LONDON, Aug 4 (Reuters) - Wind company stocks were undervalued but could fall further, HSBC analysts said on Thursday, as the risk of further fiscal tightening weighed on a sector which depends on government support.
All renewable energy sectors have lagged fossil fuel energy and wider global stocks over the past month and the year to date, data show, underperforming even as world shares slide on concerns about sluggish global growth.
Alternative energy is vulnerable in a downturn for a range of reasons, including technology risk, a lower ranking of green concerns, dependence on subsidies from cash-strapped governments and falling prices for competing fossil fuels.
After sharp share price falls wind stocks were now undervalued, said HSBC analysts, given rising order inflow and order backlogs, but further drops could be expected.
"We believe the debt crises in the EU/US have heightened as-yet unfounded prospects of further regulatory uncertainty and possible credit tightening," said the bank's Global Wind report.
"While we feel these stocks are undervalued, we expect continued flat or underperformance, while macro concerns persist, with investor appetite poor for what is considered a risky sector in weak markets."
The global wind market fell last year, meaning fewer turbines were installed than in 2009 reversing a 20-year trend after the financial crisis slowed demand and froze capital.
But order inflow for major wind turbines in the first half of 2011 was up a fifth on the same period last year, while the combined order backlogs had roughly doubled for major manufacturers Vestas , Gamesa , REpower and Suzlon , HSBC said.
Wind power still struggles to compete with cheaper natural gas, and depends on government support in the form of a price premium called a feed-in tariff.
Solar power is far more expensive than fossil fuel alternatives. Italy was the world's second biggest solar power market last year and in May capped solar subsidies at 6-7 billion euros annually by 2016. . But Rome is currently in the throes of market doubts over the size of its sovereign debt.
Click here for a factbox of green energy support:
The table below shows that wind and solar have under-performed other energy and wider stocks in the past month and in the year to date, compared with Thursday's prices. ASSET PCT CHANGE
LAST MONTH YTD European coal <ARACIF90DY=ARG 2.19 -4.51
> S&P Global Nuclear -7.53 -13.90 DJ Global oil & gas -8.42 -1.09 MSCI World .world -8.83 -4.01 HSBC Climate Change -10.28 -9.64 NASDAQ Global Wind -12.30 -12.99 HSBC Energy Efficiency -13.12 -8.60 FTSE Env Opportunities -14.92 -7.35 MAC Solar -17.87 -19.95 S&P Clean Energy -18.34 -16.09
(Reporting by Gerard Wynn)