COPENHAGEN/FRANKFURT The outlook for renewable energy groups might be lighting up enough to give investors an opportunity to benefit from the struggle against climate change.
Danish wind turbine maker Vestas, Norwegian solar industry group Renewable Energy Corp and French renewable energy producer EDF Energies Nouvelles are set to send signs of hope for 2011 when they post results on Wednesday.
"Investors are looking at the renewable energy sector as it would be an ideal moment to buy into it if it can grow again," said UniCredit analyst Michael Tappeiner.
The S&P Global Clean Energy index lingers at 945 points, less than a third of its all-time high of 3,264 set in November 2007, when oil was on course to its July 2008 record. Renewable stocks have struggled higher in recent weeks but have barely registered recent crude price gains.
While oil prices rose some 13 percent in 2010, the index dropped almost a quarter. Renewable energy companies need to show they can thrive against a backdrop of subsidy cuts in key markets, cut-price competition and rising raw material prices.
"Companies will have to show they can counter the threat of low-price competition from China and that demand is growing faster than competitors build new factories," Tappeiner said.
Some positive signs have already appeared.
Capacity growth of wind power installations dropped to 22 percent in 2010, according to the Global Wind Energy Council, while the worldwide increase in solar installations soared to 52 percent, according to the European Photovoltaic Industry Association.
Regardless of some headwinds, profits for all three companies are predicted to rise next year, according to Thomson Reuters StarMine.
Renewable Energy Corp (REC) said on February 2 it noted a "stronger than expected market" for solar products and beat investor expectations for earnings in the fourth quarter.
According to Thomson Reuters StarMine, analysts estimate REC's earnings before interest, taxes, depreciation and amortization (EBITDA) will soar some 62 percent in 2011.
"In the short term, solar companies are likely to continue to enjoy good announcements and a stable regulatory context," Didier Laurens from Societe Generale said.
"In the medium term, concern regarding market trends and prices, as well as regulatory risks in Italy, could cause increased volatility."
German competitor SolarWorld on Monday predicted a strong U.S. market would make up for overcapacity and state subsidies in Germany, easing investor fears and lifting the whole sector.
Danish turbine maker Vestas may see earnings before interest and taxes this year rise 50 percent, while adjusted EBIT may increase 7 percent, according to the average of estimates from 16 analysts in a Reuters poll.
The company itself predicts earnings, excluding one-off effects, to remain on the level of last year, but some analysts believe the company has to be tough to realize those profits.
"With the current overcapacity in the industry, it will not be a mere formality to push all the cost increases on to customers," Sydbank analyst Jacob Pedersen said.
Alm. Brand Markets analyst Michael Jorgensen noted: "Four of Vestas' major peers have said price pressure will remain in 2011, even though input prices are rising again." He was referring to reports from Siemens, General Electric and Suzlon's REpower as well as parts supplier Hansen Transmissions.
France's EDF Energies Nouvelles, half owned by EDF and a producer of power using renewable energy sources, is set to benefit from plans by the French state to spend 10 billion euros in offshore wind farms.
Investors expect EBITDA to rise 27 percent this year, according to StarMine.
(Writing by Peter Dinkloh; Editing by David Holmes)