By Steve Gelsi, MarketWatch
Last update: 1:45 p.m. EST Nov. 18, 2008Comments: 12NEW YORK (MarketWatch) - While some hail the election of President Barack Obama as a boon for alternative energy down the road, the renewable sector remains stalled compared to the flurry of deal making earlier this year.
Although legislators in Washington are laying out an ambitious energy agenda for the coming year, the credit crises and cheap gasoline have dealt a double-blow to the prospects for biofuel, solar and wind energy champions.
No less than five initial public offerings, as well as an undetermined number of financings and mergers, remain frozen in the ice of the 2008 credit crises as the bear market pierces the alternative energy bubble.
In a telling sign of the times, the most recent renewable energy IPO from profitable solar cell manufacturer GT Solar now trades at $2.59 a share, after debuting at $16.50 a share on July 24.
"It's highly unlikely that we'll see any alternative energy IPOs right now, with the price of oil coming down dramatically and the last alternative energy IPO, GT Solar, being an exceptionally poor IPO," said Scott Sweet of IPO Boutique.
The current dry spell came despite the optimism around the sector earlier this year, when deal makers touting renewable deals argued the future looked bright even without record oil prices because of rising concern over global warming, the prospects for lucrative carbon emissions trading and the growing call for energy independence.
It turns out that the bear market, the credit crises, not to mention gasoline at $2 a gallon again, would take their toll just as they did in the old gasohol days of the 1970s, when rooftop solar panels and gas-sipping cars soon gave way to big trucks and central air conditioning systems on the back of cheaper oil.
Now, the biofuel sector - which saw a series of initial public offering as well as mergers in the past two years -- remains under stress with the largest publicly held player, VeraSun, filing for Chapter 11 bankruptcy as it lost money betting the wrong way on corn prices. Margins in the business are also being squeezed by lower gasoline prices. See full story.
Meanwhile, solar stocks such as First Solar (FSLR:first solar inc com
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GE 15.97, -0.14, -0.9%) spokesman Andy Katell of GE Energy Financial Services, said the pace of deal making and financing has definitely slowed down in the wind sector, partly because tax advantages of the Production Tax Credit are more difficult to tap into.
"The production tax credit was only extended by Congress for one year, and that's not long enough for long-term planning of new projects," he said. "At the same time, some of the bankers who used to set up the tax financing deals are no longer around, with Lehman Brothers and Bear Stearns now out of business."
GE continues to invest in alternative energy, such as a move to invest $30 million in lithium ion battery maker A123, which has also filed an initial public offering. The move marked GE's sixth investment in the company.
Support builds for legislation, but it will take time
Still, despite the setbacks, policy makers and some on Wall Street argue the world's need for energy continues to grow along with population, and the need to fight global warming remains a priority,
Lazard Capital Markets Analyst Sanjay Shrestha said this week that macroeconomic factors continue to depress stock prices in the alternative energy sector, but the future looks brighter than now.
"We believe Barack Obama's election is a long-term positive for the alternative energy group," Shrestha said. "Until the financial markets show signs of stability, the economy will likely continue to overshadow other policy agenda items. However, we believe energy and the focus on alternative sources is a top agenda item that Obama will address in his first months in office."
Obama has pledged $150 billion in spending over the next 10 years and to make renewable tax credits permanent. He also supports federal Renewable Portfolio Standard by 2012, increasing to 25% by 2020, he said.
Support appears to be relatively strong from Congress, as Sen. Jeff Bingaman, chairman of the committee on energy and natural resources, laid out a lengthy energy agenda in a speech on Monday.
Bingaman said he'll support renewable electricity standards, improvements to the power grid, a single cap and trade system to reduce carbon emissions, and greater fuel efficiency for automobiles, among other measures.
"Next year, I hope we can work in a bipartisan way to formulate the strongest renewable electricity standard that we can pass through the Congress," he said. "In addition to more renewable generation, we need to implement a smart and robust national transmission grid."
While any major legislation is likely months away, the current recessionary atmosphere has proven too toxic for at least five initial public offerings in registration:
STR Holdings (Proposed symbol: PVS) operates in two segments: solar module encapsulants and consumer products quality assurance services
GCL Silicon Technology (Proposed symbol: GCL) A supplier of polysilicon and wafers to companies operating in the solar industry.
A123 Systems (Proposed symbol: AONE)
Provides rechargeable lithium-ion batteries and battery systems.
First Wind Holdings (Proposed symbol: WNDY)
Develops, owns and operates a portfolio of wind energy projects
Noble Environmental (Proposed symbol: NEPI)
A wind energy company operating 282 megawatts of electrical generating capacity
Steve Gelsi is a reporter for MarketWatch in New York.
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