As a combination of scalability, capacity and demand is bringing big names into the alternative energy and cleantech sectors. It’ll be the companies that best make themselves understood who will be the first to benefit.
Goldman Sachs announced last week that they are looking to make $150 billion worth of clean energy investments including wind, solar and energy efficiency technology projects by 2025. Forbes Magazine reports that Goldman signed a pledge at the White House to help curb greenhouse gasses, and that they were among the first to back investment-grade solar and wind projects. Goldman is more famous for creating popular and sellable issuings and moving them to large clients than they are for making idealistic or fad investments. A $150 billion sector weight target over 10 years is aggressive for a company with $850 billion under management – enough to safely stop calling it ‘alternative’, at least from an investment standpoint.
It turns out that new-found interest in clean energy among big investment banks may be an attempt to get ahead of a tipping point that could make the wind and solar farms the new grid engine. Bloomberg’s Tom Randall reported extensively last month on the rapidly changing economics of solar and wind projects in first world countries today. The capacity factor – the percentage of a power plant’s potential power that is reasonably achieved over time – is becoming increasingly important as more and more solar projects are being built.
For the first time, widespread adoption of renewables is effectively lowering the capacity factor for fossil fuels. That’s because once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero—free electricity—while coal and gas plants require more fuel for every new watt produced. If you’re a power company with a choice, you choose the free stuff every time.
Randall goes on about how lower demand at peak periods is setting off a self-fulfilling cycle that is causing companies to think twice before building new coal and natural gas fired power plants, weary of being on the wrong side of the trend.
As Cleantech Businesses Grow, So Do The Players
As clean energy makes its steady transition into the mainstream, the types of investors looking for ideas are expanding. The retail investors and small growth-oriented funds based around small and micro-cap companies are still there, and are being joined by larger, more established funds that one would normally turn up while working an IR desk in the consumer goods or transportation sectors.
The sell-side, never shy to push growth stories, is increasingly bullish on some of the larger solar and wind. JP Morgan Chase put a series of very aggressive targets on Sunedison this past fall, calling for $20 a share, almost immediately after the company swooned to its current price around $5 from a summertime high near $33. Hedge funds, including Stephen Cohen’s Point72, have been overweight on SUNE. JP Morgan Asset Management walked right along with its sell-side division, brokering a strategic funding deal for several of Sunedison’s solar projects for private clients and fellow solar giant TerraForm Power.
It didn’t seem that long ago that the type of clients that have their money managed by JPM Asset Management wouldn’t dream of finding their asset-backed, yield-generating direct investment capital in a partnership deal with a solar farm, but here we are.
Expansion in Clean Tech Could Effect Large And Small Companies Alike
Trends tend to permeate in the investment world. The move to alternative energy being made by the larger funds is doubtlessly sending asset managers at smaller boutique firms, hedge funds, and family offices off to the research. If this trend, still in its infancy, shows the type of staying power that Goldman Sachs is betting on, a small cap space teeming with parts companies who make components for solar and smartgrid applications, solar panel patent holders (hoarders?), waste-to-energy plants, and all other forms of green tech and clean tech are going to be competing with each other to get the attention of investors who are suddenly interested in the sector.
Communications and Investor Relations is Going to Make the Difference.
Often, it’s the companies who get their message across the most quickly and efficiently who are the first to get the attention of interested investors. If the important data points are easy to read, understand and share, an investors can get the sense that they aren’t going to be the only ones to understand the story.
The best informed IR departments are going to know, not only who their key shareholders are, but who their next shareholders are going to be. Our inbound IR program can show IR departments specifically who has been looking at their IR sites, and what type of information they’re looking for. They’re able to take advantage of the efficiency that comes from knowing who is worth their attention and who isn’t. In an environment where the supply of small and micro-cap alternative energy companies is near infinite, and investors’ patience is finite, it pays to be concise, and to be first.