Green Energy Investment Is Falling, but Don't Panic Yet

According to Bloomberg, global investment in clean energy fell in both 2012 and 2013. The numbers are alarming, but certain industries within the space are still growing. It pays to examine the situation as growth varies greatly by fuel type and continent. Over-reliance on volatile government subsidies has hurt many markets, but there are still successful clean energy companies to invest in.

Clean energy investment (billions of $)

Bloomberg New Energy Finance

There is a huge difference between Europe, the Middle East, and Africa and the rest of the world. The EMEA region has seen new clean energy investment fall by $59 billion in the past two years, while the rest of the world has seen a net decrease of just $4 billion. The reality is that the Euro area has seen low or no growth over the past couple years, subsidies have been scaled back, and rising energy costs, driven partly by renewables, are pushing the industry to relocate to other regions.

U.S. wind challenges
Europe is not the only region facing challenges. Between 2012 and 2013 the U.S. saw new clean energy investment fall 8.4% in dollar terms. As total investment dollars have fallen, U.S. wind and U.S. solar have parted ways. New U.S. wind capacity fell from 13,077 megawatts (MW) in 2012 to 71 MW in the first three quarters of 2013, while the solar industry installed 2,053 MW in the first three quarters of 2012 and 2,440 in the first three quarters of 2013.

Falling government subsidies, cheap natural gas, and the need for more large transmission lines have put a lid on wind's U.S. growth. These difficulties helped to push Siemens' (NYSE: SI) wind power orders down by 34% between the fourth quarter of 2012 and Q4 2013. The company did recently get an order for a 468 MW U.S.- utility offshore wind farm, but this is more of an experiment to test the economics of offshore U.S. wind.

In addition to challenges in the U.S. wind market, Europe's depression has hurt Siemens and helped push its 2013 revenue 2% below its 2012 revenue. Suffice it to say Siemens has a challenging future ahead.

Solar keeps on growing
In terms of new installations measured in MW, U.S. solar has seen steady growth since 2008. Cost deflation is a big part of this picture. Manufacturers have cut costs to help spur demand, even though it puts some downward pressure on revenue. 

SunPower (SPWR 5.85%) is a great example of a company that has grown and thrived in spite of difficulty. Its products have proven so popular that its panels were sold out in Q1 2013. From 2010 to 2012 it managed to increase its revenue from $2.2 billion to $2.4 billion, even though its earnings before interest, taxes, depreciation, and amortization fell from $309 million to $-6 million. In the recent quarter, SunPower has continued to grow its earnings, bringing its EBITDA up to $141 million from -$45 million in Q4 2012.

SunPower's earnings are coming back, and it is slowly expanding capacity. Strong research and development spending, capacity expansion, and support from Total should help SunPower continue to break away from second-tier competitors.  

Over the past three years, First Solar (FSLR 2.12%) and Yingli Green Energy (NYSE: YGE) have come out ahead with First Solar in first place. First Solar's strong utility sales have helped it to post a 12.2% profit margin and a 33.2% gross margin. On the R&D front, First Solar is improving. If it really can raise its efficiencies beyond 16% in the next couple of years, then it should be able to maintain a good position in the utility market.

In the 2010 to 2013 period, Yingli grew its modal shipments from 1,062 MW to an estimated 3,200 MW to 3,300 MW. Even though Yingli's gross margin has come back, it posted a net loss of $39 million in Q3 2013. This company is one of the strongest Chinese solar manufactures, but it is still producing losses while First Solar and SunPower are making profits. Until the Chinese government shuts down more excess capacity, it is best to take a wait-and-see approach with Yingli.

Final thoughts
Falling government subsidies and low economic growth have hurt the overall level of clean energy investment. While wind turbine manufactures like Siemens face a very volatile market, the solar market enjoys steadier growth. First Solar's strong utility connections and SunPower's quality products have helped the companies to become profitable even while the overall clean energy industry faces headwinds.