2009: Boom or Bust for Clean Energy?

Although the macro economic environment continues to display signs of weakness, many of the sentiment measures analysts use such as TED spread and consumer confidence, show improvement. The US yield curve has moved to an "incredibly positive reading, says research firm Cannacord Adams. Many analysts are looking for recovery to begin in the second half of 2009.

Banks still aren't lending much, but with central bank rates at historic lows, a flood of money will hit the economy sooner or later. By the middle of 2009, loan costs for projects should be lower than they were in mid- 2008 and debt syndication should return, even if it's underwritten by government.

Clean energy projects should be early beneficiaries because they produce a reliable stream of revenues from strong counter-parties, the utilities.

"Now is a very favorable time to be committing new funds to equities on a 5-10 year time horizon," says Cannacord Adams. "From the recent lows, the odds of the North American markets in general and Canada's TSX in particular having double-digit annual returns over the next decade are very high."

"In summary, 2009 will be characterized by a confusing mix of consolidation and optimism. It will start slowly, with project developers struggling to find banks willing to lend; with the profits that drive tax equity as rare as hens' teeth; and with shell-shocked stock markets effectively shut for public fund-raising. There will be casualties and there will be forced marriages, as companies run out of cash. It will be a year of extraordinary volatility in all markets, and in clean energy, some sub-sectors will surge while others will wilt," remarks Michael Liebreich, CEO of New Energy Finance.

"Underlying all this," he continues, "is a huge dose of hope for the future. Not only are all the drivers that propelled the sector along so dramatically for the past five years still at work - climate change, energy insecurity, fossil fuel depletion, new technologies - but there are reasons why the clean energy sector can enter 2009 with a sense of optimism unmatched by any other sector of the faltering global economy."

Gone are the supply chain bottlenecks, high silicon prices and soaring commodity prices that created a sellers' market for wind and solar. When the credit crunch eases, the world will be stunned, he says, by how cheaply the best companies can deliver clean energy and still make a profit. This is very good news for developers with access to funds, but very bad news for equipment manufacturers with poor cost positions.

By the end of 2009, we should see clean energy stock valuations rise (they're up 25% so far) and a possible return of the IPO market - a backlog of deserving companies and their investors are waiting. Weaker companies will have been acquired by stronger firms looking for deals.

The first half of the year will be hard on wind turbine and solar manufacturers and for project developers, but we're already seeing some projects getting financed. The thaw should come sooner in Europe thanks to their feed-in tariff system. German lenders are showing signs of life with a preference for smaller projects.

By year end, credit should be freed considerably with lower rates, setting the stage for growth in 2010. Turbine prices will be lower thanks to lower steel prices, solar prices will lower thanks to a silicon surplus and supportive federal policies will be in place in the US. The biofuels space will continue to grow quietly, investing in research and new cellulosic plants.

Wind and solar could hand over the spotlight to geothermal and the smart grid in 2009.

Geothermal, the only renewable energy source that can compete with large scale energy sources like coal and nuclear, has yet to see its day. Over the past few years it's been held back by costly drilling rigs, which now look cheap after plunging oil prices cut demand.

If Obama makes the Smart Grid a reality, that would lead to a sea change in investment in smart meters (giving people feedback about their energy use) and demand response (enabling utilities to control energy flows through the grid and transmitting clean energy throughout the country). The switch from analog to digital energy will result in an information explosion and an investment explosion as worlds of opportunity open up.

Comments

[The Proclaimer:]

Great article, right on target. We do have a very bright near & long term future ahead.

Feb 12 08:59 AM

[bluesmoke:]

With so much doom & gloom out there, it's refreshing to read articles that have a positive outlook. Wouldn't it be an ironic twist of fate if this economic mess forced us to do the right thing?

Feb 12 09:28 AM

[Doc 224899:]

This article is the sort of naïve smiley-face cheerleading I’ve read for years, lacking facts and impractical but very optimistic and benefiting from an extensive borrowed vocabulary.

Here's the bottom line: There will be NO substantive or meaningful investment in alternative energy technology by the Obama administration. Nobody with any sense will invest their own money in alternative energy corporations until serious grants and substantial tax advantages to support those corporations over time are a done deal, and no significant part of the $850B stimulus money seemed to have that sort of an earmark. Investors should wait until any alternative energy technology is demonstrated in full scale projects because, at this point, it takes substantially more energy and funding to create the proposed technologies than they produce.

