Monday, June 14, 2010

Alternative-Energy Firms Adapt to Europe's Woes. Consolidation Expected in Renewables.

More consolidation is on the way with European green tech companies whose sales have been largely domestic. However, times might be changing - euro will stay weak against dollar and yuan give EU's fundamental economic governance issues, unsustainable debt levels and continued demand weakness.  Given all-time high public debt, most EU governments have been canceling or downsizing subsidies extended to renewables sector. Lastly, the sector has been overinvested, overcrowded similar to the dot-com rush back in 2000 in my opinion.  Smart competitors from US or China should look into buying EU renewables companies with attractive valuations and heavy debt burden which would diminish their chances of staying float or independent.

This article appeared on WSJ today, arriving to the same conclusion:

Europe's economic woes have led Tom Werner, chief executive of solar-panel manufacturer SunPower Corp., to change the way he does business.

Companies in many industries have been affected by Europe's problems, but alternative energy companies are especially exposed. Government subsidies have made Europe a dominant market for alternative energy, and it's the world's biggest solar-power market. Indeed, SunPower gets about half its sales there.

To respond to the problems, CEOs of companies that make solar panels and wind turbines are hedging against currency fluctuations more aggressively, boosting sales in other parts of the world and raising prices. They're also trying to take advantage of lower prices in Europe by purchasing more components and doing more manufacturing there.

A weak Euro means that when sales are translated back into dollars or other stronger currencies, companies get less revenue. The Euro has fallen 16% against the dollar this year.

Euro fluctuations have already cut into profits at some solar companies. Trina Solar Ltd. registered a $14.5 million foreign-currency exchange loss. Reporting its earnings, Trina said the loss was "primarily due to the depreciation of the Euro against the U.S. dollar" in the first period.

At SunPower, a San Jose, Calif.-based maker of solar panels and cells, Mr. Werner says he's looking to generate more sales in the U.S., especially California and New Jersey, where the government is subsidizing solar-power investments. "We're allocating more resources to sales in America," he says. "You have to be diversified to minimize future swings."

The company is also hedging against currency fluctuations more aggressively, and it now hedges all of its foreign currencies in case the Euro's ailments spread.

Mr. Werner is also looking for ways to benefit from the Euro's weakness, including buying more materials like silicon and steel there.

To mitigate losses on translation costs, some companies are raising prices of goods sold in Europe, at least temporarily. John Danner, CEO of Northern Power Systems Inc., says the privately held Barre, Vt., maker of mid-sized wind turbines, which does about a third of its business in Europe, is raising prices in certain instances, in part to offset losses from the Euro's decline.

Suntech Power Holdings Co., a solar-panel maker based in Wuxi, China, registered a $22 million foreign-exchange loss in the first quarter. It is now making a bigger push into other regions, particularly the U.S. In the first quarter, European sales accounted for 70% of its revenue. By the third and fourth quarter, the company plans to decrease that to about 50%. It also plans to triple its U.S. sales from 2009, says Steven Chan, chief strategy officer.

Dixon Thayer, CEO of Southwest Windpower Inc., a privately held maker of small wind turbines based in Flagstaff, Ariz., says he anticipates having to raise prices of products he ships to Europe by midsummer if the Euro remains low.

But he also sees a chance to gain more market share in Europe while rivals are hesitating. He's toying with buying a European-based company or building his own facilities there. Currently the company doesn't make any products in Europe.

Aeronautica Windpower LLC, a Plymouth, Mass., maker of mid-sized wind turbines, is also taking advantage of the buying opportunity. It does most of its business in the U.S., but because the majority of "certified parts" for wind turbines are made in Europe, it relies on Europe for components.

"We're trying to buy five times what we normally buy," says chief financial officer Mike Glynn. "This is a pretty significant drop for us.

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