The turmoil that rattled stock and credit markets around the
world appears to have inflected scant short-term damage on the
renewable energy industry, several analysts told Platts, though
questions remain about the long-run effects.
The mid-August tumult in US markets over concerns about
defaults on subprime loans to homeowners quickly surged around
the globe, savaging stock markets from London to Tokyo.
The financial carnage and resulting credit crunch sparked
fears that banks and other lenders would balk at providing
crucial financing for renewable energy projects such as wind
farms as well as for acquisitions and mergers in a renewables
industry that is rapidly consolidating.
US markets rallied in late August as the Federal Reserve
Board cut its discount rate - the rate it charges banks for
loans - and other markets worldwide followed suit in regaining
lost ground.
But at press time investors continue to be dogged by
uncertainty as each day raises concerns about further financial
mayhem triggered by the subprime loan meltdown.
Renewables companies face the same concerns that other
businesses confront in securing financing. "As problems in the
housing and subprime markets have spread, investor risk appetite
has shrunk.
In the US credit markets, investors are shunning deals with
innovation and added risk," according to a new report from
Standard & Poor's Ratings Services.
David Wyss, managing director and chief economist at Standard
& Poor's - which, like Platts, is owned by the McGraw-Hill
Companies - said that "history suggests that the credit markets
will normalize fairly quickly, but that could still be months
away."
Is the renewables industry in trouble? "It's difficult to say
at the moment," Fortis analyst Nick Gardiner told Platts.
"I haven't seen any suggestion that financing for renewables
is directly impacted... I haven't seen any direct evidence in
Europe to suggest contamination on the renewables side."
Simon Gottelier of London-based Impax Assets Management,
which prepares the Platts Renewable Energy Tracker (see page
30), added that "this is obviously an American-driven
phenomenon. It's totally emanating from the United States."
Stocks across all industries took hard hits in August, though
some renewables stock suffered worst than most. Financial Times
reported August 16 that Germany solar energy company Conergy
shares dropped 7.5% in a single day to Euro52 ($70.74), while
shares of Norway's Renewable Energy Corp slipped 6.5% in one day
to NK193.50 ($33) and Danish wind turbine manufacturer Vestas
tumbled 7.6% to DK302 ($55.17).
"Solar stocks were hit particularly hard. There were very
high valuations that had run up so high and so fast. But they're
recovering today," Gottelier said August 17.
"They're fairly robust. Quality has prevailed. The guys with
the sterling reputations were the first to rebound." He noted
that REC and Vestas shares each rose 5% and Conergy prices
jumped 7% on August 17, regaining most of the ground they lost.
In the short term, the worldwide market plunges appeared to
leave renewable energy companies relatively unscathed. Kathy
Belyeau, director of strategic communications at the American
Wind Energy Association, said AWEA has not heard any grumbling
from its members about tightening credit. She pointed out that
wind farms currently being built in the United States have had
financing in place for some time.
"It's still to be a record year" for wind energy plant
construction, she predicted.
Looking ahead
Looking ahead, many companies in different industries could
face financing shortfalls if credit tightens further and markets
slump again.
Some renewables companies, though, are proceeding with
confidence: Spanish power company Iberdrola, for instance, said
it has no plans to delay the initial public offering for its new
renewable energy operation despite the recent market turmoil.
Gardiner highlights the underlying strengths renewable energy
companies enjoy that others do not.
"Policies are being put in place at the EU and national
levels" that provide renewables with a long-term foundation of
support, Gardiner said, such as feed-in tariffs.
"There are still strong drivers that haven't gone away. There
is a lot of activity in the renewables sector that's attracted
the interest of banks. Banks want to do business in this sector.
It's good for their image. Renewables, especially wind, are
considered mainstream financing. Solar is also becoming
mainstream."
If debt finance in general becomes harder to come by,
renewables companies might prove attractive to investors looking
to put their money into equities that are not exposed to bad
debt and have guaranteed income streams, such as revenues from
feed-in tariffs or long-term power purchase agreements. Even
companies already listed might look at capital increases to fund
new ventures.
The long-term repercussions of the US subprime-loan meltdown
for renewable energy financing, like credit for other business
ventures, remain uncertain.
The coming months will determine whether lenders become
gun-shy about major investments in wind farms, geothermal
facilities, concentrating solar plants and other large
renewables ventures.
"There is that area of uncertainty. It's wait and see at the
moment," Gardiner said August 17. "The banks will wait out this
month and then look at the situation in September."
Created: September 3, 2007