We have repeatedly witnessed the Obama administration's inability to do anything but utter reassuring generalizations that soothe our nation's inept masses with promises that the government will take care of them because they can't or won't take care of themselves, while hugging and smiling at wealthy campaign donors among America's trust-funded Green Elite and Hollywood’s woefully uneducated Limousine Liberals.

Obama/Geithner's $30B proposal for funding work on our dilapidated infrastructure (little more than a trite gesture that would do nothing but finance states’ DOT pavement patching jobs), while funding over 10X that amount in paper-pushing, bean-counting and thinly disguised welfare payments, should tell you that Mr. Yes-We-Can has no intention of putting bricks on mortar in any serious way, and will carefully avoid funding the white males and skilled labor who could bring any major projects to successful completion. But, then, the man has never actually worked for a living, and doesn’t appear to associate with anybody who has.

All that the Obama administration offers is words; just soothing, legalistic, officially deniable, politically correct words, and you simply can’t take that sort of trivial pap to the bank.

Feb 12 10:39 AM

[koolsool:]

I agree completely with User 224899. I am very disappointed. Before the election I thought Obama was serious about infrastructure and energy independence and practical clean energy solutions. He is just more of the same.

Feb 12 11:29 AM

[ScottyEcono...:]

Great article Rona !

Just a few thoughts. Novera is a good benchmark for Alternative Energy in Europe and it seems like FSLR (First Solar) is a good benchmark for North America but more specifically and statistically solar demand/health in the US. Using these benchmarks it seems that European Alternatives are finding it harder to recover than the US and that Solar is rebounding much better than Wind. Can anyone comment on this ?

Feb 12 11:50 AM

[WayneS:]

History repeats itself. Middle 80's. 300,000 people within 100 miles of me have lost their jobs. Over 400 of 685 homes in my subdivision have been foreclosed on. My house is worth 10% of what I owe at 15.5% interest. The government, up until now, has promised energy independence and support of alternative energies like solar, wind and geothermal. As soon as oil dropped and the government wasn't getting "windfall taxes" from the oil companies anymore, all thoughts about alternative energies stopped and the muscke car, big home (for everyone) and "free" credit era restarted and continued until a few months ago. At least the "oil companies" weren't stupid enough to invest in alternative energies like they did last time. We would be worse off if the oil companies weren't bringing money to the US from overseas.

Feb 12 12:29 PM

[John Petersen:]

The governmental support picture is nowhere near as grim as some of the posters think. The pending bill includes $2 billion for advanced battery manufacturing, $4.5 billion for smart grid development, $300 million for HEV, PHEV and EV purchases and about $10 billion for energy efficiency. In the context of an $800 billion spending bill the numbers seem small. But when you compare the new funding with the total equity and total market capitalization of the public companies in these sectors, the new money is equal to or greater than cumulative historical funding. Doubling the size of an industry overnight is not insignificant.

Feb 13 02:22 AM

[Sustainable...:]

To respond to User 224899: Solar and wind technologies have been growing in the range of 40% a year for about 5 years now. The cleantech sector as a whole is one of the top sectors for venture capital investment across the world, so clearly many people find this field ripe for investment.

When President Carter created incentives for the field, solar took off. When Reagan came into office, he immediately removed the solar panels from the White House as well as any beneficial policies for clean energy, that's why the tide turned against cleantech.

There is no going back now. The jury is out on climate change. The wind industry is mature enough to stand on its own, and prices for solar are dropping rapidly thanks to just a few years of positive support.

Feb 21 02:10 PM

[davidmiannotti:]

Gainesville Florida just approved a solar feedback tariff system making them the first in north america. This is worth watching closely. The benefits are big for everyone except FPL which will do all it can like any private company in the US to stop this from catching on. The benfits and stakes are huge on and more important then the interests of the large utility companies. The eventual addition of clean energy to the grid should also help to stabilize energy prices long term. Farmers and business owners have just begun scrambling to learn about how they can put in panels and sell the energy to the grid. Exciting development for certain.

Mar 08 09:52 PM