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Investing in Renewable Energy Companies

Written By Nick Hodge

Posted July 7, 2009

The doubters are still out there.

I’m referring to those who question the validity of renewable energy. . . those who think it’s government-sponsored. . . who think it’s not scalable.

Or even worse, those who think it’s not profitable.

If you’re one of them, you’re wrong. Plain and simple.

Let me explain…

Biggest Banks in the World

I had the pleasure of sitting in on a finance forum held at the Waldorf Astoria a few weeks ago.

One by one, representatives of the smart money took to the podium to talk about their renewable energy investment strategies.

These weren’t socialists or greenies. They were hardcore capitalists. And they love renewable energy.

In the panel titled Global Financial Markets, the heads of the largest investment banks in the world lined the stage and praised renewable energy for its business sense, not for its environmental stewardship.

Ray Wood of Credit Suisse said:

It’s a phenomenal time to be involved with renewable energy. We actually have several titles for it within our firm and one of them is alternative energy. I’m very much looking forward to the day, which I think is coming soon, where the alternative part will be misrepresenting how important it is in terms of utility scale. And we think we’re getting very close to that day.

And the other banks were just as sycophantic, rattling off their green investment expertise one by one.

Citi’s Vice Chairman boasted they’ve advised on 8 of the 10 largest green mergers and acquisitions since 2008, including the largest wind transaction ever between EDP Renewables and Horizon Wind — worth $2.9 billion.

Jim Metcalfe, the Global Head of Power and Utilities at UBS, boasted his company is "the leading global franchise in advising and raising capital for renewable energy companies." And he had the chart to prove it.

This chart represents IPOs, M&A, Follow-on offerings, and Convertibles:

Clean Energy Financing Deals

Nearly $8 billion worth of deals come from UBS alone. And that’s without the other $30 billion coming from other global banks.

And the bragging didn’t stop there.

Kevin Genieser, Managing Director at Morgan Stanley, had the following to say:

We look at this as a global business. We have been extremely active all throughout the various markets around the globe, whether it be Europe, Latin America, North America, or even parts of Asia.

We have been doing different types of transactions. It’s been everything from early stage private placements through IPOs through follow-on offering, project finance and, in particular, M&A. And based on the number of transactions we have been extremely active even in this down period.

We’ve done things in solar. We took First Solar public. We’ve done things within the smart grid having taken EnerNoc public. We just last night filed the IPO for A123 so hopefully we’ll be kicking off, once again, the clean technology space with regard to IPOs.

But it wasn’t all about the past.

Looking to the Energy Future

It was mentioned during the panel that since 2007, over half of new energy capacity additions have been renewable-based.

Think about that. For every two new megawatts of power capacity added in the last two years. . . more than one came from a renewable resource.

According to the panel, that’s because of simple economics. Not because of policy. Not because a greener earth makes them feel all cozy. But because, according to Parker Weil of Bank of America, "It comes down to unit economics. It is obvious that if you — for wind and solar, very capital intensive — invest the initially high capital to displace fossil fuels you will make a very profitable return on invested capital. Returns well in excess of invested capital."

That sentiment echoed throughout the room.

Each bank executive continually pointed to the growing external costs associated with fossil fuels. Some of them have ceased funding new coal plants altogether.

And they all said capital is ready, once again, to flow in all forms. But after having just been burned by a financial crisis, they are being more selective about potential deals, mostly waiting for federal agencies to release stimulus funding rules before they proceed.

As that happens, they are still pursuing investments in less-capital-intensive cleantech arenas. One of them happens to be the smart grid. Smart grid companies reach profitability sooner because many don’t need large production facilities or the capital required to build them.

There was much talk about taking advantage of these opportunities now, before the release of stimulus rules and dollars shift the focus back to energy production technologies like solar and wind.

Make no mistake, the smart money is flowing into clean technologies. The largest and most well-capitalized banks in the world are chomping at the bit. And they are increasingly viewing long-term fossil fuel-related investments as liabilities.

If you haven’t starting investing in cleantech yet, you’re part of shrinking — and increasingly less wealthy — minority.

Call it like you see it,

Nick Hodge



P.S. The banks aren’t the only ones looking at smart grid plays. I knew they’d do well when capital was tight. Three triple-digit gains in the sector have already proven me correct, but there are still more to come. Click here to learn all about the smart grid and the money you’re leaving on the table by not investing.

P.P.S. If you’re interested in learning more on the burgeoning renewable energy market, I highly recommend becoming a member of the free Green Chip Review e-letter. It’s the original green investment publication, with a readership of over 150,000 profit-hungry subscribers. Simply follow this link to sign up, and we’ll immediately send you our newest research report: Investing in Next-Generation Solar Power Technologies.