A safe haven

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The poor health of the global financial market and the weakened state of the world's economy is taking its toll. For most investment sectors, the reverberations of the sub-prime mortgage crisis in the United States have led to a sharp and painful ride downwards. Investors have become jittery, spooked by the rapid decline of familiar financial institutions and a sense that they stand on the edge of a precipice.

While the wind power business is not immune to market uncertainty, potential recession and persistently high commodity prices, it is weathering the storm. Against a drop in the European share price indices of 16%, the publicly traded wind turbine manufacturers lost just 2% of their value in recent months (page 79). Whether wind farm and project development assets are also holding their own remains to be seen, but they should be. The sector is one of the few offering what is referred to as "defensive growth," growth influenced by factors not dependent upon the drivers of the broader economy. Come what may, the world needs electricity. That wind can supply it in abundance from domestic resources unthreatened by global political tensions and at reasonable cost without incurring financial penalties for carbon pollution makes it unique. Even if growth in energy demand slows as the economy contracts, old style power plant are wearing out and in dire need of replacement.

Financing new build of wind plant is going to get tough if investors start stuffing cash under the mattress. Anecdotal evidence suggests it is happening, with fund managers arriving at work to be told to sell shares so investors can redeem their cash. When the market is selling off, prices fall for reasons that have nothing to do with "fair value." At the moment there are more sellers than buyers. In this environment, having cash and access to it -- "liquidity" -- is particularly precious.

The litmus test for the wind sector's ability to withstand troubled times looks to be just around the corner. Seeking cash to fund growth and frustrated by the market's failure to recognise the true value of its portfolio, global wind fund manager Babcock & Brown is offering some selected assets up for sale (page 38). If B&B is correct about its undervaluation, and the price for its assets approaches or exceeds those achieved in recent wind company listings and takeovers (the flotation of Iberdrola's renewables division and the sale of Airtricity come to mind), better proof of the wind sector's resiliance in times of economic uncertainty would be hard to find.

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