October 21, 2008
Green Stocks Expected to Rebound in Wake of Financial Crisis
by Robert Kropp
Green stocks are down with rest of market as investor confidence wanes, but new tax credits and the
need to address climate change point to likelihood of strong recovery.
The global financial crisis has hit stocks in every sector of the economy. Green stocks in both
renewable energy and consumer products have not been immune. Solar companies have been especially
hard-hit because sales of solar panels are largely dependent on financing and the recent decreasing
price of oil has made investment in them less attractive in the short term.
Prospects for cap and trade legislation that would require companies needing to increase
their emissions to buy credits from those that pollute less faces uncertainty. Republicans in the
US Congress decry the impact on heavy polluters if required to pay for such credits. As does the
McCain campaign, which calls for issuing such credits without cost to companies.
investment managers committed to green funds see opportunities for long-term growth in green
stocks, and contend that many companies in the green sectors are performing better than their
falling stock prices might indicate. "These companies continue to offer bona fide solutions to
critical problems that have not gone away, and over time the disconnect between their performance
and stock prices will realign," said Jack Robinson, President and CIO of Winslow Management, an investment advisory firm that has
been a pioneer in green investing for 25 years.
"In recent days I have talked with the
CEOs of every company represented in our mutual funds. While they are depressed about current stock
prices, they remain fully confident in their businesses," Robinson said.
3, 2008 "a defining moment for renewable energy in the United States," a just-published evaluation
by Winslow Management finds that the Energy Improvement and Extension Act of 2008 included in the
Economic Stability Act represents "a big, bold new tax incentive plan that will stimulate the
installation of renewable-energy products and systems across America. Winslow believes that this
Act will generate thousands of new green jobs and help rekindle economic growth."
extension of production tax credits to the solar industry for eight years is a game-changer,"
Robinson said. "With the financial aspect progressing toward solution, concerns over financing for
renewable energy should ease."
The Act extends production tax credits for wind energy for
one year, and for the first time includes tax credits—for two years—for geothermal.
green stocks relating to consumer goods, Robinson notes that their recovery may be slowed by
economic conditions, as consumers faced with hard choices may balk at paying a little more for
Carey Callaghan, CIO of American Trust Energy Alternatives Fund, agrees
that the Energy Improvement and Extension Act is a major development for the renewable energy
"To develop renewable energy as an alternative to fossil fuels, in effect we
replace fuel with significant upfront capital costs. With investment reduced and capital
availability down significantly from a year ago, alternative energy continues to face a headwind.
But with long-term production tax credits in place, we are looking for explosive growth in the
Callaghan expects prices to drop considerably in the wake of the current credit
crisis. "I recently attended a solar industry conference, where a leading company, First Solar, acknowledged that its stock
price is half what it was a year ago. But the company continues to do well, and fully expects to
come out fine."
Callagahn added, "The law of supply and demand should benefit the buyer of
solar installations over the next two years, as we expect prices to come down by half in that
Professionals at the consulting firm Ernst & Young seem to concur with the
optimistic forecast outlined by Robinson and Callaghan. In a recent report on venture capital
investment in cleantech, the firm found that such investments have increased from 1.6% of total
investment in 2003 to 11% in 2008. Global venture capital investment in cleantech in 2008 is
expected to significantly exceed the record $3 billion invested in 2008.
According to Gil
Forer, Global Director, Cleantech, IPO and Venture Capital Initiatives at Ernst & Young, "Cleantech
is here to stay.
"Cleantech has passed an important investment tipping point. Demand for
cleantech solutions is increasing due to higher energy and resource costs, regulatory requirements
and the desire for corporations to pursue climate change related market opportunities."
While the number of mergers and acquisitions and IPOs by cleantech companies have slowed in
2008 due to market conditions, the report found that an overwhelming majority of corporations are
undertaking climate change initiatives. Many plan to significantly increase investment in cleantech
by their corporate venture capital programs during the next few years.
If, as Robinson of
Winslow observed, the "financial aspect (is) progressing toward solution," it will have occurred
because investor confidence in the market has been restored. As governments shore up the global
economy with large infusions of capital, it is expected that investor confidence will follow.
Expanded government commitment in renewable energy, as evidenced in the US by the Energy
Improvement and Extension Act, should encourage investors.
The prospect of a new
administration in Washington also gives hope to the growing numbers of responsible investors who
recognize the fact that climate change is indeed an issue that has not gone away. If Barack Obama
maintains his current lead in polls and wins the Presidency, he will take office with a platform
that calls for $150 billion in investments in clean energy, $60 billion in investments in
transportation infrastructure, and a cap and trade program to reduce greenhouse gas emissions by
80% by 2050.
"The US has shifted into a chronic state of action on energy," said Jason
Grumet, executive director of the National Commission on Energy Policy. If the trend
accelerates as expected in coming months, investors in renewable energy and related green
technologies can expect to reap steady rewards for their commitment to energy independence.