First published in the Quoted Cleantech Newsletter - November 2009. Copyright Cleantech Investor Ltd. 2009

by Nigel Hawkins

Over the last few months stock markets have rallied, admittedly from historically low levels when a combination of the credit crisis and the ensuing recession drove down stock valuations.

The figures from the larger utility stocks, most of which have some renewable generation exposure, have been somewhat disappointing. Many are less recession-proof than was widely believed and several have built up large debt levels. In EdF’s case, its priority now is debt reduction, whilst E.On has seen its net debt reach £40 billion.

Against that background, the recent stock market performance of the top utilities has, not surprisingly, been lacklustre. EdF’s shares have marked time over the last month, although both German utilities, E.On and RWE, have been boosted by the working majority secured by the CDU/CSU and FDP alliance in September’s elections, under which the country’s nuclear phase-out policy seems set to be reversed. As such, E.On and RWE would secure additional revenues for many years from fully-depreciated nuclear plants.

In the UK, Centrica’s share price has remained resilient as it restructures parts of its generation portfolio, including some wind assets. But Scottish and Southern Energy’s share price has been weak of late on the back of lower electricity prices and its debt level.

For pure renewable stocks, the next few months will certainly be eventful. At the macro level, there is the widely hyped Copenhagen meeting under the auspices of the United Nations in December. With China and India now speaking more positively about reducing carbon emissions, many environmentalists are hopeful of a durable settlement. Much, though, will depend upon the US’s stance, and especially if any Copenhagen agreement is ratified by the US Senate.

Importantly, several governments are reassessing their renewables subsidies, something that directly impacts leading renewables stocks. In particular, there are doubts about the continuation of generous subsidies to Germany’s solar sector.

Clearly, the world’s leading renewables generator, Iberdrola Renovables, is sensitive to any such changes. Its shares have performed poorly recently, down by some 10% over the past month.

The company’s nine-month results for 2009, published on 20th October, showed a 27% decline in consolidated net profit, due mainly to lower electricity prices, although EBITDA did increase by 6%. By the 2009 year-end, Iberdrola Renovables expects to have 10,750MW of renewables capacity installed. Its pipeline currently stands at a formidable 57,400MW.

EdP Renovaveis is following the lead of its larger Iberian counterpart, with most of its operations being either in Spain or Portugal – but also with increasing US exposure. Its 2009 half-year EBITDA was €271 million – up by 19% on the 2008 first-half figure.     

EdF Energies Nouvelles is gradually establishing itself, both as a wind generation player but also through its investment in solar generation. Its recent share price performance has been unexciting. However, it expects to meet its 2009 full-year EBITDA target of between €280-€300 million – the half-year figure was €140 million.

Amongst smaller UK-quoted renewables stocks, there have been some developments. Following a bid approach from the privately-owned Infinis, Novera Energy’s share price soared – by more than 40% in October.

Clipper Windpower has also seen its shares move ahead. Its half-year results announced on 30th September were, as expected, unimpressive; its turbine remediation problems are well known. However, the figures were overshadowed by confirmation of advanced talks being under way with multinational companies and possible financial investors. Not surprisingly, the company’s shares reacted positively.

In summary, challenging times for the renewables sector. Whilst the political climate is promising, public finances and subsidy expectations are not. Add to that fluctuating electricity prices, high debts and funding difficulties, and it is clear that energy-related stocks are rather riskier than some have anticipated.

Nigel Hawkins is a director of Nigel Hawkins Associates, which undertakes investment and policy research, mainly in the utilities sector.