The strong move in oil over the last few months has led to a resurgence in capital flowing into alternative energy companies and projects, despite the dismal track record of investments in this space. Will investors be disappointed again?
It's more than a valid question. But this time, part of reason for the capital flow appears to be macro related, with the credit crisis easing, banks and investors are more willing to take risks with money. As such, this latest round of investments in alternative energy will eventually prove one of the following stock market clichés true:
- Investors never learn from previous mistakes.
- This time it's different.
Which one is it most likely to be? Let's take a look at the facts.
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The Great Ethanol Company Extinction of 2009
The recent track record for alternative energy investments is not great. One industry that was devastated during the recession and financial crisis was ethanol. In fact, virtually every publicly traded ethanol company has filed for bankruptcy over the last year. This includes VeraSun Energy, which sold its assets at fire sale prices to Valero (NYSE:VLO), a large refinery company. Other ethanol companies to file for bankruptcy protection include Aventine Renewable Energy Holdings(OTC:AVRNQ) and Pacific Ethanol (Nasdaq:PEIX)
A company called A123 Systems just filed an updated Form S-1 preparing for an initial public offering. A123 Systems manufactures rechargeable lithium-ion batteries for use in automobiles. The company is taking advantage of the American Reinvestment and Recovery Act, passed early in 2009, and is applying for up to $438 million in grants to fund itself.
Another early-stage alternative energy company raising money is Magma Energy, which conducted its initial public offering on a Canadian exchange. The company raised gross proceeds of C$100 million. Magma Energy is focused on generating power through geothermal energy, or from energy stored within the earth. Magma Energy has one working geothermal plant in Nevada, and many others in the pipeline.
Solar Power: Let It Shine
Some established solar power companies are also raising capital.
Yingli Green Energy Holding Co. (NYSE:YGE) is a manufacturer of photovoltaic (PV) products. The company raised $192.6 million in a secondary offering in June.
Three other solar power companies also added to their war chests through public offerings. Suntech Power Holdings Co. (NYSE:STP) raised $277 million, and SunPower (Nasdaq:SPWRA) and (Nasdaq:SPWRB) raised $417.6 million through a stock and convertible bond offering. Trina Solar (NYSE:TSL) went the debt route and secured a $57 million credit line from a Chinese bank.
The Bottom Line
Investors are lining up once again to invest in alternative energy companies that compete with traditional sources of energy. Will this time be different for investors? Only time will tell, but alternative energy companies clearly believe that prevailing winds may be about to change. (For more, read Top 10 Green Industries.)