Companies that shone in a promising field five years ago are trading at fraction of peak levels, writes Richard Blackwell for The Globe and Mail.

In late 2007 and early 2008, the global renewable-energy sector seemed on the cusp of a golden age, as investors pushed the price of big, multinational players in the green-tech space to record highs.

Four years later, most of those large companies-mainly solar-cell makers and wind-turbine manufacturers-are trading at a fraction of their peak levels. A perfect storm of bad news has sent even the most solid stocks into the doldrums, and there seems to be little prospect they'll soon recover their earlier heights.

The numbers are dismal. The stock of Denmark's Vestas Wind Systems AS, the world's biggest wind turbine maker, has plunged 90% over the past four years. The United States' leading solar firm, First Solar (FSLR) has fallen from more than $250 to just over $40 in that same period. And Norway's huge solar equipment maker, Renewable Energy Corp., is trading at one-fortieth of its price at the start of 2008.

It's a similar story at Spain's turbine maker Gamesa Corp., China's big solar-cell maker Suntech Power Holdings (STP) and India's turbine manufacturer Suzlon Energy Inc. All have seen their shares tank over the past few years. Q-Cells, Germany's huge solar-cell maker, had to restructure its debt to stave off bankruptcy.

What's happened to these former high fliers? "They've been hit with a quadruple whammy," said Tom Konrad, editor of the AltEnergyStocks.com Web site. The key issues:

  • Low natural gas prices have made that fuel a cheap means of generating power, cutting into renewables.
  • Massive new production, particularly in China, has caused a glut of solar panels, pushing prices down sharply.
  • The political climate has become less favorable to renewables, both in Europe and North America.
  • The global economic downturn has prompted governments and corporations to tighten support and spending on renewables. And things could get worse: on Thursday, Germany said it will cut its solar subsidies more quickly than expected.

Konrad said he thinks some of these renewable-energy companies-particularly in the solar sector-are ready for a rebound. However, they are not likely to get back to their 2007-08 levels in the short or medium term, he said. Some companies probably will disappear through consolidation, although the incentive to buy up rivals right now is diminished by the overcapacity in the sector.

Analyst MacMurray Whale of Cormark Securities said he thinks it is unlikely there will be any kind of widespread recovery among renewable stocks until the global economy improves. "Green [is seen] as a luxury you can afford when everybody feels rich," he said.

While some solar stocks have improved a bit recently, there will likely not be any significant rebound in that sub-sector until there is consolidation and production capacity is reduced, Whale said.

"There is just not enough demand to soak up that capacity," he said. "We are seeing bankruptcies and real struggles, and we are going to continue to see that."

Big companies, such as Vestas and First Solar, have strong balance sheets, he said, allowing them to survive-albeit with lower margins-until things pick up. But stock prices are not going to show any significant recovery for a considerable time, he predicts. "They could bounce around [at these levels] for years."

The approach many investors are taking is to look for individual stocks in the clean-technology space that appear to have some momentum, Whale said.

Some are buying Canadian natural-gas engine maker Westport Innovations (Toronto: WPT), for example, because it is a play on low gas prices. But they are not diving into renewables more broadly.

Ric Palombi, a portfolio manager at McLean & Partners in Calgary, said the big pure-play clean technology firms pop up on his screen as potential investments because the stocks are so cheap at the moment. But that's not a good enough reason to invest, because the current prospects for the industry are still poor until governments start to spend on the sector again.

Until that happens, "What is the catalyst? What is going to move the stock?" he asks.

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.

Palombi said he owns Brookfield Renewable Energy Partners LP (Toronto: BEP.UN), a Canadian dividend-paying stock with power plants in Canada, the US and Brazil. In contrast to the equipment makers, it has seen its stock rise about 35% since the beginning of 2008.