ANALYSIS - Solar Power Firms Warm Up for Stock Market Ipos
Date: 02-Aug-05
Country: UK
Author: Alison Tudor
The largest markets for solar power -- Germany and Japan -- have already been boosted by state support, which has made relatively-costly products such as roof-top solar panels affordable to the general public.
And despite the sharp rise in oil prices most solar companies are likely to remain dependent on political support for the medium term, which exposes investors to political risks.
But solar cell maker ErSol Solar Energy AG and sources at wafer maker PV Crystalox Solar AG and component and systems maker Renewable Energy Corp AS (REC) all said they were considering listing in Europe.
"Investors are willing to pay a lot for solar companies at the moment, but we are searching for the best long-term option which may be an IPO," one of the company sources said.
Solar cell maker Q-Cells AG may also seek an initial public offering, bankers familiar with the talks said but Q-Cells declined to comment.
Elsewhere, Cypress Semiconductor Corp. plans to spin off its solar products unit SunPower Corp. via a listing in New York in the final quarter of 2005.
BRIGHT FUTURE
Solar-power firms can approach new investors with a story of increasingly competitive products as fossil fuel prices climb to record levels and of favourable legislation as states seek to cut their reliance on imported crude oil.
The oil price crises in the 1970s spurred massive investment in renewables, and now with crude hitting $70 a barrel the sector is set for another boom, analysts said.
In Europe interest in renewable energy sources has also been reignited by a drive by countries to curb their greenhouse gas emissions to meet commitments under the Kyoto Protocol on climate change.
"The main drivers of the solar industry are legislation, increased cost competitiveness to other energy sources, off-grid applications, and more expensive fossil energy," said Martin Hoerstel, an equity capital markets banker at Deutsche Bank.
Solar cells are used predominantly for electricity grid-connected applications but analysts are also becoming excited about the potential growth in more economically-viable consumer product applications such as solar power sunroofs for cars.
STORM CLOUDS ON HORIZON?
As with every investment, analysts say there will be risks involved in solar power investments.
"These risks include potential shortages in silicon supply, changes in German pro-solar policies, rising interest rates, lower oil prices and a backlash against solar by generating companies," said broker CLSA Asia-Pacific Markets in a note.
Germany's renewable energy law which subsidises solar power is up for review in 2008 and since German Chancellor Gerhard Schroeder announced he would hold early national elections, there have been concerns the favourable policy will change.
The opposition conservatives have said they will do away with "ideological energy policy" and have attacked exorbitant subsidies, but have also said they would safeguard Germany's leading role in solar and wind power technologies.
"The supply of silicon is a much more imminent problem. There is a fierce fight ongoing for silicon. In a way the solar industry did not anticipate the level of its own success, neither did the silicon producers," said Deutsche's Hoerstel.
SUN SCREEN
But for those European companies who do go ahead with share offers, they have the already traded SolarWorld and Conergy to measure up against.
"We will see more solar energy IPOs after Conergy's listing in the first half of the year, which was a success," said Eberhard Dilger, head of Equity Capital Markets at Commerzbank.
Integrated solar power group SolarWorld AG is trading on a price earnings ratio of 20.2 times 2006 earnings and Europe's largest solar-specific systems integrator and distributor Conergy is on 16.4 times. This compares with the Europe IT hardware sector on 17.2 times and the global chip sector on 20.8 times