Following dire market conditions, the equity markets picked up in October 2011, and. have been recovering slowly since – the US indices for instance gained more than 20%.
The outlook for cleantech and renewables is not so good, with the NEX and HSBC indices rather flat since September. In the past year, they have lost 42% and 19% respectively. There are various reasons for this: the Eurozone debt crisis, reduced policy support in Europe and the US, and lower carbon and shale gas prices. European and US manufacturers are also facing strong Asian competition.
The graph above shows that over the past year Brent crude oil prices have been de-coupled from the equity markets. Although steep oil price rises in early 2011 leveled off, there are now concerns of another spike, with barrel prices approaching mid-2008’s peak.
In the current harsh environment, fossil fuels are benefiting while clean power is being undervalued. It is hoped that increasing fossil-fuel prices will ultimately drive renewables’ recovery as they become more cost-competitive. In the meantime, financial incentives for renewables are being reduced or withdrawn because of falling PV panel and wind turbine prices, and governments’ desire to avoid high consumer energy bills.
The renewables IPO market has been very quiet. The biofuels sector has been the most active, with two NASDAQ flotations; Ceres and Renewable Energy Group for US$75m (€56m) and US$69m (€52m). Brightsource abandoned its IPO hours before it was due to raise c.US$152m (€114m).
The graph above shows relative share prices for an aggregation of companies in the three main renewable energy sectors (base-line is June 2007, pre-credit crunch).
After declines in August and September 2011, the solar sector recovered slightly. However the collapse in solar prices over the past 18 months continues to have an effect; after the much-publicized collapse of Solyndra, Evergreen Solar and Spectrawatt last year, this year has seen Q-Cells file for insolvency, joining Solon, Solar Millenium and Solarhybrid. First Solar, one of the largest PV manufacturers, recently announced 30% job losses and closure of its German factory.
Low market prices are now attracting new players, particularly investors in Asia and the Middle East. For example, LDK (China) is buying into Sunways, while Microsol (UAE) is taking over Solon.
News is not much better in the wind sector. It has been a very tough few months for large-scale manufacturers. For a long while, larger turbine suppliers had seemed more immune than smaller market players, but this has changed in the past year.
Vestas’s market cap is 20% compared with two years ago, with share prices falling 75% in the past year. Gamesa’s and Suzlon’s capitalization is about 30% what it was in early 2010. This has led to restructuring and job losses, and rumors of takeovers by Chinese wind power giants.
So where does the renewable energy sector go from here?
The answer lies in reaching cost-competitiveness as soon as possible, to remove reliance on government subsidies. Lowering fossil fuel subsidies and obtaining suitable carbon floor prices is also key. The “set aside” program planned for the EU-ETS will hopefully result in reduced supply of carbon permits and higher prices.