Offshore wind is finally moving forward in the United States.  

The country's first offshore wind farm, the 30-megawatt Block Island Wind Farm, is now under construction. A new project that will be three times the size of Block Island, the South Fork Wind Farm, is set to be approved by the Long Island Power Authority. The project will be located in a wind energy area designated by the federal Bureau of Ocean Energy Management (BOEM).

BOEM also recently designated 81,130 acres of outer continental shelf off New York's Long Island and New Jersey as a new commercial wind energy area. This area's proximity to some of the country's most expensive and capacity-constrained parts of the electric grid make it an excellent site for offshore wind.

Both are projects developed by Deepwater Wind, the country's leading offshore wind developer.

Offshore wind stocks: Over the horizon

Investors looking for a way to invest in offshore wind might be disappointed to know that Deepwater Wind is principally owned by the D.E. Shaw group, a privately held partnership. The best investment opportunities in offshore wind stocks are, like offshore wind itself, often located beyond the horizon.

One place to look for stock market investments are the suppliers to wind farms. Offshore wind turbine suppliers are a natural first choice.

GE (NYSE: GE) is supplying the turbines for Block Island Wind. Again, this will be a little disappointing to stock market investors. While GE is a publicly traded company, offshore wind turbines are not a significant part of its business. The company's renewable energy segment accounts for less than 20 percent of total revenue, and offshore wind is a tiny fraction of that.

Offshore wind turbines tend to be larger and more rugged than their onshore counterparts. The large size is due to the expense of foundations, making it important for an offshore farm to generate as much power as possible from each turbine. A typical onshore wind farm uses turbines with peak power output of around 2 megawatts each. Block Island is using just five 6-megawatt turbines.

These large sizes make it difficult for new entrants to challenge established manufacturers -- meaning offshore wind manufacturers are a very elite bunch. This is good for offshore wind investors, because it means that industry incumbents (which are often public) are likely to remain leaders far into the future. But it is bad for investors looking for a pure-play exposure to offshore wind. Offshore wind turbine manufacturers simply do not exist without a large onshore wind business to support the investment in manufacturing and R&D.

Most wind turbine manufacturers serve both the onshore and offshore market, but the ones with the biggest names in offshore wind are European players Siemens AG (OTC: SIEGY) and Vestas (OTC: VWDRY). 

It's not particularly surprising that European manufacturers dominate the offshore wind turbine market, since Europe has long been the leading offshore wind market. Because offshore wind sites are almost by definition accessible by ship, I expect that the early dominance of European offshore wind manufacturers will prove to be more durable than the early dominance of Europeansolarmanufacturers proved to be in the early 2000s.

Wires

Another way offshore wind is different from its onshore cousin is the need for underwater electrical connection to shore. Again, investors will not find pure-play offshore wind companies, but underwater cables need to be strong and durable enough to survive decades under salt water and the occasional encounter with a ship's anchor or other submarine hazard.

Submarine cables are expected to be the fastest-growing segment for electrical cable manufacturers over the next five years. U.S.-based General Cable (NYSE: BGC) and European Prysmian S.P.A. (OTC: PRYMF) both have large submarine cable businesses.

Owners and developers

No article on offshore wind stocks would be complete without a mention of Danish energy giant Dong Energy A/S (Copenhagen: DENERG.) Dong is a diversified energy developer and utility with a focus on sustainable energy. The company has long pioneered new offshore wind technology, and is a leading European developer.

Foundations

Much of the investment in offshore wind is under the surface of the water, in the foundations. Constructing these giant, incredibly strong structures under windy seas is also a technical feat requiring specialized equipment. Holland's Sif Group (Amsterdam: SIFG) is the leader in this market, where it gets approximately two-thirds of its revenue. This makes Sif the closest thing to a pure-play offshore wind company available. The balance of its revenue comes from foundations for oil and gas.

Conclusion

Offshore wind is a rapidly growing and exciting form of renewable energy, and the established industry leaders have wide moats protecting them from startup competition. This combination means that current leaders are likely to continue to lead, but it also means that pure offshore wind exposure is difficult, if not impossible to find. The only stock that is more offshore wind than anything else is Sif Group, and that company's exposure to oil and gas may be too much for some investors excited about renewable energy.