NEW YORK (
) -- The alternative energy sector seems to have few people -- at least from the press and the institutional investor class -- in its corner these days.
was out earlier this week with a negative report on solar that drove solar stocks down to begin trading on Monday. Now,
has created what amounts to an ad hoc financial fight between coal and solar.
The result? Solar is still on the canvas, with two eyes as black as coal, and what's more, it's probably seeing electrons.
Some analysts say that institutional investors are turning away from solar stocks in increasing numbers. Some recent selling supports the view that large investors are shedding positions in alternative energy stocks, more generally.
biggest venture capital investor, GFI Energy Ventures and Oaktree Capital Management, began selling off its entire stake in GT Solar this month, at a discount to the then-current trading price. It wasn't a question of
they would sell, but when, and timing does not help support a positive outlook for the solar sector.**
In the wind-turbine sector,
investment backer, Tontine Capital Management, began selling off a percentage of its 47 million share stake in Broadwind last year. In a Jan. 21 Broadwind secondary equity offering, Tontine sold 6.1 million shares of Broadwind.
Broadwind CEO J. Cameron Drecoll also recently sold more than one million shares of his more than 11 million shares owned in Broadwind.
Jonathan Moreland, director of research at
, said it was notable that Tontine sold shares at a price that was significantly lower than the $8 share price at which it was buying Broadwind shares in 2008.
Institutional investors sell holdings for all types of reasons, but it doesn't help to create a positive outlook for renewable energy stocks when big investors are selling major stakes at reduced share prices. Broadwind's CEO sold shares under the auspices of an SEC 10b5 plan, which allows an insider to sell shares for investment diversification purposes. This clause was added to the Broadwind CEO's contract last year.
InsiderInsight's Moreland said that any senior executive would be unwise to not have such a plan in place. However, just because the SEC rule allows executives to say they are selling for purposes of diversification, investor skeptics will still raise an eyebrow at the insider action, Moreland added. **
tale of the tap boils down to a simple comparison of analyst ratings on coal stock
and U.S. solar bellwether
. Peabody is rated a buy by 79% of analysts, while only 44% of analysts rate First Solar a buy.
data shows that buying a Peabody share and selling a First Solar share short on July 23 would have returned a profit.
To be sure, there are plenty of bones to pick with the
report. For one, First Solar has attracted more than its fair share of solar bears from the Street, relative to overall solar analyst recommendations. Bloomberg did not include an overall analyst percentage of buy ratings on publicly traded solar stocks in the U.S. versus buy ratings on the coal stock universe. Also, First Solar has been particularly beat up as a result of the pressure from Chinese solar companies and its exposure to Germany and the expected feed-in tariff reductions in that leading solar market.
To be sure, though, pitting a renewable energy source versus a cheaper conventional energy source has its merits in the realpolitik of the energy space, where recent global budget crunches and lower-than-expected prices on conventional energy continue to give the political players plenty of practical reasons to give short-thrift to the arguments in favor of renewable energy.
We don't need to wander far from New York to witness the mixed signals about government support for renewable energy, either. When New Jersey Governor Chris Christie introduced his scissor-to-spending fiscal 2011 budget on Tuesday, New Jersey sent a message that its support for renewable energy could change as quickly as Atlantic City blackjack fortunes.
There is no doubt that government support for renewable energy is a fickle thing, and that makes renewable energy stocks a risky proposition.
However, these arguments are certainly not the whole story. Renewable energy backers note that to say renewable energy is dependent on subsidies demonstrates willful neglect of the subsidies already built into the existing conventional energy establishment. What's more, critics of conventional energy note that the cheaper cost of coal and gas does not take into account the larger costs associated with environmental, health and global climate change -- though this is something of a non-starter as an argument as long as those costs are not quantified.
Bloomberg notes that the Stowe Global Coal index of 38 coal producers has gained 6.5% in 2010, while the Bloomberg Global Leaders Solar index of 38 solar module and component makers has dropped 17%. However, beginning in December 2009 when Germany first began discussing cuts to its feed-in tariffs, solar stocks have struggled in a period described by some analysts as "the most negative period ever" for the solar sector. Therefore,
picked a "good" time to make the coal versus solar comparison.
If nothing more, some points raised by the latest attack on solar will continue to weight heavily on the renewable energy sector:
Price to generate renewable energy versus conventional energy generation
Reliance on government subsidies versus market-based incentives
Public support levels
Short-term investor priorities
Pitting conventional energy in the ring versus renewable energy based on a short-term time horizon may give investors a valuable look at the immediate time horizon and risk versus reward potential in energy stocks. This may be the most significant takeaway from the
To extrapolate from a short-term perspective and speculate on the long-term outlook for renewables, on the other hand, is probably pointless, unless of course you fear that these renewable industries will go bankrupt for lack of financing options and after being spurned by politicians.
These items should not be new to alternative energy investors anyway. It is prudent to monitor the level of short-term support from the capital markets and frominvestors for renewable energy stocks, as much as it is triggered by the larger political environment.
If reports like
either reflect, or lead, more investors to focus their energy portfolio on coal and away from renewables, investors who stick by their solar or wind stocks could find themselves with fewer shareholder partners. The renewable energy companies may continue hitting the capital markets, diluting shares prices, to make up short-term financing gaps, too.
Broadwind completed a secondary equity offering on Jan. 21 that included the issue of 10 million new shares and shares being sold by its large stakeholder, Tontine Capital. Last week, Broadwind released a fourth-quarter earnings report that was worse than expected and indicated that fundamentals in the wind sector may not bottom out until the end of the first half of 2010.
Wind turbine maker
PROMO SRC="" HREF="" HEIGHT="" WIDTH=""/> was hit by a very negative research report from Citron Research this week -- though some analysts say the report was a hatchet job reiterating old, unjustified claims related to potential customer losses and accounting irregularities at the wind-turbine company.
At a larger level, the Citron report focused more on the threat to American Superconductor from it being heavily reliant on one Chinese wind customer,
. China's wind energy sector is near or at the same trough point as the wind energy sector in the U.S., as evidenced by Broadwind's fourth quarter report and 2010 outlook.
Alternative energy investors should be aware of all of this already. What's more, they may decide a renewable energy trough point could, in fact, present an opportune time to buy selectively. Even if they are not being joined by the likes of GT Solar and Broadwind backers GFI Energy Ventures, Oaktree Capital or Tontine Capital.
For alternative energy investors who are sticking to the moral high ground in making investment choices that favor alternative energy, they may want to factor in the sober reality of an energy realpolitik.
Right now, as
noted, renewable energy stocks seem down for the count.
Are investors going to help them back up, or count them out?
-- Reported by Eric Rosenbaum in New York.
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