Solarworld, Alternative-Energy Shares May Drop as Oil Declines

March 13 (Bloomberg) -- Matthew Patsky, who analyzes windmill companies and environmentally safe technologies for Winslow Management Co., says declining oil prices may hurt his investments.

Crude's 16 percent drop from its 2006 high could foretell further declines, reducing demand for renewable-energy equipment such as solar-power cells from Germany's Solarworld AG and wind turbine generators from India's Suzlon Energy Ltd. Their shares soared when oil rose 40 percent in 2005.

``There are cycles to oil prices that directly influence renewables,'' said Patsky, who helps oversee $320 million at Boston-based Winslow. ``While right now it's favorable, the situation could easily reverse. I do believe we will see $100-a- barrel oil. I just think we'll see $45 a barrel first.''

The Bloomberg World Energy-Alternative Sources Index, which tracks Bonn-based SolarWorld, Pune, India-based Suzlon and 13 other stocks, has jumped 30.7 percent in 2006 and reached a record on March 3. Crude prices in New York this year have averaged $63.42 a barrel, up 32 percent from last year.

Shares of Solarworld are up 91 percent this year, the biggest gain in the alternate energy index. Suzlon has risen 43 percent and more than doubled since its initial stock sale in October. Ballard Power Systems Inc., a Canadian fuel-cell maker that hasn't posted a profit since 1998, is up 40 percent this year. Evergreen Solar Inc. of Marlboro, Massachusetts, a maker of solar cells, has climbed 47 percent.

Not Cheap

Companies in the index trade at an average of 58 times projected earnings and 6.6 times sales. Stocks globally sell for 18 times estimated earnings and 1.3 times sales, based on Morgan Stanley Capital International's World Index. The MSCI benchmark is up 3.9 percent this year.

The valuations indicate that investors have become too enthusiastic about alternative-energy stocks, said hedge fund manager Andrew Abrams of Abrams Investment Partners in New York.

``These can be very pie-in-the-sky stocks with lots of noise and very little actually being done,'' he said. ``When they're in their cycle, which it looks like they are now, they get tremendously inflated. Nobody cares as soon as oil breaks back below $40 a barrel or so.''

Renewable energy accounts for just 5.5 percent of the primary fuel supplies used by the 26 member nations in the Paris-based International Energy Agency.

Crash and Burn

Among alternate energy stocks that have soared and later tumbled: AstroPower Inc., a maker of electric solar-panel systems for homes and businesses that traded as high as $36 in May 2001 and filed for bankruptcy court protection in February 2004. Plug Power Inc., a Latham, New York-based maker of fuel cells, trades at $4.59, a fraction of its May 2001 high of $35.40.

The industry's shares are getting a boost from more than just the higher prices of oil and natural gas. Countries also are investing in alternative energy to reduce emissions of so-called greenhouse gases. U.S. President George Bush called for increased spending in clean-energy research in his Jan. 31 State of the Union address.

The IEA, an adviser to oil-importing nations, last month estimated its members have spent $27.4 billion on renewable-energy research and development in the past 30 years to create a total of about 500 giga-watts of installed electric generation capacity.

Sun Not Shining

Germany is among many nations subsidizing alternate energy to reduce its use of coal, nuclear and oil. German law requires utilities to buy power produced from renewable-energy sources at rates that are higher than market prices.

``When it comes to Germany, wind is not blowing every day and the sun is not shining every day,'' said Felix Schnella, who helps invest 280 million euros ($334 million) in European equities for Frankfurt-based RCM, a unit of Germany's Allianz AG. ``The subsidy system guarantees a price and removes at least one uncertainty for the operators.''

RCM has shares in Spanish biofuel company Abengoa SA, up 52 percent; Austrian hydro utility Verbund AG, up 20 percent; German solar power company Conergy AG, up 76 percent; and Solarworld.

Cutting Back

Boston money manager Patsky said his firm's $220 million Winslow Green Growth Fund has reduced its holdings of alternate energy stocks to 20 percent from a high of 25 percent, anticipating a decline in oil. The fund has returned an average of 11 percent a year the past five years versus 2.6 percent for the S&P 500.

The firm holds Fuel-Tech NV, a Stamford, Connecticut-based maker of pollution-control technologies; Evergreen Solar Inc., a Marlboro, Massachusetts-based maker of solar cells; and Zoltec Cos., a St. Louis-based maker of carbon fibers used in windmill blades. ``They are selling all they can make and are making money,'' said Patsky.

Winslow also runs a $27 million hedge fund with short positions, or bets shares will fall, in some alternate energy stocks that Patsky declined to name.

Solar panels, wind power and other alternate energy sources haven't made it to the mainstream in the U.S., even with high energy prices, said Abrams, who commutes by train to New York City from suburban Westchester County, New York.

``It becomes a real alternate energy when the guy down the street who never shaves or cuts his lawn has them,'' said Abrams, who said he's leery of shorting alternate energy companies because he can't predict oil prices. ``When I see them being built into homes in Westchester you've got a mass market. I'm not seeing anything yet.''



To contact the reporter on this story:
Tom Cahill in Paris tcahill@bloomberg.net
Last Updated: March 12, 2006 19:25 EST



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