On Monday, John and I asked the guest lecturer, Marla, what her thoughts were on investing in alternative energies versus in big oil and gas. Her answer was that she would stick with oil and for many reasons. The main reason being that the majority of alternative energy projects rely heavily on government subsidies, and these aren't a guarantee. There is always a demand for oil, and the stocks always seem to be doing well. She said that she won't invest in alternative energy until she sees a company come up with a viable plan to stand on there own. Ironically enough, when I logged into the WSJ today, there is an article about an alternative energy company that recently issued an IPO and is raising concerns due to this issue.
Enel Green Power has issued an Initial Public Offering and took their company public in Italy and Spain. They are an alternative energy company dealing in wind, solar, hydro, and geothermal with a "unusually international reach" (WSJ). Their hydro and geothermal sectors are the majority of their current assets, but have big plans for wind. There market capital is currently at 8 billion Euro, which makes them the 13th largest company in Italy (WSJ). The shares since their IPO have remained flat, which leaves investors weary of the company for several reasons. One of the biggest reasons correlates directly with what Marla said to John and I. People are concerned that governments no longer have the funds to provide subsidies for these renewable energy companies and nobody is sure if the companies can stand on their own. Wind energy is the asset with which they plan to grow, but this is the most expensive and requires the most subsidies, which is another reason for concern to investors. Investors are also concerned due to the company's amount of debt, which it has given plans on how to reduce this and already has reduced it a bit. One last concern is that of the initial shares sold, the majority were to individuals and not to investment firms, which is a cause for alarm in the markets. Enel Green Power is positive that they will perform well in the markets, but have yet to perform.
With the IPO remaining flat, it isn't a good sign for renewable energy in the markets. As very few companies specializing in alternative energies are entering the public market, how the first ones due is very crucial. Although it is still early, the fact remains that in the markets, the first couple of days are key and this one isn't as successful as hoped. This could send signs to other alternative energy firms thinking of doing the same thing. Investors still clearly aren't ready for this, and it seems they won't be until these companies can rely on themselves and not government subsidies. This could also be read as a vote of confidence to the oil industry, as their stocks are still performing brilliantly. When it comes to the markets, people seem to cherish the security of big oil companies and are very uncertain about investing in alternative energy companies.
http://online.wsj.com/article/SB10001424052748703805704575594102623544836.html?mod=WSJ_Energy_leftHeadlines
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ReplyDeleteI am happy to see Adam's previous comment.
ReplyDeleteI agree, your article could and should be read as a vote of confidence for a large oil company investment. While I would like to see a promising alternative energy company in which we could invest, I think that it would take an enormous amount of research to find. Marla Blow told us that there is likely a strong clean energy company out there somewhere, but she said it would be "the one" and that it would require more research that we are capable of performing. I guess this means that I will be pushing an investment in some larger oil company, or following another of Marla's suggestions, investing in a company that provides services or goods to oil companies like oil rig companies. She explained that a company like the manufacturer of the BP Horizon rig would likely be undervalued right now and that something higher in the stream would be less susceptible to large fluctuations.