While wind power stocks have appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. Here are the problems with wind energy you need to know.

Wind power has been used for centuries around the world through the use of windmills for pumping water and milling grain. Historically, windmills are most associated with Holland, where they have been used extensively for centuries. Today, wind power plants are used all over the world and use large blades to catch the wind, turning rotors in turbines that produce electricity.

The seeming attraction of wind power stocks is obvious—these companies operate (or make parts for) wind turbines, which offer a source of clean, endlessly renewable energy that can replace fossil fuels like oil, coal and natural gas. However, like other alternative-energy firms, wind power stocks face significant costs and risks. In fact, the problems with wind energy have increased, rather than decreased, over the years.

If your plan to invest in wind energy, here are ten problems with wind energy that we’ve identified:

The 10 risky problems with wind energy

1. Wind power offers limited investment potential. While wind power stocks have appeal to a lot of investors on an emotional and conceptual level, many offer only limited investment potential. That’s because they may need a long time to move from the planning and permitting stage to profitability.
2. Wind power is a new technology and relies on subsidies. Risking a large amount of capital for a technology that still is considered new and unproven—and unprofitable—makes it necessary in most cases to rely on government subsidies to attract investors. Removal of these subsidies would make most wind power companies commercially unviable. Many governments around the world are cutting subsidies for alternative energy investments as they look for ways to deal with their ballooning budget deficits.
3. Antiquated power grids can hold back wind power stocks. Upgrades to power grids are important to wind power stocks because, while most power plants are located near big cities to keep transmission costs down, wind farms tend to be in more remote areas with steady winds. As well, low transmission capacity, or none at all, has hurt the ability of wind power stocks to build new projects.
4. Varying wind speeds cause its electricity output to fluctuate. In many areas, the wind is stronger in the daytime, when demand is lower, and dies down in the evening, when consumers use more appliances. As well, electrical power can’t be stored efficiently, so to make economic sense it must be used when it is produced.
5. Wind power stocks face high construction costs. These include the cost of the turbines themselves, plus buying or leasing the necessary land. Installation can also be expensive, depending on the terrain and distance from the power grid. Not surprisingly, many of these companies are heavily reliant on uncertain government subsidies and political support.
6. Wind farms meet a lot of resistance from many communities. Most of the time wind power companies are fighting local municipalities to build their wind turbines on their land. The last thing people want are large numbers of wind turbines on a “wind farm” take up a lot of space.
7. Wind farms are not desirable for landscapes. Although the space between the wind turbines can be used for agriculture, a wind farm dominates the visual landscape and is unacceptable in tourist areas or nature preserves.
8. Wind farms need to be in remote areas, making transmission difficult. If the wind turbines are located in populated areas, noise from turning blades can spark public opposition that makes it difficult to win regulatory approval. The obvious solution is to locate the turbines in remote locations with steady winds. But that requires a bigger investment in long-distance transmission lines. A lack of transmission capacity has been one of many major problems with wind energy and wind projects.
9. Environmental groups aren’t all on board with wind power. Despite its perception as a clean and renewable source of power, wind power does draw objections from some environmental groups.
10. Wind power relies on more than the weather. Like solar power, wind power is dependent on much more than a sunny or windy day. Because wind is never consistent and unpredictable, utilities must maintain backup power capacity or costly storage, equal to their reliance on wind power. This complicates the stability of a power grid; it creates difficulties in power scheduling and technical problems related to voltage control. All these factors can cut the price that utilities are willing to pay for wind power.

If you decide to invest, keep in mind that at TSI we recommend that energy stocks make up only a limited portion of your portfolio—just part of the amount we recommend that investors hold in resources stocks—less than 20% for a conservative investor or as much as 30% for an aggressive investor.

We expect to say a great deal about low oil and gas prices as an economic energizer in the next few years. However we do not see wind power as a major part of economic growth due to the technological issues mentioned above.

Have you invested in wind power stocks? Have they been profitable for you? Share your experience with us in the comments below.