Sign of the Times: Companies Experiencing Difficulties

Alt energy investors figured out early on in this crisis that a widespread shut-down of credit markets coupled with a substantial repricing of risk would not bode well for the industry. That's why alt energy stocks have outdone the overall market to the downside over the past year, with the iShares S&P Global Clean Energy Index [ICLN] down more than 60% Vs. the S&P 500 losing a little under 40% over the same period.

Much of this carnage occurred before any real impacts on alt energy had been felt (current prices in equity markets are generally forward- rather backward-looking). Over the past couple of months, however, the proverbial chickens have come home to roost, and companies with weak balance sheets and / or no sales have been experiencing difficulties. Good companies have had to cut back staff and production. Here are some of the headlines that caught my attention:

Yesterday, clean locomotive maker Railpower Technologies Corp. (RLPPF.PK) filed for bankruptcy protection and put itself up for sale. I took a small position in this stock in May and liquidated it at a significant loss in October (this was a pretty bad call on my part but, like many people, I'd failed to grasp how dire things were going to get). Railpower's woes this time around were due entirely to bad luck (and terrible timing!): it had finally overcome initial execution problems and found a credible financial backer, only to have its plans wrecked by the economic maelstrom. Unfortunately, I don't think there will be a third chance for this one.

Also yesterday, emerging turbine maker AAER Inc. [AAERF.PK] announced that it had extended the deadline on the deal it signed last October for the supply of 100 MW of turbines to a Canadian wind project by two months. The original agreement called for both parties (AAER and project developer Northland Power) to have secured the necessary financing (the former to produce and the latter develop) within four months. AAER has since gone to market and raised debt and equity financing. Northland's situation, however, is less clear. My take: Northland is unable to find cheap debt to develop its project and wants more time to see if things will normalize in the next couple of months. While not terrible, this certainly isn't great news.

VRB Power Systems, the large-scale energy storage technology developer that went bankrupt in November, announced a few days ago that it had finally liquidated its assets. Done like dinner!

Privately-held OptiSolar, a thin-film panel maker and solar park developer, cut 300 jobs in early January (50% of its staff) because of financing problems. Other solar firms, including Ausra, SunEdison, HelioVolt and Suntech Power [STP] have all recently announced staff cuts, although not to the same extent.

Wind tower maker DMI Industries, a unit of Otter Tail Corp. [OTTR], announced in early January a 20% reduction in its workforce at plants in the U.S. and Canada. Not to be outdone, Clipper Windpower (CRPWF.PK) recently laid off 150 employees at a U.S. plant (38% of the workforce), while LM Glasfiber let go of 150 and is halting production production at two Arkansas plants. Finally, Trinity Structural Towers, a unit of Trinity Industries [TRN], closed down a wind tower plant and laid off 131 workers in mid-January.

Micro-cap Canadian wind project developer EarthFirst Canada went belly-up in early November because it ran out of cash and couldn't find financing. This bankruptcy had been in the works for some time and I tried to play it ...unsuccessfully.

DISCLOSURE: Charles Morand has positions in the following stocks: AAER, EarthFirst Canada.

Comments

[billp37:]

alt energy may lack the BTUs IN for the "advertised" energy OUT?

But money can be made selling alt energy to those who don't understand the laws of thermodyamics, HEAT RATE and CAPACITY FACTOR.

Eventually, of course, alt energy can lead to bankruptcies.

www.railpower.com/

Feb 07 08:40 AM

[john s. gordon:]

was wind power a bubble ?
> jack

Feb 07 08:48 AM

[fran:]

jack--

i take my lead from leaders in ALT ENERGY application[those businesses which "pay to play"].
look to FPL, ACCIONA, IBERDROLLA etc for the answers. they're still in the game big time, pausing now due to capital constraints. the usual fluff in any early technologies are getting weeded out.


On Feb 07 08:48 AM john s. gordon wrote:

> was wind power a bubble ?

Feb 07 11:16 AM

[André Sautou:]

I am not surprised to read such news.

I have suspected for many decades that fast economic growth could only be sustained with energy produced at low cost, sold at low price and able to satisfy a growing demand.

I have also suspected that such kind of energy could only be provided by easily accessible concentrated deposits (such as oil, gas and coal, or nuclear fuel such as uranium or thorium) and that renewables would remain to costly (being generally diffused and/or intermittent).

I suspect now that the Golden Age we have known after World War II may have ended last July. Maybe our present world has reached or is about to reach its maximal power, now producing and consuming around 11 Gtoe per year (1 Gtoe = 1 billion ton of oil equivalent) when adding oil, coal, gas, nuclear and renewables (including hydraulic).

[Only a few people know that this power was worth about 1 Gtoe/year in 1929 and 1.5 Gtoe/year in 1945 ; it then increased by around 1.5 Gtoe every ten years or so until 2005, as show some curves that can be found on a few WEB pages, typing the following keywords : Schilling & Al. (1977), IEA (2002), Observatoire de l'Energie (1997).
One of such pages is energycurves1860to2000.../ .]

And I suspect also that our present world may have lost its capability to invest money in order to sustain its growing population while at the same time being able to devote a sufficient part of its investments so as to increase its annual energy production. In other words, it may have reached the ultimate limits of its expansion, previously anticipated by the Club of Rome in 1972… Will it soon enter into decline, after having reached “Peak Energy” and “Peak Humanity” ?

Hush! Let us talk about something else. For the time being, such Club of Rome talk is “taboo”. Heads of state, politicians, economists and mainstream media do not want to hear such kind of talk, want to ignore the many warnings expressed by experts such as Colin Campbell and many others (for instance: ASPO January 2009 Newsletter, www.aspo-ireland.org/c... ) and still want to believe that there is a future for long term economic growth.

Feb 09 02:28 PM

[User 360621:]

On the VRB Power note, their assets & IP have been acquired by a China based company Prudent Energy pdenergy.com - it seems that the technology will prevail.

Feb 20 02:31 AM

[Conan the B...:]

Alt. energy is here to stay. When all is said and done, the strong will survive, the weak will fail.

Technological innovation is not enough.

Those with little debt and some future financing will live to fight another day.

And YES, Just like Corn Ethanol and LNG before it, both Wind and Solar were Mini-Bubbles following in Oil's footsteps. That bubble has also burst.

But what about the Obama Stimulus Package?

The Obama plan is Backloaded.

How many alt. energy companies survive until 2010 is debateable. IMHO

Feb 24 02:01 AM