Solar Cell Mania Reaches Its Limits On Wall Street
from the the-sun-god dept
Despite the market’s convulsions, the VMWare IPO went off without a hitch, suggesting that investors aren’t yet throwing the proverbial baby out with the bathwater. They may be in a state of panic over credit markets, but they won’t let a quality company be ignored. However, they may be pulling back from certain riskier ventures. Canadian solar cell maker Photowatt has announced that it will suspend its IPO plans, citing unfavorable market conditions. This is a pretty common excuse for companies, particularly at times like these when the market does look inhospitable. What seems most likely is that investors simply have their fill of solar power, as there’s been a rush of IPOs in the space this year. With every one that comes out of the gate, it gets that much harder for the next company to go public, particularly if it’s not on solid financial ground.
Comments on “Solar Cell Mania Reaches Its Limits On Wall Street”
Ok, but isn’t that really “unfavorable market conditions”? Not such an excuse then, is it? More a fact?
One of the early signs that the peak has come and gone in any area is when IPO’s started to get pulled — or go forth and get ignored. If their company was worthy of going public, like VMWare, they’d of done so. Instead, being smart people, they see the hype has faded, their fundamentals are ