. Gamesa also needs to get greater geographic diversification. Nordex is focused on larger turbines and has the potential to gain market share in the U.S. They are the smallest of the four. Small is risky.

We don't consider an investment in FPL an investment in wind. It's too small a part of their business - roughly 3%. FPL has two nuclear plants. We specifically prohibit investment in nuclear in our mutual funds.

Reed Wasden: Cary Wasden: Buy all four companies!
If you've read books on technological innovation you know that the person that starts, perfects or commercializes a technology first is rarely the one who wins. Vestas is in that position - they brought wind to market, they commercialized it, they proved it makes sense. Underneath their umbrella of an incredible number of legacy systems, smaller, more innovative companies can take that technology and make it better, bigger and more efficient. That's what we think is happening now.

Also, because of the Vestas's leadership position, its shares have traded at a significant premium to its peers for at least the last three years. It has been whittled down significantly over the last three months - exactly what we expected. The premium really isn't justified anymore because there are other really legitimate players. It's no longer Vestas and the rest of the small guys. Vestas no longer dramatically outperforms the others - thus it makes sense to own all four companies and be diversified.

Their valuations are close to parity now, so you can own all four pretty reasonably and lean it toward any you feel have higher prospects and away from those that look weaker. You might put 30% in Vestas and split the rest between the other three.

None of the companies stand out more than the others except that their valuations are cheaper. There are some justifiable reasons for this, but they are market reasons, not fundamental reasons. They are small companies and much less liquid in the public equity markets. When you're managing money for other people, especially when they're high net worth individuals, in the back of your mind is, if I need to get out of this stock can I do so? The lack of liquidity in Gamesa and Nordex are probably their greatest weakness. They are small so investment banks generally don't cover them.

You wouldn't want to invest in a utility because there's too much risk in all the other parts of their business and wind makes up a very small part of their overall business.

Materials Productivity: Terry Foeke: Likes FPL!
This could be an investment style choice too. Some people don't care about getting a growth stock that moves 10-15% a year for 10 years. They're more interested in a stock that will grow at a reasonable rate and match the indices. To those people I'd say invest in any of the existing wind power companies.

Vestas would be the first choice, but again, I caution people to think hard about whether this is the best place for their money. It's an industry that's seeing rapidly maturing technology - there aren't a lot of problems left to solve - more and more they'll be selling something that's close to a commodity and that may slow their growth and leave an opening for others to cut into it. The industry may get fractured instead of consolidated. They're not fully mature yet, and they have a lot of nice angles and I think they can play it out for a few more years but we're talking about scarce capital and capital allocation. I don't want to be on that end of the value chain.

NEG Micon is having cash flow problems and may not be the place to park money right now. The return on equity is probably half of that of the other companies. They're probably a third of the size of Gamesa and not even a fifth the size of Vestas.

Gamesa is diversified which is a good thing. They own wind farms as well as manufacture turbines. They are behind in their R&D compared to GE Wind and Vestas.

FPL, on the wind farm development side, has two big nuclear plants in Florida. They're an extremely well run company though. If you can stomach well-run nuclear power, FPL Group is the place to go. They are at the right point in the value chain where other people have taken the risk to sell capital equipment - those guys at the front end building the turbines - and other people have taken the risk to get the rights to actually put the farms up - and now these guys are operating the farms and selling the electricity. It looks like that's where the best margins are. Not only are you getting green electrons into the system - but you're making money at it.

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PI: What do you think will happen going forward with bigger players like GE and ShellWind? Do you think the industry will tend toward more consolidation?

Walden Asset Management: Ken Scott
I think that as countries start putting the Kyoto Protocol into force, as the market expands in developing countries, especially India, as government supports are made clear at the federal and state level in the US. and in other countries, as technologies continue to improve (rotor blades get larger, economies of scale increase), manufacturing facilities are established and R&D pays off, I believe you'll see prices become more and more competitive with traditional energy supplies. As this comes into play I think it will attract increasing interest from larger players like GE.

I can imagine a scenario in which larger industrial or other companies get involved by purchasing one of the wind companies especially the #2,3 or 4 players. We don't recommend that people make investment decisions based on whether a company may be acquired. Even aside from the acquisition argument all the major wind turbine manufacturers are compelling from an investment perspective.

