"Green" loses cachet on Wall Street

By Nichola Groom - Analysis

LOS ANGELES (Reuters) - "Going green" doesn't have quite the cachet it used to, at least on Wall Street.

Investors in renewable energy stocks have seen their sector hit hard in recent weeks on concerns that tightening credit and a weak global economy could arrest growth of the high-flying industry despite its long-term promise.

"The general economic slowdown is taking everybody's eyes off what was an increasing momentum around concerns of climate change and the cost of energy," said Paul Maeder, a general partner with venture capital firm Highland Capital Partners.

Until credit becomes more available, big solar and wind projects will be more difficult to finance, and certainly more expensive. A drop in demand will also mean lower prices on solar panels and wind turbines, hurting manufacturers' profitability.

In the end, experts said, the downturn will determine who the winners and losers are in what had been a booming environment for all.

"There are too many players out there, and there are too many smaller players," Chris Walsh, manager of the $28 million Alger Green Fund, said of the burgeoning solar industry. "You have to be careful about which ones you invest in now."

Solar stocks, considered the darlings of alternative energy for their meteoric rise in 2007, have retreated so much this year that most have given back the triple-digit gains they logged last year. Investors fear that scarce access to credit will threaten development of costly solar and wind projects, while falling oil prices are dampening interest in alternative energy across the board. To make matters worse, a frozen market for initial public offerings and an increasingly picky venture capital community have restricted key avenues of funding for startups.

DOUR NEWS FOR RENEWABLES

Long term, many investors expect renewables to be a much bigger part of worldwide energy consumption due to increased concerns about climate change and high energy prices. Dour announcements, however, are cropping up nearly every day.

Most recently, FPL Group, the largest U.S. operator of wind generation, said on Monday it would slash its 2009 spending and reduce its wind turbine additions, citing the bleak economic climate. The Florida utility also warned of more spending deferrals if conditions worsen.

The announcement came a few days after the American Wind Energy Association said construction starts for new wind farms would slow in 2009, citing the "evolving financial crisis."

On the solar front, Duke Energy Corp last week cut in half a $100 million plan to put solar panels on customers' roofs. The utility had faced pushback from North Carolina Utility Commission staff, who raised concerns about the program's cost to residential customers.

"Wind and solar are still very attractive -- the question is when," said Walsh of the Alger Green Fund. "I don't see a near-term catalyst in the next few months... You need to free up lending for people to feel more comfortable investing."

The credit squeeze has already taken a toll on small ethanol producers, resulting in a string of bankruptcies this year. The latest, Kansas-based Gateway Ethanol LLC, filed for bankruptcy earlier this month.

Market turmoil has also brought the IPO market to an effective halt. The two U.S. alternative energy issues this year, solar companies Real Goods Solar Inc and GT Solar International Inc, are trading well below their offering prices. In addition, venture capital funding for green energy startups is expected to be down dramatically in the fourth quarter after hitting a record $2.6 billion in the third quarter, according to research firm The Cleantech Group.