Is the World Really Running From Renewables?http://www.fool.com/investing/general/2013/02/01/is-the-world-really-running-from-renewables.aspx Maxx Chatsko
February 1, 2013
You can run, but you can't hide. A report by Bloomberg New Energy Finance earlier this month called out world governments by noting that new investment in clean energy fell 11% in 2012. The headline of the Bloomberg report might inspire some doomsday predictions, but even the company notes that there are many reasons investment is down – some good, some bad, some out of clean tech's control. In fact, chief executive Michael Liebreich was surprised that the decline wasn't bigger. Let's reflect on what the macro trends tell us about the short-term outlook for renewable energy.
Lost incentives key fall
I recently wrote about the importance of the Renewable Fuel Standard (RFS) and renewable identification numbers, or RINs, in the biofuels industry. While smaller companies I have spoken to lament government involvement, there is no debating that the system works as designed.
The government creates incentives to ramp up production by subsidizing fuels that are new to the market. Tying the market price of the incentives to demand ensures that the government doesn't drown a saturated market with easy handouts and that only the most efficient producers survive. It is not perfect, but without the mandate the United States would not have produced over 13 billion gallons of ethanol or over 1 billion gallons of biodiesel last year – enough to offset 768 million barrels of oil.
Outlook for advanced biofuels
Solazyme (NASDAQ: SZYM) started 2013 by securing $120 million in financing from the Brazilian Development Bank for its 100,000 metric ton per year renewable oils facility with Bunge. The next generation biorefinery represents less than 20% of the company's targeted 2016 capacity worldwide, which may increase as chemical companies and refiners drool over the good news trickling out of the company. After becoming the first industrial biotechnology company to scale to 500,000 L fermenters, Solazyme is tantalizingly close to the 750,000 L volumes needed to achieve economical production of its high-quality oils.
Amyris (NASDAQ: AMRS), which is quickly looking for reasons to put 2012 behind it, could enjoy a much-needed boost this year. The company has finally completed its first farnesene biorefinery in Paraiso, Brazil. Should the company achieve favorable commercial metrics in the first quarter it could easily get the green light from investors to bust the locks off of a shuttered plant in Spain. While Paraiso will be the lone production facility until 2015 at the earliest, the prospects for Amyris – and the industry – will improve significantly with favorable data.
Outlook for solar
Warren Buffett kicked off the new year by buying the Antelope Valley Solar Projects from SunPower (NASDAQ: SPWR) for at least $2 billion. The purchase will boost the bulging 1,830 MW portfolio of MidAmerican Renewables and allow Buffett to boast one of the largest solar projects in the world. As the ultimate gatekeeper for finding undervalued investments, Buffet's latest splurge may be a sign of things to come.
Not even market leaders are spared when an industry suffers from external forces. First Solar (NASDAQ: FSLR) had to gut-check its ambitious plans for growth after losing valuable subsidies throughout the world. The company delayed a production plant in Mesa, Ariz., and considered closing its Frankfurt, Germany, facility on overproduction fears in 2012.
After reporting losses of over $941 million in 4Q11 and 1Q12, the thin-film manufacturer has corrected course and has rebounded nicely from lows under $12. Analysts expect the company to continue its upward swing and grow at a 25% clip for the next five years.