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.
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.
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 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.
Long-term Merrill sees revenue growth coming back.
Wind and solar have 'taken it on the chin,' but declines may have bottomed.
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.
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.
Merrill sees consolidation increasing: Sector M&A took off in Q2 and hit $12.1 billion.
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.
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.
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.
'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 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 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 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.
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