Analysts and investors predict last year’s gloom for clean-tech stocks will continue in 2011, with few expectations that renewable energy share prices will recover – but energy efficiency is once again tipped to outperform.
Clean-tech stocks were hit hard in 2010. The WilderHill New Energy Global Innovation Index (NEX), tracking 100 listed global clean energy companies, dropped 14.6% last year, while the US S&P 500 rose 12.8%.
Broken down by sector, the NEX was brought down by renewable power companies – even though total investment in capacity held up compared to 2009, according to index-provider Bloomberg New Energy Finance. On average, wind firms saw their share prices drop 37%, while solar firms dropped 26%. By contrast, energy efficiency stocks rose on average 19.5%.
A similar trend is expected this year, with energy efficiency firms in areas such as the smart grid and LED lighting providing a spark of optimism, while analysts and investors are not getting their hopes up for the solar and wind sectors.
Sarbjit Nahal, socially responsible investment and sustainability analyst at BofA Merrill Lynch Global Research in London, cautioned: “We certainly do think that time is on clean-tech’s side and it is tempting to be contrarian, [but] substantial stock outperformance in 2011 appears unlikely with our clean-tech team reiterating a bearish view.”
“Energy efficiency makes sense in mature economies. Efficiency remains the low-hanging fruit and is supported by more states requiring energy savings. Smart grid, demand response and LED vendors should benefit, including EnerNOC and Itron. Cloud computing also offers revenue opportunities of around $100 billion,” he added.
Energy efficiency has been “by far the most positive sector”, agreed Lee Clements, an investment manager at London-based Impax Asset Management. “That for us has been where we have been overweight.” Energy efficiency has gone “under the radar” compared to other headline-grabbing clean-tech areas such as solar and wind, he noted, citing LED street lighting and companies supplying energy efficiency equipment to industry as areas of interest.
Meanwhile, investor worries about policy uncertainty and a slower recovery in the global economy are likely to continue to weigh down the share prices of renewable energy firms, according to analysts. Last year’s spectre of retroactive cuts to solar subsidies in Spain will continue to haunt investor attitudes to the sector, while fears are growing of deeper cuts in Germany, noted Matthais Fawer-Wasser, an analyst at Switzerland’s Bank Sarasin. Meanwhile, the swing towards a Republican House of Representatives in the US is also seen as a concern for policy support for clean energy by investors and analysts.
“Renewable energy saw a really tough 2010 [and] has maybe hit the bottom, but we can’t see, except in a few cases, a very clear area for recovery,” said Clements at Impax. “Within Europe we continue to see quite negative regulatory constraints.”
Impax is focused on wind-farm operators, when it comes to the renewable energy space, said Clements, who should benefit from a recovery in the economy driving power demand. However, suppliers of equipment such as turbines and solar panels would require stronger economic growth to prosper, he said.
“Optimistic people say this could be the turning point,” Fawer-Wasser said, but the concerns that caused last year’s share price falls have not gone away. “Especially for the first two to three months [of the year] we’d rather stay away from these stocks,” he added.
Emerging markets, particularly China, led renewables growth in 2010, and analysts expect a repeat performance this year. China’s 12th Five Year Plan is due out in March and is widely expected to boost the country’s renewable energy ambitions.
Nick Robins, head of the climate change centre of excellence at HSBC in London, pointed to the Chinese government’s signals that low-carbon growth is “part of the economic future of the country”, not just an environmental policy.
Evan Li, Hong Kong-based head of renewable energy and environmental finance equity research at Standard Chartered, told Environmental Finance: “We believe China and Asia [will] lead the way. Nowhere in the world, except for China, could provide easy financing (20:80 equity-debt financing) under current economic conditions, for companies with questionable balance sheets.
“Leveraging on low manufacturing cost, a low base in renewable energy demand, sufficient capital sources and improving technology transfers from overseas, we believe clean and renewable energy companies in Asia should outperform their global peers.”
Outside of renewables (particularly wind), Standard Chartered is tipping water and solid waste treatment as sectors overlooked by the market. Li said: “Strong government incentive programs on environmental protection should introduce new growth opportunities. We like China Everbright International, Beijing Enterprises Water, Sound Global and China Water Affairs.”
By. Jess McCabe