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The Energy Tech Chronicles: Will Bust Turn to Boom?

Overcoming many obstacles, energy technology continues to have potential.
Fortnightly Magazine - February 15 2002

Exuberance?

The Money Central article () was a catalyst for far more than an increase in Plug's stock price. It set off a chain reaction that would lead to numerous initial public offerings involving the most prestigious of the nation's investment banks. In June 2000, Capstone Turbine went public, led by Goldman Sachs, Merrill Lynch, and Morgan Stanley. In August 2000, Active Power, a flywheel technology company, went public (raising $139 million), led by Goldman Sachs as did H Power (a fuel cell developer taken public by Lehman Brothers) and Millennium Cell. And on Sept. 29, 2000, Proton Energy went public, led by Morgan Stanley. In October 2000, Hydrogenics, another fuel cell company, went public, followed by Beacon Power, a flywheel company, and Evergreen Solar, a solar power company, in November.

Goldman Sachs, Banc of America, CSFB, CIBC World Markets, Thomas Wiesel Partners, Morgan Stanley, Lehman Brothers, First Albany, and Merrill Lynch all deployed investment bankers and research analysts to cover the energy technology sector. So too, the popular press, public stock managers, and hedge funds began focusing on energy technology. Articles and conferences began multiplying as energy technology was viewed like the Internet and Biotech spaces before it-an area in which there was relatively easy money to be made.

By the summer and fall of 2000, all this had changed. The once-darling energy technology sector was viewed by some as little more than another example of the irrational exuberance associated with "dot com" stocks. Energy technology stocks are down 60 percent year-to-date, and down over 50 to 75 percent from their 52-week high stock prices, with many companies trading at or near the value of the cash on that balance sheet. Evergreen Solar is down 46.5 percent since Sept. 11, and Beacon Power is down 85.4 percent year-to-date. There have been numerous pulled public offerings and downgrades. Venture capital rounds are not occurring or are getting done at lower valuations with much more onerous terms. And in November, there were lay-offs of energy technology bankers and research analysts at virtually all the top investment banks. Tremendous promise has been replaced with caution, major concern, and severe price declines. -P.J.D.

Bank of America estimates that power associated with Internet use will increase 17 percent from 2000 to 2010 to constitute 40 percent of electric load growth. The equipment used by the Internet and digital economy is delicate, requiring constant, pure electricity. Second, and perhaps more importantly, the cost of an electricity outage, or disruption, is extremely high. For example, E*Trade not only requires high quality, highly reliable electricity for its servers, but also because given its business, the cost of losing power and associated services, even for a few minutes, is enormous.

Thomas Wiesel Partners notes that in June 2000, the 200 members of the Silicon Valley Manufacturing Group lost $100 million in a single day due to rolling blackouts. As a result, Credit Suisse First Boston estimates that customers will pay significant premiums, as much as $6000 per kilowatt, for reliable power. For such energy users, the economics of electricity is