Has renewable energy hit hard times?
SunEdison, which had been on course to become the world's biggest renewable energy developer, is now fighting to reverse its stock price's nosedive and regain investor trust.
Just last summer, renewable energy was considered a booming industry.
Stock prices were on an upswing, investors like Hewlett-Packard, Berkshire Hathaway, and Dow Chemical were coming to the table, and President Barack Obama announced a plan to triple renewable energy capacity in federally subsidized housing and make wind and solar energy more accessible to low- and middle-income households.
But optimism is fading alongside sinking oil and gas prices.
SunEdison – which was on course to become the world's biggest renewable energy developer – told investors last week how it plans to reverse the nosedive of its stock price and regain investor trust.
The announcement comes at the tail end of a two year glut in which SunEdison spent or pledged more than $4 billion to buy rival clean energy companies and spun off two separate companies. The company’s debt spiked to $10.7 billion to fund its many acquisitions, including $2.4 billion to buy First Wind, a US-based wind farm operator, and $2.2 billion to buy solar panel installation company Vivint Solar, The Wall Street Journal reports.
Investors had particularly soured on SunEdison’s strategy of developing new wind and solar farms and then selling them to the companies it spun off, TerraForm Power Inc. and TerraForm Global. Both were formed to return reliable dividends to investors, neither have done so. Stock prices have plunged in recent months as investors have begun to question the companies’ business model.
After its debt-producing two-year sprint, the energy company told shareholders last week that the firm will cut some 15 percent of its workforce, not sell any more projects to spinoffs TerraForm Power and TerraForm Global, reduce project development by 20 percent to cut costs, and pull stakes from business interests in Britain.
"We need to adjust our tactics, at least in the short to intermediate term," Ahmad R. Chatila, SunEdison’s chief executive, said in a conference call with financial analysts on Wednesday, The New York Times reports.
Similarly, NRG Energy spun off its green enterprises – which include home solar and a network for charging electric vehicles – into a separate company with a small budget. On Tuesday, Moody’s Investors Service downgraded that company, NRG Yield, saying the 30 percent decline in its share price in recent months would inhibit its ability to raise money for new projects, The Times reports.
Despite wavering confidence, analysts predict renewables will weather this downturn.
"Since July, the sun has continued to shine and the wind has continued to blow and the performance of the wind farms and solar farms that are in the ground hasn’t changed at all," said Paul Coster, an analyst at J. P. Morgan, said in an interview with The Times. "This is really in large part turmoil of the market’s own making."
"When the company was hot, its stock was on fire," said analyst Pavel Molchanov in an interview with The Wall Street Journal, adding that when sentiment shifted and investors started looking at the negatives they saw "a lot of financings, a lot of dilution, and a lot of integration."
At its height in July, SunEdison was valued at $9 billion. By comparison, the two biggest oil companies, PetroChina and ExxonMobil, were worth $376 billion and $342 billion, respectively.
Moving forward, renewable energy needs simpler and more transparent business practices to meet the world's growing enthusiasm for energy alternatives.