Cleantech Collapse: The Horrible Outlook For Alternative Energy In 2009


The outlook for alternative energy in 2009 is terrible.

Revenue, venture capital investment, and stock prices are all down. Financing has dried up. Demand is gone.

Meanwhile, the prices of traditional energy sources–oil, natural gas, and coal–have collapsed, putting “parity” even farther into the future.

But there’s always next year!

Everyone thought 2009 would be a bust.  Now, everyone’s saying saying 2010 will be a bounceback. By 2011, the optimists say, we might even return to 2008 levels.

In the interim though, it will be a bumpy ride, as companies crater, get acquired, and survive on government incentives.

Merrill Lynch analyst Steve Milunovich published a report on the state of cleantech in 2009 and where it goes from here. We’ve pulled charts and tables to provide a glimpse at the industry.


Green Stocks Up 6% For The Year!

Merrill is neutral on cleantech stocks.

Beyond an initial 'liquidity injection' the economy probably isn't improving. Solar and wind are oversupplied and financing is still tight.

2010 should be better, when pro-active government policies are working and the economy is on steadier ground.

The Stocks Still Look Cheap

If you look at the enterprise value to sales relative to the S&P, cleantech looks reasonably cheap. The ratio is 1.4X, while high-growth tech sectors can get to 3X.

Revenue Has Collapsed

Revenue sank 31% in Q1 on a Y/Y basis. But Merrill thinks it will quickly bounce back, with Q2 rising 15% compared to Q1.

The uncertainty about government financing dragged on alternative energy demand.

Revenue And Profits Have Plunged

Long-term Merrill sees revenue growth coming back.

Wind and solar have 'taken it on the chin,' but declines may have bottomed.

More Estimate Cuts Coming

Entering the earnings season, Merrill thinks there will be more negative revisions.

How many will depend on how companies think the stimulus and other government programs will help in the second half.

Cleantech VC Financing Has Also Collapsed

As we've noted in the past, the story for 2009 is the complete drop-off in VC financing.

If it weren't for a few big deals for auto startups, the second quarter would also be very ugly.

But Consolidation Is Increasing

Merrill sees consolidation increasing: Sector M&A took off in Q2 and hit $12.1 billion.

A Few IPOs And Some Monster Follow-Ons

There's plenty of 'promise' in many private companies, but few are ready to go public in this environment. Three deals were done in Q2 raising about $400 million.

The secondary offerings were the third largest in recent history, as companies looked to bolster crippled balance sheets.

Cleantech Short Interest Still High

Short interest has fallen from its summer peak, but climbed slightly.

Merrill says the Chinese are keeping shorts at a distance. After China announced a big solar subsidy, solar stocks took off, which spooked the shorts.

Solar Pricing Has Plummeted

The price of panels is crashing, fast. It's dragging down revenue. Merrill warns that revenue might not bounce back to 2008 levels until 2011.

The good news: Global demand for solar installations will keep growing.

2009 Solar Sales Will Be Much Worse Than You Think

'Solar is likely to get worse before it gets better,' says Merrill.

The firm thinks solar revenues will fall by 40% this year, while the solar industry thinks they will only fall 12%. These numbers are based on what the companies are saying.

Basically, most solar companies are deluding themselves.

Wind Isn't So Horrible

Wind installations were 27 GW last year, compared to just 6 GW for solar. Wind is a $48 billion market.

2009 will be flat for turbine demand, but 2010 should be better. There's an oversupply of turbines now, which will cause some pricing pressures.

Oil Prices Back To The New Normal

Oil is relatively inexpensive, and cleantech still trades in tandem with oil. Most people see oil demand returning by year end, and prices rising over the long run.

Merrill is expecting $75 oil in 2010, which is positive for cleantech.

Natural Gas Is Cheap--Which Is Lousy For Cleantech

Natural gas prices have collapsed--and cheap natural gas is even worse for alternative energy demand than cheap oil.

Why have natural gas prices cratered? Weak demand and strong supply.

Coal Is Still Dirt Cheap, Too

It's unlikely any new coal plants will be built in the near future. But coal is still cheap.

While carbon capture, or clean coal, is expensive, it will still be an area of investment opportunity.

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