Friday, February 24, 2012

Investing in renewables: Analysts recommending investing in utilities, IPPs and developers while avoiding manufacturers

As most are aware, solar PV cell and wind turbine manufacturers are trading significantly lower than their peak levels in 2007/8.

The stock of Danish Vestas Wind Systems AS, the world's largest wind turbine manufacturer, has dropped 90% over the past four years. The United States' leading solar PV manufacturer, First Solar Inc. has fallen from more than $250 USD to just over $40 USD in the same 4 year period. Norwegian solar equipment manufacturer Renewable Energy Corp. is trading at 1/40 of its price at the start of 2008. Similarly Spain's turbine manufacturer Gamesa Corp., China's solar PV cell manufacturer Suntech Power Holdings and India's turbine manufacturer Suzlon Energy Inc. all have seen their shares drop over the past few years. QCells, Germany's large solar PV cell manufacturer had to restructure its debt to stave off bankruptcy. Large global companies, like Vestas and First Solar, have strong balance sheets which will allow them to survive - albeit with lower margins - until things pick up but smaller companies are facer bigger problems.

Solar PV and wind manufacturers are facing 4 major problems:

- low natural gas prices;
- new production in China;
- less favourable political climate both in Europe and North America; and
- the global economic downturn has prompted governments and corporations to tighten support and spending on renewables.

A better bet for investors is to consider utilities, power producers or developers who can actually take advantage of the downward pressure in equipment prices like Brookfield Renewable Energy Partners LP, a Canadian dividend-paying stock with power plants in Canada, the U.S. and Brazil. In contrast to the equipment makers, it has seen its stock rise about 35% since the beginning of 2008.

Sources (in part): Globe Investor, Bloomberg, The Globe and Mail, Richard Blackwell

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