High Growth For Wind And Solar, But Not For Their Investors

by: John Addison

For ten years, the Clean Energy Trends report has been a must-read for investors in renewable energy and cleantech. The new report shows that global annual revenue for solar PV grew from $3 billion in 2001 to $91.6 billion in 2011; wind power from $4.6 billion to $71.5 billion. The new report forecasts that global solar power annual revenues will grow from $91.6 billion in 2011 to $130.5 by 2021; wind power from $71.5 billion to $116.3 in ten years.

The forecasts are likely too low. Consider the growth of these last five years that included a global recession, collapse of project financing for wind and solar, and competitors like Suntech crushing venture-backed Solyndra. In 2006, solar revenues were $15.6 billion; in 2011, $91.6. In 2006, wind was $17.9 billion; in 2011, $71.5. But with this growth, cleantech investors took a roller coaster ride to big losses.

As the Clean Energy Trends report states:

Clean Edge, along with NASDAQ, produces three indexes which act as transparent and liquid benchmarks for the sector: CELS, which tracks U.S.-listed clean-energy companies; QWND, which tracks global wind power companies; and QGRD, which looks at smart grid and grid infrastructure companies. These Clean Edge indexes* have been extremely volatile, soaring 75, 67, and 34 percent respectively in 2007; falling 64, 54, and 43 percent respectively in 2008; outperforming most market indicators once again in 2009, up 44, 38, and 49 percent respectively, and mixed in 2010, up two percent, down 35 percent, and essentially flat (down 0.4 percent) for the year. 2011 demonstrated the continued decline of most clean-tech indexes, with retail investors perhaps questioning the relative lack of public market exit opportunities and an economic environment with severe government budget shortfalls. CELS, QWND, and QGRD were down 41, 30.4, and 21.6 percent respectively in 2011, against a relatively flat S&P 500.

The three ETFs that use these indexes are First Trust NASDAQ Clean Edge Green (NASDAQ:QCLN), First Trust Global Wind Energy (NYSEARCA:FAN) and First Trust NASDAQ Clean Edge Smart Grid Infrastructure (NASDAQ:GRID). Some investors will find cleantech ETFs a convenient way to participate in a high-growth sector of the future. Others will use ETF portfolios as a screen to identify promising individual stocks and corporate bonds.

QCLN comprises 53 US-listed companies in solar, LED lighting, energy efficiency, smart grid, and power electronics. It is down 33 percent over the last 12 months. FAN represents 51 European, Asian, and some U.S. wind technology, developers, utilities, and industrial companies. It is down 22 percent over the last 12 months. GRID represents 36 diversified electronic and industrial companies that are active in next generation utility distribution, smart meters, and components. It is down 14 percent over the last 12 months.

I am not invested in these three ETFs. 2012 will be challenging for cleantech due to reduced subsidies in Europe, political uncertainty in the U.S., low cost natural gas for efficient gas power plants, NIMBY opposition to high-voltage lines, and global slow-growth to recession. Solar, wind, and cleantech will continue with strong growth and their stocks are cheaper. I am invested in PowerShares Cleantech (NYSEARCA:PZD) and PowerShares Global Clean Energy (NYSEARCA:PBD) preferring their stock selection, global diversification, and liquidity.

PBD is diversified in 95 companies in the U.S., Europe, and emerging markets in solar, wind, energy efficiency, LED lighting, and cleantech technology. PBD lost 33 percent in the past 12 months. PZD is invested in 68 companies in diversified electronics, building energy management, information technology, energy efficiency, solar, industrials, and utilities. PZD lost 12 percent in the last 12 months.

Clean Energy Trends is a fascinating read, whether you invest in cleantech and renewables, or you are simply tracking trends. The report's key findings include:

  • The global market for solar photovoltaics increased from $71.2 billion in 2010 to $91.6 billion in 2011. While total market revenues were up 29 percent, installations climbed more than 69 percent from 15.6 gigawatts in 2010 to more than 26 GW in 2011 due to rapidly declining solar costs.
  • Last year's global wind power installations equaled 41.6 GW, the largest year for global installations on record. Wind power totaled a record $71.5 billion in 2011, up 18 percent from $60.5 billion the prior year, and is projected to reach $116.3 billion in 2021.
  • Biofuels reached a record $83 billion in 2011, up from $56.4 billion the prior year. Bucking solar and wind's declining cost trends, this increase was mostly due to a rise in ethanol and biodiesel prices, the result of higher costs for feedstock commodities.
  • Clean Edge projects that the cost to install solar PV systems will fall from an average of $3.47 per watt globally in 2011 to $1.28 within the next decade.

This year's report also outlines five key trends that will impact clean-energy markets in 2012 and beyond:

The Few, The Proud, The Green: Military Leads Clean-Energy Deployment - The military sees biofuels as a path to great energy independence. The report mentions several companies including Solazyme (SZYM), a small-cap renewable fuels company that could have a big future, but faces losses and probable dilution over the next few years.

Japan Moves Toward Cleaner Post-Nuclear Future - The report mentions several solar companies including MEMC Electronic Materials (WFR) who is exploring 1 GW of solar installations across Japan if it can secure financial partners.

Deep Commercial Building Retrofits Reap Major Efficiency Savings - The report includes Honeywell (NYSE:HON), which I own. HON is a large cap leader in building efficiency, power electronics, and aerospace. Analysts forecast strong profit growth.

Waste-to-Resource Breakthroughs Attract Attention - Enerkem is among the highlighted companies. Goldman Sachs (NYSE:GS) is leading it through the IPO process. Enerkem strategic investors include Waste Management (NYSE:WM) and Valero (NYSE:VLO).

New Energy Storage Solutions Embolden the Grid - The report includes A123 Systems (AONE), which is getting better traction in grid storage and power tools than in electric cars.

Download Clean Energy Trends 2012 Report PDF.

Disclosure: I am long PZD, PBD, HON.