A Sign Of The Times

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Alt energy investors figured out early on in this crisis that a widespread shut-down of credit markets coupled with a substantial re-pricing of risk would not bode well for the industry. That’s why alt energy stocks have outdone the overall market to the downside over the past year, with the iShares S&P Global Clean Energy Index (ICLN) down more than 60% Vs. the S&P 500 loosing a little under 40% over the same period.

Much of this carnage occurred before any real impacts on alt energy had been felt (current prices in equity markets are generally forward- rather backward-looking). Over the past couple of months, however, the proverbial chickens have come home to roost, and companies with weak balance sheets and/or no sales have been experiencing difficulties. Good companies have had to cut back staff and production. Here are some of the headlines that caught my attention:

Yesterday, clean locomotive maker Railpower Technologies Corp. (RLPPF.PK) filed for bankruptcy protection and put itself up for sale. I took a small position in this stock in May and liquidated it at a significant loss in October (this was a pretty bad call on my part but, like many people, I’d failed to grasp how dire things were going to get). Railpower’s woes this time around were due entirely to bad luck (and terrible timing!): it had finally overcome initial execution problems and found a credible financial backer, only to have its plans wrecked by the economic maelstrom. Unfortunately, I don’t think there’ll be a third chance for this one.

Also yesterday, emerging turbine maker AAER Inc. (AAERF.PK) announced that it had extended the deadline on the deal it signed last October for the supply of 100 MW of turbines to a Canadian wind project by two months. The original agreement called for both parties (AAER and project developer Northland Power) to have secured the necessary financing (the former to produce and the latter develop) within four months. AAER has since gone to market and raised debt and equity financing. Northland’s situation, however, is less clear. My take: Northland is unable to find cheap debt to develop its project and wants more time to see if things will normalize in the next couple of months. While not terrible, this certainly isn’t great news.

VRB Power Systems, the large-scale energy storage technology developer that went bankrupt in November, announced a few days ago that it had finally liquidated its assets. Done like dinner!

Privately-held OptiSolar, a thin-film panel maker and solar park developer, cut 300 jobs in early January (50% of its staff) because of financing problems. Other solar firms, including Ausra, SunEdison, HelioVolt and Suntech Power (STP) have all recently announced staff cuts, although not to the same extent.

Wind tower maker DMI Industries, a unit of Otter Tail Corp. (OTTR), announced in early January a 20% reduction in its workforce at plants in the US and Canada. Not to be outdone, Clipper Windpower recently laid off 150 employees at a US plant (38% of the workforce), while LM Glasfiber let go of 150 and is halting production production at two Arkansas plants. Finally, Trinity Structural Towers, a unit of Trinity Industries (TRN), closed down a wind tower plant and laid off 131 workers in mid-January.

Micro-cap Canadian wind project developer EarthFirst Canada went belly-up in early November because it ran out of cash and couldn’t find financing. This bankruptcy had been in the works for some time and I tried to play it…unsuccessfully.

DISCLOSURE: Charles Morand has positions in the following stocks: AAER, EarthFirst Canada.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.


  1. So let me get this straight : Alternative energy companies are going bankrupt while Obama and pretty much everybody is is talking about how we won’t need Canada’s dirty oil in a matter of months…
    Something doesn’t add up here.

  2. I certainly did not mean to convey that the entire industry was going under. Just like any other sector of the economy (including the Alberta oil sands), alt energy is going through a rough patch at the moment. Anybody who has been reading the news over the last three months will understand that this situation isn’t unique to alternative energy.
    As far as Canadian oil is concerned, I can’t remember anyone who matters in this discussion talking about “months”. The Obama administration made a pledge to reduce US dependence on foreign oil, and has expressed concerns over what it views as a very dirty way to extract crude in Canada (the oil sands are, but most measures, a very dirty way to extract crude).
    I can’t think of anyone though putting a time line on eliminating Canadian oil imports. I have heard talks of some form of an environmental tax, although I certainly haven’t seen anything concrete on this. If you point me to the source of your claim I’ll be better able to answer your question.

  3. My comment was just about the impression I have that with the credit crisis lots of possible “alternate” ideas will never see the day. A recent poll showed that global warming is now dead last in people’s concerns. Watching the Senate these days doesn’t give me confidence that intelligent and logical solutions will come from the government. Ethanol was the flavor of the month. Now, what brilliant idea will emerge not tainted will politics.

  4. Obama’s pledge to reduce US dependence on foreign oil seems to be a bit complex :
    “Last week, we heard President Obama reiterate one of his convictions: “It will be the policy of my administration to reverse our dependence on foreign oil while building a new energy economy that will create millions of jobs.”
    But there is an uncomfortable sense of deja vu here, like flashing back to a bad sitcom we’ve seen a couple of times before in the 1970s. A similar line was delivered in 1974, when President Richard Nixon gave his State of the Union address, “At the end of this decade, in 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.”
    Deja vu on American energy independence?

  5. Global warming may be last on the list right now, but energy is still way up there, and the economy–which is energy-dependent–is tops. Obama and those who want to jumpstart energy independence need to be relentlessly on message: alternative energy isn’t a “nice to have”; it’s part of the way out of this mess.

  6. “The world must now replace the equivalent of Saudi Arabia’s entire (oil) output every two years.” – Financial Times, today.
    This fact alone makes it impossible to even think about replacing Canada’s imports of oil in the coming years.


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