Hard-headed Investors Take A Fresh Look At Clean Energy Sector
There is a stock market saying that share price rallies begin not when the news is good. They begin when the news is bad, but is no longer getting any worse.
That kind of sentiment may be at work in the clean energy sector in 2011. Investors continue to face many concerns – over the future of subsidy policies in Europe, over the lack of progress on legislation for a federal renewable energy standard in the US, and over the low price of natural gas and therefore of competing gas-fired electricity generation.
However thought-leaders and delegates at the Bloomberg New Energy Finance Summit in New York last week were almost all in positive mood – hard-headed, certainly, but undeterred by the obstacles ahead.
Chad Holliday, chairman of Bank of America, summed it up when he warned that the road ahead for the sector would be “very bumpy” but that it was no good waiting for it to be perfectly smooth. He said: “We think this is going to be a gigantically large market.” He added that when his bank has used up its current USD 20bn lending programme for renewable energy, “we’ll look at whether to lend more”.
The underlying shift in costs in favour of clean energy was another theme. Shawn Qu, chief executive of PV module manufacturer Canadian Solar, told the conference: “We are already in this phase change and are very close to grid parity. In many markets, solar is already competitive with peak electricity prices.”
Stock market investors seem to have been thinking along similar lines in the first quarter of 2011. Even though there was little good news on policy for clean energy from either Europe or the US, the WilderHill New Energy Global Innovation Index, or NEX, which tracks the performance of 100 clean energy stocks worldwide, rose 11% in the first three months of the year, beating the US S&P 500’s 5.4% gain.
Admittedly, this Q1 out-performance reversed only part of the NEX’s 24% under-performance relative to the S&P in 2010 – and it took place in a period when there was a USD 25-a-barrel jump in the Brent crude oil price.
It was also the case that an important part of the NEX’s rally took place in the second half of March as investors took the view – rightly or wrongly – that second thoughts about nuclear after the crisis at the Fukushima reactors in Japan would open the door for governments to increase their backing of renewable power alternatives.
However recent weeks have displayed some evidence of bargain-hunting by strategic investors. Most obviously, the utilities that own majority stakes in two of Europe’s most important wind project developers have made bids to buy back the minority stakes they sold to outside investors in 2006-07.
On 23 March, the board of Spain’s Iberdrola Renovables accepted a bid from its 80% parent, Iberdrola, to buy the remaining 20% at a price equivalent to less than three-fifths of the value of the shares when floated in December 2007. On Monday this week, the value of the bid was some EUR 2.6bn (USD 3.8bn).
Then on 8 April, EDF of France offered to buy the 50% it does not own of its renewables offshoot, EDF Energies Nouvelles, for a mixture of cash and its own shares. The value of this bid could be around EUR 1.5bn (USD 2.2bn).
That kind of sentiment may be at work in the clean energy sector in 2011. Investors continue to face many concerns – over the future of subsidy policies in Europe, over the lack of progress on legislation for a federal renewable energy standard in the US, and over the low price of natural gas and therefore of competing gas-fired electricity generation.
However thought-leaders and delegates at the Bloomberg New Energy Finance Summit in New York last week were almost all in positive mood – hard-headed, certainly, but undeterred by the obstacles ahead.
Chad Holliday, chairman of Bank of America, summed it up when he warned that the road ahead for the sector would be “very bumpy” but that it was no good waiting for it to be perfectly smooth. He said: “We think this is going to be a gigantically large market.” He added that when his bank has used up its current USD 20bn lending programme for renewable energy, “we’ll look at whether to lend more”.
The underlying shift in costs in favour of clean energy was another theme. Shawn Qu, chief executive of PV module manufacturer Canadian Solar, told the conference: “We are already in this phase change and are very close to grid parity. In many markets, solar is already competitive with peak electricity prices.”
Stock market investors seem to have been thinking along similar lines in the first quarter of 2011. Even though there was little good news on policy for clean energy from either Europe or the US, the WilderHill New Energy Global Innovation Index, or NEX, which tracks the performance of 100 clean energy stocks worldwide, rose 11% in the first three months of the year, beating the US S&P 500’s 5.4% gain.
Admittedly, this Q1 out-performance reversed only part of the NEX’s 24% under-performance relative to the S&P in 2010 – and it took place in a period when there was a USD 25-a-barrel jump in the Brent crude oil price.
It was also the case that an important part of the NEX’s rally took place in the second half of March as investors took the view – rightly or wrongly – that second thoughts about nuclear after the crisis at the Fukushima reactors in Japan would open the door for governments to increase their backing of renewable power alternatives.
However recent weeks have displayed some evidence of bargain-hunting by strategic investors. Most obviously, the utilities that own majority stakes in two of Europe’s most important wind project developers have made bids to buy back the minority stakes they sold to outside investors in 2006-07.
On 23 March, the board of Spain’s Iberdrola Renovables accepted a bid from its 80% parent, Iberdrola, to buy the remaining 20% at a price equivalent to less than three-fifths of the value of the shares when floated in December 2007. On Monday this week, the value of the bid was some EUR 2.6bn (USD 3.8bn).
Then on 8 April, EDF of France offered to buy the 50% it does not own of its renewables offshoot, EDF Energies Nouvelles, for a mixture of cash and its own shares. The value of this bid could be around EUR 1.5bn (USD 2.2bn).
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