The Energy Tech Chronicles: Will Bust Turn to Boom?
Overcoming many obstacles, energy technology continues to have potential.
In January 2000, Microsoft's Money Central Web site named Plug Power , a fuel cell company with virtually no revenues, as one of 10 stocks projected to rise 10,000 percent in the new millennium. This prediction quickly spread across the Internet and financial markets, sending energy technology stocks skyrocketing. Plug shares ultimately rose from their October 1999 IPO price of $15 to $156.50 (resulting in a market value of $6.6 billion). In June 2000, after a very large and over-subscribed round of private financing, Capstone Turbine, a microturbine company with no meaningful revenues, went public at $16 per share and traded as high as $98.50 per share (for a market capitalization of $7.2 billion).
Today, Plug trades at $8.53 per share, Capstone trades at $4.80, Proton Energy has traded as low as $4.29 (Proton has $5.25 per share of cash!), and Red Herring just gave itself a "C-" grade for its prior prediction. Initial exuberance over energy technology has been replaced with tough questions about over-hype and unfulfilled promises.
While the disappointment of public and private market investors is justified by the inability, thus far, of energy technology companies to achieve stated milestones, the promise of energy technology is real and these companies should not be ignored: the innovative products and services being developed and commercialized will dramatically change the future of U.S. energy markets.
The Nature of the Opportunities
Notwithstanding the slow pace of deregulation, lower energy prices, the current U.S. economic environment, and unfulfilled promises of energy technology companies, the opportunities that formed the foundation of sophisticated investor interest in energy technology still exist; in fact, many of these opportunities have only been magnified. Energy technology companies offer product and service solutions to a number of real, severe, and very large problems facing U.S. and global energy markets.
There are six drivers creating significant opportunities for energy technology: 1) dramatically increased demands for highly reliable, high quality power; 2) increasing dissatisfaction with the electric grid, coupled with the attractiveness of distributed power solutions; 3) the inevitability of deregulation; 4) demand for electrification in the developing world; 5) environmental regulation/government spending; and 6) increasing national security concerns. That these drivers are real and significant is powerfully illustrated by the numerous, large energy technology investments being made by incumbent oil companies, automobile manufacturers, and utilities.
While many electricity consumers can live with the flicker of a light bulb, or perhaps even a momentary power outage, many commercial and industrial companies cannot. As the economy has come to rely more and more on sophisticated digital equipment for all aspects of business, a tremendous need has developed for power quality (electricity that does not surge or sag) and power reliability (electricity that does not suffer outages). Digital equipment, be it server farms or telecommunications hardware, requires clean, constant electricity, i.e., power quality and power reliability. The more computers, telecommunication products, and the Internet become part of daily life, so too, do demands for power quality or power reliability.
Energy Tech 1999-2000:
A Tale of Irrational