26 renewable energy focus November/December 2008

Markets

It is well documented that the past two months has seen the worst crisis

on the world stock markets for many a decade. And this was reflected by

falls in the S&P 500, FTSE 100 and AMEX Oil indices; of around 8%, 9% and

13% respectively.

The falls in the index are most likely to be a reflection of investors’ aver-

sion to anything that could be seen as a risky investment. And consid-

ering the current climate, some have likely assumed that economic gloom

for the foreseeable future will stall investment in more expensive forms of

energy, as well as lead to a ‘natural’ curb in emissions caused by a decrease

in economic activity.

Just 8 of the 88 stocks in the index rose during the period, with Chinese

battery maker BYD notably rising 61.5%, largely due to Warren Buffet’s

Berkshire Hathaway subsidiary MidAmerican Energy taking a 10% stake

in the company. Also notable was the fact that the top four performers – all

of which rose more than 10% – were either power storage or energy effi-

ciency companies, technologies which are traditionally seen as less

dependant upon public money than other clean energy sectors.

Looking forward then, and the current market developments, the end of

cheap credit and the near collapse of the investment banking system are

likely to have a significant impact on companies in the renewable energy

space, and the likelihood of a persistent economic downturn will have

implications beyond the availability (or not) of cheap credit and risk-

taking investors.

Firstly, the commodities markets will continue to play a major role in the

economics of clean energy. Commodity prices have been on a bull run

for the past four years and for the short term at least, considering the

economic slowdown that is likely to persist for the near future, the

outlook for energy prices is downward. Lower demand, leading to

cheaper prices for energy, is bad news for many renewable technologies

which – until grid parity – are only viable while the price for their output

is high.

Secondly, policy uncertainty persists within the clean energy sector. The

story of climate change policy since 2004 has been a stream of new

measures – feed-in tariffs; renewable portfolio standards; green certifi-

cates; research grants; hydrocarbon taxes; cap-and-trade systems; and

biofuels blending mandates.

Many of these policies are now under review. The Gallagher Review in

the UK for example has lead to widespread concern over biofuels poli-

cies (at least those “first generation” biofuels that conflict with food

production, as well as create other land usage issues).

In the USA the Renewable Fuel Standard is under intense pressure of

being relaxed, and tariff cuts in Germany and Spain (see below) have

shown that Governments are not prepared to finance overly-expensive

subsidies for renewable energy in the case of overproduction.

Miraculously though, the Production Tax Credit (PTC) and the

Investment Tax Credit (ITC) – which provide essential tax breaks for

renewables in the US were packaged into the Wall Street bail-out plan

as a sweetener and passed on 3 October. Nevertheless the pressure will

still be on Governments, which have taken on massive leveraging from

their banks in recent weeks, to remove tax breaks and cut spending.

That said, a short term fall in the market valuations of companies which

were trading at 40 to 50 times their annual earnings does not mean the

fundamentals have disappeared from the sector. PE ratios in the sector

remain high compared with broader indices, indicating that investors

still expect significant growth from where these companies are today.

The news flow for project development, asset financing, venture capital

and private equity investment remains strong, with money still being

pumped into clean energy, if not through the public markets.

Another notable development within the period was the Spanish

Government’s introduction of a yearly cap for photovoltaic installations

within the country. An over generous feed-in tariff had lead to a greater

number of PV installations than desirable, and was becoming extremely

expensive to finance. A revision of the subsidy had been anticipated for

some time within the industry, and inevitably solar lobbyists were

disappointed by the decision, although many felt that this was a

compromise the industry could live with.

Clean energy stocks take a hitDURING THE MONTHS OF AUGUST AND SEPTEMBER 2008, THE

WILDERHILL NEW ENERGY GLOBAL INNOVATION INDEX WHICH

TRACKS 88 OF THE TOP CLEAN ENERGY COMPANIES FELL 26.8.

THIS REPRESENTED THE BIGGEST TWOMONTHLY FALL IN THE

INDEX’S HISTORY, AND TOOK IT TO A LEVEL 50% BELOW ITS PEAK IN

NOVEMBER 2007. SO WHAT DOES THE FUTURE HOLD? Tom Greenwood

renewable energy focus November/December 2008 27

Markets

NEX Output: 31 July 2008 to 30 September 2008 (best and worst 20 performing companies)

