Are Clean Energy Stocks A Risky Play? (PBW, SPWR, NEE, WFR)
David Zeiler: Despite its promising future, clean energy stocks have proved to be an investing minefield.
Even China-based clean energy stocks are no longer a safe haven. Yesterday (Monday) Suntech Power Holdings Co. Ltd. (NYSE:STP) defaulted on its debt.
Heavy losses caused by plummeting prices for solar panels – which fell 73% from 2010 to 2012 – left Suntech unable to make the payment on a $541 million bond that was due Friday.
The news caused Suntech stock, already down 80% over the past year, to slip another 10%.
While numerous U.S. renewable energy companies have faltered, most notably the 2011 bankruptcy of solar panel maker Solyndra, Suntech is the first Chinese clean energy company that could go under.
What’s new is a reluctance on the part of the Chinese government to keep pouring subsidies into money-losing companies.
“It just doesn’t make sense for any type of support from the government,” Angelo Zino, an analyst with Standard & Poor’s Financial Services LLC, told Bloomberg News. “There’s not going to be that white knight out there that saves Suntech.”
It raises the possibility that other popular Chinese clean energy stocks, such as Yingli Green Energy Holdings Co. Ltd. (NYSE:YGE), Trina Solar Limited (NYSE ADR:TSL) and LDK Solar Co. Ltd. (NYSE ADR:LDK) – each of which have also reported large losses over the past year – could start following the pattern of failures seen among U.S. clean energy companies.
Clean Energy Stocks: An Investing Minefield
Part of the problem with clean energy stocks right now is that wind and solar technology aren’t yet competitive with what they’re trying to replace – fossil fuels like oil and natural gas.
“Unless there develops a genuine market burst point in both usage and generation, this is likely to remain an energy segment dependent on public sector assistance programs,” explained Money Morning Global Energy Strategist Dr. Kent Moors.
Moors sees over-reliance on government as well as high prices and inefficient technology as caution flags for clean energy stocks.
While billions of dollars in government subsidies might seem like a big positive when looking at clean energy stocks, it hardly guarantees success.
And if a company can’t survive without government help, its long-term prospects are dim at best.
Last fall, the Heritage Foundation identified 19 clean energy companies that had received a total of $2.6 billion in assistance from the U.S. government – and still went bankrupt.
Solyndra, with its $535 million loan guarantee, did not even top the list. That honor went to Abound Solar, which had received a combined $790.3 million in federal assistance from the administrations of Presidents Barack Obama and George W. Bush. Abound declared bankruptcy in June 2012.
A more recent high-profile bankruptcy was that of A123 Systems Inc., which made rechargeable batteries for hybrid cars. A123 declared bankruptcy last October after having received $377.1 million in state and federal government tax credits, loans, grants and other assistance.
Several of the companies on the Heritage list were publicly traded, including A123, Ener1 (another battery maker), hybrid car component maker Azure Dynamics, Energy Conversion Devices (solar panels), Evergreen Solar and Beacon Power (energy storage).
Investing in Clean Energy Stocks
While you need to be especially cautious when investing in clean energy stocks, you can find winners.
Back in January, for example, Money Morning pointed out three solar stocks that figured to fare better than most clean energy stocks – and they have.
Florida power company NextEra Energy, Inc. (NYSE:NEE), which has a clean energy focus, is up almost 6% since the article appeared on Jan. 4. MEMC Electronic Materials Inc. (NYSE:WFR), the parent of SunEdison, is up 18.5%. And solar panel maker SunPower Corporation (NASDAQ:SPWR) is up 36.2%.
So it is possible to ferret out good prospects in clean energy. SunPower, for example, is mostly owned by French oil major Total S.A. (NYSE ADR:TOT), and late last year made a deal with Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), to work on two California solar projects.
Eventually, after the renewable sector has consolidated and the technology improves, it will get easier to find quality clean energy stocks, and the group as a whole won’t be nearly as risky.
“Ultimately, there will be an ongoing permanent place for solar, wind and other renewables in the developing energy balance,” Dr. Moors said.
Related: PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW)
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