Green Energy, Red Ink, Black Humor
Max is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I don’t care how environmentally conscious you are. At some point the numbers don’t lie. If you’re investment strategy is based in wishful thinking and pegging your hope of returns on crony capitalism and subsidies, you should expect to lose money. Green energy is a sinking ship and it’s time to find a lifeboat in some other sector.
Take a look at this from Sterling Burnett of the National Center for Policy Analysis. The following is Burnett's list of bankrupt green energy companies that received substantial subsidies from state and federal governments. Let’s call it the “fail list”:
- Beacon Power Corp: Received $43 million in federal loan guaranteed in 2009 and also received $29 million in PA grants – Bankrupt in October 2011
- Ener1 (parent company of EnerDel): Received $118.5 million in federal loan guarantees — Bankrupt in January 2012 – has since exited bankruptcy
- Evergreen Solar: Received $58 million in MA loan guarantees (an undisclosed portion sourced from federal ARRA block grant) — Bankrupt in August 2011 with $485.6 million in debt
- Solyndra: Received $535 million in federal loan guarantees in 2009 and $25.1 million in CA tax credit — Bankrupt in August 2011
- SpectraWatt: Received $500,000 in federal loan guarantees in 2009 — Bankrupt in August 2011
- Babcock and Brown: Received $178 million in federal grants in December 2009 (4 months after it went bust) – Bankrupt in early 2009
- Mountain Plaza Inc.: Received $424,000 in federal grants through TN Department of Transportation in 2009 — Bankrupt in 2003 and again in June 2010
- Solar Trust of America (parent company: Solar Millennium): Received $2.1 billion loan guarantee in April 2011 – Bankrupt in April 2012
Now, as investors, you'll want to know about the ones going down the tubes. Here are some that are on the decline, the moribund list, according to Burnett:
- A123 (NASDAQOTH: AONEQ): Received $300 million in federal grants and $135 million in MI grants — Declining orders and have forced multiple layoffs;
- Amonix, Inc.: Received $5.9 million in federal tax credits in 2009 through ARRA — Laid off two-thirds of work force;
- First Solar (NASDAQ: FSLR): Received $3 billion in federal loan guarantees — Biggest S&P loser in 2011, CEO fired;
- Fisker Automotive: $529 million in federal loan guarantees — Multiple 2012 sales prediction downgrades for first car release, delivery and cash flow troubles; assembling cars in Finland;
- Johnson Controls (NYSE: JCI): Received $299 million in federal grants in 2009 — Low demand caused cancellation of a new factory, operating at half capacity;
- Nevada Geothermal: Received $98.5 million in federal loan guarantees in 2009 — Defaulting on long-term debt obligations, 85% drop in stock value;
- SunPower (NASDAQ: SPWR) Received $1.2 billion in federal loan guarantees — Debt exceeds assets; French oil company took over last fall
- Abound Solar (OBB: NGLPF): Received $400 million in federal loans in 2012 — half of work force laid off;
- BrightSource Energy: $1.6 billion federal loan approved in April 2012 – loan obtained through political connections with the administration; absent the loan, BrightSource’s solar power purchase would have fallen through.
That'd be enough to make me cut off Gang Green.
I question the rationale of backing any zombie industries over the long term. You’ve got to be good at spotting the short term infusions of largesse while being willing to get out before people realize that the government gravy train is grinding to a halt. Political winds mean Washington may find a different darling for all its logrolling schemes. And I just can’t help but think green energy is an industry about to shrivel and die -- particularly as voters are losing their appetite for cronies of all colors.
Investor Oscar Sahlberg saw this more than a year ago, writing:
Solar has been an industry driven by subsidies. We see that stock performance and the trading multiples have correlated strongly with positive policy developments. Therefore, with the key growth driver being subsidies, the current political environment makes the outlook on the sector weak. With the bulk of the market emanating from European demand, a Euro area crisis is the elephant in the room. The market expects, at varying degrees, that non-European demand (primarily US, China, and India) will pick up the slack. However, this assumes that contagion will not spread and if it does, the periphery will not be affected. With budgets under strain, governments have been/are revisiting their subsidy levels (see Germany, Italy, Spain, France, UK). Furthermore, other countries that are jumping on the bandwagon are doing so at a much lower rate.
And the future sure ain’t looking any brighter for green plays now. In fact, it’s looking much, much worse as the Europeans -- especially Spain, Germany and Britain -- have turned off the spigot for most of these companies across the pond. The reason? Governments have run out of the re-animating fluid that keeps the zombies going. (Warning: horrifying video of green re-animation.)
So I’m going to suggest not investing in companies that rely too heavily on Uncle Sam.
The bigger recipients of green subsidies in the U.S., such as General Electric (NYSE: GE), are large and diverse enough to weather political sea changes. But I’m going to suggest we help Americans climb out of this Keynesian nightmare and pick investments that are based on sound fundamentals -- not on collusion between business and government. We not only reinforce the profit and loss system that made this country great, we actually invest in the long-term health of companies that create value.
Max Borders is author of the forthcoming Superwealth (Fall 2012).
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