Poor performance for cleantech stocks this year may continue in 2013 despite some silver linings during 2012, a leading analyst and a panel of VCs recently warned.
Kevin Genieser, Managing Director and Global Head of Clean Technology Banking at Morgan Stanley, said that cleantech equities had underperformed this year despite a bright start to 2012 with three IPOs in the sector.
Biodiesel company Renewable Energy Group went public in January, bioenergy feedstock company Ceres followed in February, and microinverter manufacturer Enphase in March.
"But those that did go public traded down 50 percent to 75 percent since the time they went public," said Genieser.
This year's high-profile bankruptcies such as Energy Conversion Devices, owners of United Solar Ovonic, and battery maker A123 did not improve investor sentiment in the cleantech sector. Other cleantech IPO registrations were withdrawn this year, including BrightSource, Genomatica, Enerkem and Elevance.
But while the media were focused on high-profile failures and controversies around the Department of Energy's loan program, some individual stocks did well in the marketplace, said Genieser.
EnerNOC, an energy management solutions company, "was the darling of the marketplace and outperformed the market from the beginning of the third quarter," he said.
After concerns earlier this year about Tesla's new Model S, the car was the first electric vehicle to win Motor Trend magazine's Car of the Year award and hit a three-month high in trading.
Tesla was also ranked number one in this year's Deloitte Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America. Tesla has grown 279,684 percent between 2007 and 2011. Meanwhile, EnerNOC was ranked 228th out of 500 with a revenue growth of 371 percent.
SolarCity, a residential solar installation company started by Elon Musk, Tesla's founder, is also expected to go public before the end of the year to raise around $151 million.
Genieser said that although global investment in cleantech would be an estimated $219 billion in 2012, down from $257 billion in 2011, figures for this year were more or less flat, with $220 billion invested in 2010.
Morgan Stanley also predicts a rise in natural gas prices from an average of $2.83 per mmbtu this year, to $4 per mmbtu in 2013, said Genieser, which would increase opportunities for renewables to achieve grid parity.
Superstorm Sandy had also resurrected discussion about a carbon tax in Washington and renewed interest in smart grid technology.
"One of the silver linings is that VCs are returning to where they are most comfortable: energy smart technology software communications and green IT," said Genieser. "It's no surprise that is where we're seeing large chunk of dollars going."
Early Stages of a New Business Cycle?
Venture capitalists admitted that 2012 had been a challenging year for them. Tesla has been an especially bright spot for VantagePoint's $1.5 billion cleantech portfolio, which also includes solar thermal developer BrightSource and MiaSolé. MiaSolé, a thin-film solar manufacturer, was acquired in a "distressed sale" earlier this year by Chinese company Hanergy for $30 million after receiving hundreds of millions from investors.
Stephen Dolezalek, who leads VantagePoint's cleantech practice, said he had seen growing pains in other VC-backed industries and dismissed claims that cleantech did not fit their investment model.
"One of the unfortunate patterns is that you carry the scars of previous battles. I remember this argument coming up when we were building out the computer infrastructure in the 1980s. I remember it coming up at the end of the 1980s when we were building out pharmaceutical infrastructure and trying to run clinical trials for biotech companies. I remember it in 2002 when we were trying to build out 3G networks."
"It seems like every single wave goes through a lot of enthusiasm; [but] you've got to build out the infrastructure on which the industry will ultimately rely. But if we hadn't built disk drives, if we hadn't built solid-state memory; if we hadn't built internet networks, we wouldn't have Facebook, we wouldn't have social networking, we wouldn't have cloud [computing].
"Without building smart grids, smart meters and solar panels and windmills, we won't have the infrastructure that will allow us in ten to fifteen years to manage this infrastructure in this high technology play.
"It would be nice to say we can go directly to the sexy stuff, the high margin stuff, but unfortunately, we've got to build the hard stuff first."
Dolezalek said that the government's help was critical, especially to level the playing field with heavily subsidized companies in other countries.
"So much of this government talk is like playing by bridge rules when everyone else is having a bar fight," he said. "Should we be picking winners and losers, should we be doing early-stage? The reality is, we play to win and we're playing in a global market and we're playing in a market where there's no question that the government in China absolutely intends to pick winners and the same is going on in Saudi Arabia. If we want to play by bridge rules, that's great. But that's not the set of rules that the others are playing by. So if we want to win this battle, we have to play to win. [...] It's about picking policy direction and [backing] investors to stand behind us. That's what government policy needs to do."
"It's all about government all the way down, whether it's your local PUC, FERC or OPEC, a quasi-government organization. Everybody other than us is manipulating for price. So the question for us as VCs and entrepreneurs is, how do you fit in within the wheels of that manipulation, try to anticipate in the appropriate way and build products and services that fit in as best they can independent of these smart or stupid decisions by government."