The Energy Tech Chronicles: Will Bust Turn to Boom?
$150 to $180 a megawatt. Forward prices on electricity have fallen in California from $73 a megawatt to $41. Moreover, concerns over falling energy prices have been aggravated by the expectation of an excess of new generation capacity. While energy growth is expected to grow by 2.5 percent in 2001 and 2.2 percent in 2002, a widely-noted article in Barron's last summer cited the power industry plans to add from 290,000 MW of electricity capacity over the next six years, representing an increase of 30 to 40 percent of current capacity.
3. The Economy
In addition to energy-specific problems affecting the sector, the slowdown in the U.S. economy has also hurt. Energy technology companies are at their core technology companies, and, as such, are often the first to suffer in an economic slowdown. In tough times, customers are less willing to pay for advanced technologies. So too, many energy technology companies are targeting telecommunication companies as their initial customers. Obviously many of these would-be telecomm customers are now worried about their own future and are less inclined to spend monies on new products and services. Last fall, for example, Capstone lowered its third quarter projections-warning that customers are less likely to make capital investment in an economic slowdown. On Oct. 17, 2001, Plug Power cut its work force by 80 to 90 people due to the weak economy and unattractive capital markets.
4. Unfulfilled Promises
Deregulation problems, lower energy prices, and the economy, combined with technological and operational problems, have caused a number of energy technology companies to violate the cardinal rule of the stock market: failing to deliver on promised milestones. Capstone Turbine and Active Power, two blue chip energy technology companies, both provided downward guidance on revenues and earnings. (In the third quarter, Capstone shipped 80 units rather than the 300 Wall Street was anticipating.) As well, H Power and Evergreen Solar have both announced that they would not meet prior milestones. Even Caterpillar, an established manufacturer of power generation products, is not immune to disappointing Wall Street. Last month, the company announced that its power business would not grow at the 20 percent rate it anticipated.
In a prescient research report issued in November of last year-at a time when the value of publicly-traded fuel cell stocks was $15 billion-Goldman Sachs warned that newly public companies had to deliver on their promises or face the crushing fate of the dot-coms. "These high multiples are reminiscent of Internet stock performance, which provides a valuable lesson about what can happen when investors begin to focus on commercial success and profitability," the company stated. Goldman's warnings have proven true across the space: as young energy technology companies have failed to deliver on their milestones, like the Internet stocks before them, their stock prices have been crushed. 1
- Price declines not only hurt these companies' investors, they significantly impact a business' ability to raise capital. Access to capital is particularly critical as virtually all energy technology companies project huge earnings losses over the near term.
In addition to regulation, government spending is