Short term bumpy, longer term prosperous for wind, solar — finance gurus

Source: Anne C. Mulkern, E&E reporter • Posted: Wednesday, April 18, 2012

LAGUNA NIGUEL, Calif. — Wind and solar will struggle in the short term but will thrive eventually as the world moves toward clean power, financial experts predicted yesterday.

Renewable energy companies will struggle for the next year or more because there’s investor unease with the sector, said experts who spoke at Fortune magazine’s Brainstorm Green conference.

Competition also has pushed down product prices and made it difficult for businesses to prosper, they said, and the United States lacks a clear energy policy. But those banking on the renewable industry see it as a good bet, said Alan Salzman, CEO and managing partner at Vantage Point Capital Partners.

“One of the key investment themes for our firm is invest in the inevitable,” Salzman said. “Be on the right side of where things are going.”

New technologies can be expensive and suffer glitches, he said, but eventually there will be a drop in cost and increase in performance “that will dwarf anything that is fossil fuel- or natural resource-based.

“The time frames are not next weekend, but I don’t think anybody can doubt where the trend lines are taking you,” Salzman added.

Salzman, who is a venture capitalist, said his firm remains committed to renewable interests. But some of the more general firms that had dabbled in the sector have pulled back, he said.

Money is available in the financial markets — unlike during the 2008-09 financial crisis — but dollars aren’t flowing easily to solar, wind and geothermal power companies, said experts with Citigroup and Credit Suisse.

Politics have hurt renewables, said Michael Eckert, managing director and global head of environmental finance and sustainability at Citigroup. Market interest has waned because investors don’t know whether there will be tax incentives or other support going forward.

“They’ve lost that sense of where’s the momentum,” Eckert said, adding that there’s no “commitment to climate, commitment to environment, commitment to sustainability.”

When moderator Adam Lashinsky, senior editor-at-large at Fortune, asked Eckert for an example of where the United States had lost its vision, Eckert responded: “literally climate deniers.”

“If you believe in the science, and as an engineer I do believe in the science … how is it possible that in a scientifically, technologically driven country that people who are fact deniers have standing?” Eckert said to a smattering of audience applause. “I don’t get it.”

When it came to something as “benign” as switching out incandescent light bulbs with LED models, Salzman said, there were protesters.

“There’s some element of embracing innovation that can change the ways we do things and have done things for 100 years,” Salzman said.

Dark and bright spots

Within the renewable sector, there are different levels of support right now, said Ray Wood, managing director and global head of Renewable Energy Group at Credit Suisse.

Investment in individual companies dropped significantly after the 2008 financial crisis, Wood said. Companies also have been hit hard by the drop in prices for photovoltaic panels.

Some companies that wanted to go public and sell company shares to make revenue have hit roadblocks, he said.

“Some of the companies that have had to pull out of the [initial public offering] market or have had a harder time with raising subsequent rounds of capital have a more challenging value proposition to articulate,” Wood said.

Companies that started in 2005 or 2006, he explained, thought they’d be entering the marketplace at a time of high power prices and also high prices for alternative energy. But there’s been a “dramatic drop” in the price of solar and also in natural gas, he said, and that’s made it challenging to find good returns under the old business plans.

Salzman noted that renewables are judged differently from other energy sources.

Natural gas prices “have declined in the last few years, nobody’s writing off gas,” Salzman said with a wry tone. “People are thinking long term.” But in photovoltaics, “people have somehow reached a different conclusion, that this is a bad thing, and that somehow this photovoltaic stuff will never take off.”

Within the renewables arena, there is interest in developments that have secured agreements to sell their energy to utilities, known as a power purchase agreement, Wood said.

“There’s been a lot of capital chasing installed, contracted value,” he said.

The negative atmosphere for investment in renewables will last probably through the year, or at least until after the election, Salzman said.

“When markets get cold on a space, it takes awhile to get uncold,” he said.