IPO VIEW-Window for alternative energy companies may close

Fri Feb 18, 2011 6:44pm EST

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By Alina Selyukh

NEW YORK, Feb 18 (Reuters) - U.S. investor demand for initial public offerings from alternative energy companies could cool if government subsidies for the sector decline.

There are many reasons to like "cleantech" companies, which make energy products like solar cells or electric car batteries. As conventional energy sources become increasingly expensive, demand for alternatives also rises.

And the rallying stock market has many investors trying to figure out what the "Next Big Thing" will be.

Cleantech companies could fit the bill, which have pushed a number of them to go public in the past few months.

During 2008 and 2009, just five cleantech companies went public. Double that number had IPOs in 2010, according to Ipreo, which provides capital markets data and analytic services.

"We've seen an acceleration in IPO activity in cleantech over the course of the last six months, and I certainly think that investors are open to additional opportunities of cleantech IPOs in 2011," said Pavel Molchanov, energy analyst at Raymond James.

Investing in green technologies requires a lot of research and faith as companies often try a public offering before showing any revenue or a clear roadmap to commercial operation. That means some green tech deals hit the market with fanfare, but others flop.

Cleantech IPOs since July, however, have all risen, perhaps reflecting the quality of companies or investor appetite.

"There is a lot of interest in greentech and a lot of interest in the solar," said Benny Lorenzo, chairman and chief executive at Kaufman Brothers. "There's less interest in wind and these stocks haven't done as well."

With oil, coal, and natural gas prices on the rise or under pressure, alternative energy sources gain appeal to investors, said Raymond James' Molchanov.

"Certainly the fact that oil prices are at two-year highs, that helps the economics of biofuels, helps public perception of alternative energy across the board," Molchanov said.

As turmoil flares in the oil-rich Middle East and the oil supply is under close watch, U.S. crude has lingered near $90 per barrel, especially benefiting biofuels makers.

Shares of the most recent biofuels maker to go public, Gevo Inc (GEVO.O), have climbed more than 20 percent since the IPO on Feb. 8. Shares of competitor Amyris (AMRS.O) have almost doubled since floating in September 2010.

BIG BROTHER

Cleantech startups have historically received a big boost from federal funding, and funding this year could be under pressure.

High-risk, high-reward ventures like cleantech startups thrive largely on venture capital but also commonly rely on federal subsidies like loan guarantees, grants or tax breaks to undertake big projects such as building plants.

Although President Barack Obama has requested $29.5 billion for the Department of Energy's 2012 budget -- 4.2 percent more than proposed for 2011 -- prospects for cleantech are unclear. One of its biggest sources of support, the loan guarantee program, is set to expire. The program insures loan payouts in case the borrowing company is unable to pay them out.

"It would be a huge blow to the sector if the loan guarantee program was scrapped," said Sheeraz Haji, president of San Francisco-based research firm Cleantech Group.

Alternative energy IPOs could have a window of opportunity to go public in the near term before these concerns really loom large, but that window may shut.

"It's all about subsidies with these types of deals," said Josef Schuster, president of Chicago-based IPO investment firm IPOX Schuster. "Even rumors of them getting cut makes it doubly as hard to go public as before."

Another hurdle is that the request to expand cleantech funding comes at the expense of fossil fuels. Obama proposed to repeal $3.6 billion in fossil fuel subsidies and cut budgets for oil and gas research to help fund cleantech. Republicans, in turn, have pledged to cut domestic spending by about 22 percent and highly oppose the proposed shift of funding.

"You've got some conflicting priorities to say the least," said Whitney Stanco, an energy policy analyst at MF Global.

"The debate is going to be a long and drawn-out process and House Republicans are going to devote a significant amount of time to cutting budgets and reallocating priorities."

The upshot -- once the dust settles -- may be fewer subsidies for cleantech, and fewer opportunities for green energy companies to attract public investors, analysts said. (Editing by Dan Wilchins and Bernard Orr)

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