Posted by: Dr Pano Kroko | April 16, 2012

Homo sapien sapiens

The knowing man has choices…

First the Good News.

In Canton Fair & World Trade Summit, the world witnesses the Green Revolution at play.

Myriad of green tech, clean energy and renewable energy companies peddle their wares. It’s like no other place of earth and their staff is legions. Simply to much. A veritable overload of optimism and energy targeting the Energy Revolution. And in this fast growing China their optimism isn’t misguided, but rather well placed. Renewable Energy technology and renewable energy tools manufacturing and production rock in China…

Yet there are mixed news in the rest of the world.

And some of the hard news are coming straight out of normally hopeful renewable industries. And as usual all the grim dispiriting news about Green Energy and Green technology, comes from the oil money backed think-tanks, fossil fuel companies, and all other commercial concerns that stand to benefit from a delayed cleantech revolution.

Yet these days even the renewable energy’s own industry press doesn’t have much good news to report, because solar and wind manufacturing companies in the US and Europe have been hit by the oversupply in the market – and the consequent drop in prices. Germany’s Solarworld for instance reported a loss of EUR 299m for 2011, and said that it could not forecast 2012 sales due to uncertain solar market conditions. Other manufacturers in the country, like Q-Cells and Conergy, are also struggling.

And the Cassandras out there are working overtime. Because business is good for the doomsayers. Since even Germany’s solar manufacturing industry shudders because of competition from Chinese companies. So said Klaus-Dieter Maubach, a member of E.ON’s management board. Now Norway’s Renewable Energy Corporation announced that it would permanently close its 300MW mono-crystalline photovoltaic cell wafer plant in Norway, after failing to cut costs enough to make it profitable in light of the failing prices for PVs.

Still solar companies in China also have had their share of troubles. Example is LDK Solar which reported fourth-quarter sales at the bottom end of its forecast and less than half the USD 921m reported the year earlier. It is slated to announce its audited earnings next month and may post a negative gross margin.

Some people went so far as to call this a period of “gloom” for the renewable energy industry as a whole.

Last week, Bloomberg New Energy Finance put out a report that was titled: “Search for Silver Linings” but it reported the ominous dark clouds for the renewable industry first:

And here we see the WilderHill New Energy Global Innovation Index, or NEX, which tracks the fortunes of 97 clean energy stocks worldwide, slipped to 135.55 at the close on Monday 2 April, from 140.1 a week earlier. Its latest level was just a dozen or so points above its eight-year low of 122.57 reached last December.

In the first quarter of 2012, the NEX gained 4.2% – but this compared to a much more impressive 11.8% surge for the broad-based US S&P 500 index.

Worse, there continue to be casualties among quoted clean energy stocks. On Monday this week, US units of Solar Millennium, the German solar thermal electricity generation specialist, filed for bankruptcy protection. The parent company is already in insolvency proceedings in its home country. Also on Monday, Q-Cells, one of the pioneering German PV manufacturers, saw its shares plunge 41% after it said that it was “legally bound to file for insolvency”.

Q-Cells was once the largest solar manufacturer in the world and now it’s insolvent with it’s assets laying bare like bones on the bankruptcy docket.

Here’s what a one-year chart of that clean energy index looks like next to the Dow:

NEX vs. Dow

The clean energy future is real…

Yet it is a tough long haul to get there.

Crossing the valley of Death isn’t child’s play.

Facts are facts.

And the renewable energy industry as a whole isn’t doing so good right now.

There are and will be scores of companies going to the wall, and few individual winners to be sure. And that’s another way of managing the soaring debt issues and accounting for the effects of Moore’s law on the manufacture of solar photovoltaic cells. These being at the easy bottom of the tech for chip making, finally Moore’s law has arrived.

On a broader scale for all renewables, there are still some rather serious aggregation, consolidation and maturity issues for the whole industry to go through.

Because working off the debt is a good thing and the effort now is to bottom out and traverse the flat part of the stick, and then move on during the next go round; to climb the upswing of the vaunted hockey stick…

Yours,

Pano

PS:

And here’s what I’m truly seeing…

Carnage and blood on the Street.

And as any contrarian value investor out there knows — it’s time to buy assets.

Because still the industry has great hopes, fantastic fundamentals and huge ambitions.

And what of the silver linings?

All of the above.


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