CNet News: Amid a drop in solar company stocks and concerns over a green-tech investment bubble, Sanford Bernstein analysts issued a report on Tuesday that takes the long view on alternative energy, arguing that the sector is a relatively safe bet.
Persistently high fossil fuel prices and environmental regulations mean that alternative energy technology companies are poised for growth in the coming years, the investment firm said in its report, one of several over the past two years to analyze the changing energy business. During a teleconference, analysts said there is no end in sight for high prices of oil and natural gas, even though there will be some cyclical changes. That’s because the costs of extracting these fuels continues to go up, due to falling reserves at existing wells and high construction costs.
The electricity generation business, which relies heavily on fossil fuels, will also see higher prices, Sanford Bernstein analysts said. About 60 percent of power generation worldwide comes from coal and natural gas.
Another factor will be regulations to curb the amount of greenhouse gas emissions from power plants, which will significantly affect the economics of the business. Operators of coal-fired power plants, in particular, are exposed to regulations to limit carbon dioxide emissions. Some companies are well positioned to benefit from these economic and environmental factors, notably renewable energy technology providers and utilities with expertise in nuclear power, which has low emissions.
Solar and wind, which represent just about 2 percent of power generation, will continue to grow dramatically. Investments will be driven primarily by state-level renewable energy mandates, called renewable portfolio standards, and by goals in Europe to have 20 percent of electricity produced from renewable sources by 2020.
“We don’t have firm targets, and these targets globally are very much in flux…But the magnitude of spending being discussed will result in massive growth rates in this sector,” said Richard Keiser, global technology strategist at Sanford Bernstein.
Stocks of public solar companies, in particular, have cooled off. First Solar, which some people refer to as the “Google of solar” because of its rapid rise in price, is down about 34 percent since the beginning of the year, while SunPower is down by 42 percent.
Keiser said that many solar companies do appear to be overpriced. But, he said, the leading companies in the field, including First Solar, SunPower, and Q-Cells, can count on future revenues because much of their output is already on order. “I don’t think that it’s a no-brainer that all these names are insanely expensive,” he said.