Japan's New Stance on Wind Power Could Mean More Revenue for Turbine Blade Maker

In a Sept. 5 research note, Raymond James analyst Pavel Molchanov reported that the Japanese government's recently announced intention to loosen permitting regulations for wind power generation projects signals a renewed commitment on its part to this type of renewable energy, which could financially benefit TPI Composites Inc. (TPIC:NASDAQ), a wind turbine blade manufacturer with a footprint in the Asia Pacific.

Molchanov described where Japan has stood historically with wind power, why and what is changing. Today, the country has 0.6% of the world's installed capacity for this kind of power generation, which is unusual for it being the world's fourth largest economy. "Its 3.4 gigawatts (3.4 GW) of wind as of year-end 2017 are only slightly more than what Romania or Ireland has and well below what Australia has," Molchanov noted.

A primary reason for Japan lagging in this regard is its mandate for most wind generation enterprises in Japan, those aiming to make more than 10 megawatts of power. To date, all were required, for permitting, to obtain a full environmental impact assessment (EIA), an expensive, four- to five-year process that many developers chose not to pursue.

However, Japan's Minister of Energy recently announced the system will be revamped to where only the largest projects have to obtain the EIA. The specifics of the new policy are slated to be released by March 2019. "As we await the details, the political commitment to deregulation in this area is already notable; it represents a major policy shift," wrote Molchanov.

The Asian country's new goal is to generate 10 gigawatts of wind power by 2030, a threefold increase from today's number. The analyst purports it would take about 40 GW of wind power and storage to replace the nuclear power generation lost from the shuttered reactors. This equates to about 2.8 GW's worth being added each year to 2030. "That is needle moving for the industry," Molchanov remarked, adding 5% to the recent pace of global new builds, 50–60 GW per year."

What this could mean for TPI Composites, Molchanov offered, is a 5% annual boost in incremental revenue, "all else being equal." That would equate to about $50 million a year, based on 2018 revenue guidance. "Bearing in mind the operating leverage, uplift to EBITDA would probably exceed 10%, not a game changer but certainly nicely additive."

Raymond James has an Outperform rating but no price target on the energy firm. Its stock is currently priced at around $28.01 per share.

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Disclosures from Raymond James, TPI Composites Inc., September 5, 2018

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