Is GE going to step in and crush them in the U.S.? The larger players given their ability to expand and leverage themselves will continue to attract additional market share - Vestas and GE included. You might see some of the weaker players falling away or being bought out. But it's a growing pie that's being divided up.

Reed Wasden: Cary Wasden
I don't hold my breath for consolidation. The reason why Gamesa would want to consolidate with someone else is they have a good technology, no capital to deploy it, and the capital markets are relatively close to them. So the net consolidator would be somebody like GE, ABB, Siemens, Mitsubishi, who have distribution channels and the capital to help them grow. None of the companies in this environment are in a position to do this.

GE will be licking their wounds for many years to come from the existing 56,000 MW of natural gas capacity sitting on their dock. The last thing they want is more exposure in another wind company.

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PI: How does investing in wind compare to other alternative energies like solar and fuel cells?

Portfolio 21: Carsten Henningsen
If I only had enough money to buy 3 positions then I'd want a company in each alternative energy sector: Ballard in fuel cells, Astropower in solar, and Vestas in wind. If I had a bit more money I could diversify further and get Plug Power in fuel cells and NEG in wind.

Walden Asset Management: Ken Scott
Vestas and other wind power companies are profitable now. That's not true except for Astropower for solar companies, and it's not true for the fuel cell companies, except possibly for Hydrogenics sometime soon.

Materials Productivity: Terry Foeke
I don't like any of them. I've had a terrible time with alternative energy. They just don't look like good investments to me. It just seems too risky for what you're likely to get. I think there are better places to put your money that will make a difference in the world. If you're the kind of investor that says I want 5% of my money to get behind these guys and I'm going to be an eco-bull dog and help them survive. Fine! I think they're set up for some terrific hurricane-type problems as they go forward as conventional energy gets its head on straight and starts to deal with this.

The only alternative energy I'm optimistic about technologically and business-wise is solar, but not in the current solar cells. I'm interested in the guys who are doing the polymer cells and the direct conversion of heat to electricity. There are technologies within 5 years of commercialization that are not just cheap but will be really good technologies - conventional energy won't be able to touch it. The current players aren't going to be able to capture markets where you wrap a building with this polymer or put the polymer into a roadway and it generates electricity. The only part of alternative energy I'm willing to put a stake in is all private right now.

Winslow: Jack Robinson
It's important to understand that these green companies are all small cap growth stocks. That's the segment of the market that's been hurt the most. So they've gone down with the crowd. Some of the alternative energy stocks are down 90% from their high. They have to continue to show progress - technology milestones and eventually revenue goals.

We have a significant commitment to alternative energy. Besides holding Vestas and NEG Micon in wind, we have Fuel Cell, Astropower, Quantum and IMPCO. Wind makes up 6% of the fund, renewable energy companies make up 18% of the fund.

I have yet to meet an emerging growth company that doesn't stumble at some point. Whole Foods stumbled badly a couple of times not too many years ago, but as they've matured and built and enhanced their management team and their product lines, they've become a wonderful company.

Reed Wasden: Cary Wasden
Are fuel cells going to be a threat to the conventional power system? Yes, and a big one, but not for 20 years. Once fuel cells become commercially available the world of wind will fade. Fuel cells generate electricity 24 hours a day, they're clean and they're much more efficient. I think a lot of people are waiting to see if fuel cells really come around. You have a dramatically better technology waiting in the wings and everybody's hopeful about it, but no one thinks it's coming tomorrow. Micro-fuel cell technology overcomes the problem of hydrogen infrastructure. That changes the landscape considerably.

If your pay-off for a wind turbine is 30 years with government grants and you have this new technology that's going to be much better and still satisfies the need for environmental purity, which would you choose?

Wind turbine manufacturers are profitable and probably will remain profitable - there's always going to be a market for their product. In the future, fuel cells will trump them. When that happens this whole dream that everyone talks about - the distributed energy system - will actually come to pass. Then you won't need to worry about how to get the wind power from South Dakota to the places where people actually live.

That's at least 20 years down the road, so for the next 5-10 years you're safe investing in wind power.

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