No. Name Country Primary Sector Exchange TickerLocal Currency

2 Month % Change

13 BYD Co. Ltd. Hong Kong Power Storage Hong Kong 1211 HKD 61.5%

24 Cree Inc. US Energy Efficiency NASDAQ NMS CREE USD 17.4%

45 International Rectifier Corp. US Energy Efficiency NYSE IRF USD 12.7%

67 Saft Groupe S.A. France Power Storage EN Paris SAFT EUR 10.4%

78 Suntech Power Holdings Co. Ltd. ADS China Renewable - Solar NYSE STP USD 7.2%

49 Kingspan Group PLC Ireland Energy Efficiency Dublin KSP EUR 2.4%

56 Novozymes A/S Series B Denmark Renewables - Biofuels & Biomass Copenhagen NZYM’B DKK 2.4%

41 Gurit Holding AG Switzerland Renewable - Wind SWX GUR CHF 0.5%

51 Maxwell Technologies Inc. US Power Storage NASDAQ NMS MXWL USD −1.0%

75 SolarWorld AG Germany Renewable - Solar XETRA SWV EUR −2.6%

32 EnviTec Biogas AG Germany Renewables - Biofuels & Biomass XETRA ETG EUR −3.3%

46 Itron Inc. US Energy Efficiency NASDAQ NMS ITRI USD −4.1%

73 Solar Millennium AG Germany Renewable - Solar XETRA S2M EUR −4.4%

9 Ballard Power Systems Inc. Canada Hydrogen & Fuel Cells Toronto BLD CAD −4.8%

26 Echelon Corp. US Energy Efficiency NASDAQ NMS ELON USD −6.4%

21 Contact Energy Ltd. NZ Renewable - Other New Zealand CEN NZD −6.9%

63 Q-Cells AG Germany Renewable - Solar XETRA QCE EUR −7.0%

30 Energy Developments Ltd. Australia Renewables - Biofuels & Biomass ASX ENE AUD −9.1%

55 Nordex AG Germany Renewable - Wind XETRA NDX1 EUR −9.4%

77 SunPower Corp. US Renewable - Solar NASDAQ NMS SPWR USD −10.0%

88 Yingli Green Energy Holding Co. Ltd. ADS China Renewable - Solar NYSE YGE USD −34.6%

7 Babcock & Brown Wind Partners Group Australia Renewable - Wind ASX BBW AUD −35.0%

31 EnerNOC Inc. US Energy Efficiency NASDAQ NMS ENOC USD −35.9%

54 MEMC Electronic Materials Inc. US Renewable - Solar NYSE WFR USD −38.8%

5 American Superconductor Corp. US Energy Efficiency NASDAQ NMS AMSC USD −40.3%

34 Evergreen Solar Inc. US Renewable - Solar NASDAQ NMS ESLR USD −40.9%

11 Boralex Inc Canada Renewables - Biofuels & Biomass Toronto BLX CAD −41.2%

87 Xingjiang Goldwind Science & Technology China Renewable - Wind Shenzhen 2202 CNY −43.5%

12 Brasil Ecodiesel Industria e Comercio de Bioc Brazil Renewables - Biofuels & Biomass Sao Paulo ECOD3 BRL −43.6%

18 Climate Exchange PLC UK Energy Efficiency London AIM CLE GBP −48.1%

83 VeraSun Energy Corp. US Renewables - Biofuels & Biomass NYSE VSE USD −49.1%

1 5N Plus Canada Renewable - Solar Toronto VNP CAD −50.3%

85 Verenium Corp. US Renewables - Biofuels & Biomass NASDAQ NMS VRNM USD −53.2%

6 Aventine Renewable Energy Holdings Inc. US Renewables - Biofuels & Biomass NYSE AVR USD −53.5%

80 Theolia France Renewable - Wind EN Paris TEO EUR −55.2%

42 Gushan Environmental Energy China Renewables - Biofuels & Biomass NYSE GU USD −57.6%

15 Capstone Turbine Corp. US Energy Efficiency NASDAQ NMS CPST USD −57.8%

58 Plug Power Inc. US Hydrogen & Fuel Cells NASDAQ NMS PLUG USD −58.8%

22 Cosan S/A Industria e Comercio Brazil Renewables - Biofuels & Biomass Sao Paulo CSAN3 BRL −58.8%

39 Greentech Energy Systems A/S Denmark Renewable - Wind Copenhagen GES DKK −62.9%

The Government set a cap of 400 MW of installations per year for the fore-

seeable future, split between roof-mounted and ground-mounted

projects – by a ratio of two to one. The cap will be eased however, with an

extra 100 MW allowed in 2009 and 60 MW in 2010. This makes the overall

cap 500MW and 460MW in 2009 and 2010, and 400 MW thereafter. The

new feed-in tariff will be €0.32/kWh for ground-mounted plants (sizes

up to 10MW), higher than the previously planned €0.29/kWh; €0.32/kWh

for rooftop plants above 20kW but below 2MW, and €0.34 for rooftop

plants below 20 kW in size. The level of the tariff will be reduced quar-

terly, as long as the quotas are exhausted.

Although solar project developers will inevitably find the environment

less profitable going forward, the reduction had been a long time in

coming. Commenting on the final levels chosen by the Government,

Jose Galindez, president of turnkey developer Solarpack and a promi-

nent member of the newly-formed Spanish PV lobby group Asociation

Empresia Fotovoltaica (AEF) remarked, “we feel it is a compromise that

we can accept.”

About the author:

Tom Greenwood is an analyst at New Energy Finance. The WilderHill New Energy Global

Innovation Index is comprised of companies worldwide whose innovative technologies and

services focus on generation and use of cleaner energy, conservation and efficiency, and

advancing renewable energy.