The stock market is one of the best indicators of underlying market direction and corporate profitability. Investors spend a lot of time and money trying to forecast what will happen. Individuals may get it wrong, but the collective view of the market rarely does.
In the past five years, the market has spoken powerfully about
its expectations for green energy, resulting in a miserable period
for owners of renewables stocks. Share prices of the key
manufacturers of wind and solar equipment dropped by nearly 90%
from their peak in the third quarter of 2008 to the trough four
Utilities have seen their share prices drop by about 75% over
the same period. A perfect storm of weakened volumes, overexpansion
and pricing pressure against a backdrop of economic, financial and
regulatory uncertainty dragged down corporate earnings and
outlooks, along with share prices. This precipitated a necessary
period of introspection and restructuring, with a refocus on new
However, a new era seems to be upon us. Share prices have been
recovering steadily since the middle of 2012 and accelerated
through the back half of last year. Wind industry bellwethers
Vestas and Gamesa have seen their share prices more than quadruple
in the past year, capped off by Vestas’ successful capital increase
last month, which was rapidly taken up by the market.
It is a sign of stock market optimism that share prices are not
only recovering but that the sector is able to raise fresh capital
again. This has been helped by renewed optimism about the outlook
for volumes — and, more importantly, improving profitability.
Hot on the heels of Vestas’ capital increase,
specialist fund managers report a slew of new capital raising, with
further investment vehicles coming to market in the shape of
renewables trusts such as Platina; marine-energy developer Atlantis
Resources Corporation; and John Laing’s environmental
Market sentiment has clearly turned strongly and things are
looking positive again. Wind and solar installations are expected
to grow by nearly 45% and 30% this year respectively. Regulatory
uncertainty seems to have abated and we can expect one last
production tax credit extension in the US, as well as a 2030 EU
renewables target (even if it’s not as strong as initially hoped).
New financing models, in addition to the increasing appetite from
institutional investors to make direct investments in renewables
infrastructure, will accelerate the important process of capital
recycling for asset owners, freeing up new capital for growth.
However, things have to be different this time for growth to be
both profitable and sustainable. Managements and shareholders need
to be disciplined and pick their focus areas with care. Previous
growth markets have reached maturity, and while emergent markets
such as Brazil and South Africa show great promise, it remains to
be seen if the expected 40GW of wind opportunities in developing
countries can be profitably exploited. Tenders and local-content
requirements are potential banana skins for economic investment and
profitable growth in these areas.
The EU offshore market looks set to grow at 15-20% a year to
2020, but recent announcements by the British government suggest
that up to 6GW of projects in the national pipeline may not
Difficult decisions lie ahead for the remaining unaligned
offshore turbine manufacturers, with one further alliance (or
market exits) in prospect.
Finally, utilities, which are the key drivers of renewables
infrastructure investment, continue to see their balance sheets and
business models under pressure, as traditional fossil- fuel assets
have become underutilised because of the increasing amounts of
renewable energy on the grid.
Our industry has shown itself to be remarkably resilient and
creative, and after a last round of consolidation and cost-cutting
in 2014, there are many reasons for us to be optimistic. A leaner,
tighter sector can again look forward to profitable growth of a
much more sustainable variety.
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