Image via Wikipedia
by Terry Macalister
The election of Barack Obama has put the wind back into the sails of the renewable energy sector, where investor confidence had been badly punctured by the credit crisis. Clean technology and green energy stocks have soared as City analysts predict a major boost from the incoming president.
Solar Integrated Technologies rose by 30% yesterday after increases of 22% by Renewable Energy Corporation and 16% by the wind turbine maker Vestas in the 24 hours before, when they were helped upwards by oil prices returning to above $70 a barrel.
Obama has promised to invest $150bn over 10 years in renewables as part of a wider plan to increase US energy security amid fear of oil shortages, while also reducing the country's carbon emissions in a bid to tackle global warming - and create jobs during an economic downturn.
Kate Hampton, head of policy at Climate Change Capital, a UK-based investment manager, was one of many who welcomed the poll result as a massive step forward for renewables.
"We cannot overstate how divisive the Bush administration was, how far behind the US now is in the transition to the low-carbon economy and how high expectations are now that Obama is the president-elect," she said.
Dean Cooper, alternative energy analyst with Ambrian Partners in London, predicted widespread change in the US with production tax credits for the wind industry increased from one year to seven years and a national renewable-energy guideline introduced alongside a cap-and-trade scheme to give more certainty on a carbon price.
The moves come as Britain has recently put more muscle into its low-carbon drive by creating a new government department to cover energy and climate change, while Spain, Germany and other European nations press ahead with their own plans to boost renewables.
The US election result has provided a much-needed boost at a critical time for an emerging investment sector that risked being crushed by the banking crisis and emerging economic recession. Some companies had seen their share prices halve in the turmoil that began in September.
"Since the onset of the most recent phase of the credit crisis, the European wind sector has been battered with an unweighted average decline of 45% compared to a decline of 23% for both the S&P 500 and FTSE Eurofirst 300 over the same period," said Michael McNamara, analyst at Jefferies & Co, in a research note published at the height of the sell-off.
"Much of this has been linked to fears that wind power developers would see themselves cut off from access to financing due to a toxic combination of a potential global closure of the project finance market and a drying up of demand for tax equity investment in the US."
Sentiment in the City and Wall Street has steadied since, but the dependence on project finance at a time when the cost of money has soared continues to cast uncertainty over a sector that is also nervous about rising costs and planning delays in countries such as Britain.
Peter Horsburgh, a manager of the Environmental Technologies Fund, said early start-up businesses were going to find it much harder to raise capital and those who had rushed early into a stockmarket listing could find it hard to win secondary tranches of cash.
"Rights issues are going to be incredibly difficult and yet neither is bank lending going to be easy for small and medium-sized firms," said Horsburgh, who expects his own fund will look at less speculative, "later stage" companies that have defined revenue streams.
In fact, there is nothing new about volatility in the clean tech and green energy sector, with share prices being driven in the past to hugely inflated levels on the back of hyped euphoria that sucked in investors before being rapidly deflated as realism set in.
The dotcom boom surrounding Internet stocks was followed in the US at the turn of the century by a bubble in solar and hydrogen companies that soon burst. A similar spike happened in Europe with Vestas among the companies whose future looked in doubt at one stage.
Global solar stocks have suffered since last Christmas over fears of an oversupply of modules and cells, while wind turbine makers have been hit since the highs of the summer by soaring input costs. Confidence in the offshore wind sector in Britain was also dented by Shell's decision to sell up its interest in the huge London Array project.
Peter Fusaro, chairman of energy consultant Global Change Associates, said the green investment sector remained still relatively small but "fat with hype and fluff".
But it is also growing. Whereas there were four hedge funds looking at the sector in 2004 there are more than 90 today, while an estimated 4,000 private equity funds are said to be targeting the sector, according to Fusaro.
But the profit margins in many of the renewable sectors are relatively small, making them particularly vulnerable to a serious global economic slowdown and rising inflation. However, Kevin Collins, chief operating officer at the specialist renewables insurer GCube, said he was confident of the long-term value in the sector. He also warned: "Are the banks and lenders going to be in a position to finance projects as they were? We don't see a massive slow-up in demand yet, but its early days and while renewables will continue to grow it is difficult to say at what rate."
Many of the pioneers of low-carbon energy are dependent on public subsidy to survive. There is a question over whether bank bail-outs will have drained the state coffers and lead to a slowdown in environmental grants.
France, Germany and Austria have already called for an easing of European Union climate goals to help industries cope better with the downturn. In Washington one Republican senator said, on condition of anonymity, that the green bubble had burst.
"There is a very large question mark hanging over the idea that Congress would take economy-wide action on global warming with the economy in such anemic shape," said Frank O'Donnell, president of Clean Air Watch.
This article originally appeared in the Guardian, for which Terry Macalister is the industrial correspondent.