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(Closes shares and indexes in 12th paragraph.)
By Ben Sills and Mark Scott
May 20 (Bloomberg) -- As Europe grapples with the fallout from Greece’s economic woes, at least one unexpected corner of the economy is suffering: renewable energy companies.
That’s because few wind, solar, and other green power installations would be profitable without subsidies, and as governments across Europe curb spending in response to the Greek crisis, those funds are being cut back, Bloomberg Businessweek reports in its May 24 issue.
“The uncertainty in Europe is a further burden in a market that is still challenging,” said Kathleen McGinty, a former adviser to President Bill Clinton’s administration who now helps manage $800 million in clean-energy investments as a partner at private equity firm Element Partners in Radnor, Pennsylvania.
The aid to renewable energy, paid by consumers in their power bills, is being slashed by governments that want to cut costs for businesses to boost economic growth and generate tax revenue as bond investors scrutinize their plans to rein in budget deficits as much as three times the European Union limit.
German lawmakers on May 6 reduced subsidies to new solar plants by as much as 16 percent. Italian solar industry groups expect support for new generators to be scaled back by as much as a quarter in June.
In Spain, producers have offered reductions of up to 30 percent on subsidies for new solar cell installations. The government may also cut its backing for existing plants, which had been built with an expectation of guaranteed prices for 25 years, a spokesman in the industry ministry said last month.
Euro Decline
Across the continent, “the risk to subsidies is increasing,” Barclays Capital Analyst Vishal Shah said. “It’s going to be painful.”
For companies based outside of Europe, the pain is compounded by the decline in the euro whose value has been undermined by the Greek crisis. Profits for North American companies selling their products into Europe declined as the currency fell 14 percent against the dollar this year.
Canadian Solar Inc., a panel maker based in Kitchener, Ontario, took a $20 million charge for foreign-exchange losses in the first quarter and may see earnings fall 84 percent if the euro averages $1.25 this year, Barclays estimates. The currency traded at $1.23 yesterday.
Currency Losses
Profits for Baoding, China-based solar-cell maker Yingli Green Energy Holding Co. would fall 42 percent with the euro at $1.25, while Chinese rival Suntech Power Holdings Co. would see a 79 percent drop, according to the Barclays analysis.
“The falling euro has been difficult to manage,” said Jerry Stokes, Suntech’s vice-president of strategy and business development. “Having suppliers in Europe, though, helps manage our costs.”
The troubles are taking a toll on stocks. Canadian Solar is down 49 percent since April 1, and Suntech is off by 32 percent. The 88-company WilderHill New Energy Global Innovation Index has fallen by 19 percent since then, compared with a 12 percent decline for the MSCI World index. Canadian Solar fell as much as 7.3 percent before rebounding to gain 29 cents to $12.29 today.
Spanish wind turbine-maker Gamesa Corp. Tecnologica SA, which is laying off a 10th of its workers after sales slumped 43 percent in the first quarter, has seen its shares tumble 24 percent since April 1. The company aims to weather the trouble as it expands overseas.
‘Delay Our Plans’
Potential cuts in renewable prices “could delay our plans in Spain, but we would allocate our production capacity elsewhere, particularly to China and the U.S.,” said Jose Luis Blanco, director of offshore wind at Gamesa. “Other markets are becoming more important to us than Spain.”
Gamesa secured an exclusive 10-year deal to supply Cannon Power Group with turbines for at least 1,000 megawatts of wind farms in Baja California, Mexico, the company said May 18. The stock fell 3 percent today to close at 7.75 euros.
American Superconductor Corp., the wind-turbine component manufacturer that has around half its costs in euros and most of its sales in China, boosted its gross margin by around 1.5 percentage points in the first quarter after switching its contracts to renminbi from euros last year. The company is also adding staff at its Klagenfurt, Austria, research center because the euro’s decline makes it cheaper to run European operations.
“We expected the renminbi to strengthen over time,” Chief Executive Officer Greg Yurek said in a May 14 interview. “Foreign exchange rates have really benefited us.”
Euro Protection
First Solar Inc., the world’s largest maker of thin-film solar power modules, was also protected from the euro’s decline after buying insurance for its European sales. Profits may be trimmed 9 percent by an average exchange euro rate of $1.25 this year, Shah said.
Uncertainty about future subsidies is making it harder for renewable companies to secure funding. Renovalia Energy SA and Grupo T-Solar Global SA, Spanish solar companies aiming to expand overseas, have delayed initial public offerings that together aimed to raise more than 430 million euros ($527 million).
Solar Opportunities SL, a Madrid-based investment company, has put off a 130 million-euro purchase of a solar plant in northern Spain until the government sorts out its support level for the industry.
For long-term investments such as renewable energy, said Solar Opportunities Chief Executive Officer Paul Turney, “business needs certainty.”
--With assistance from Christopher Martin in New York. Editors: Todd White, Reed Landberg.
To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; Mark Scott in London at mscott50@bloomberg.net.
To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.
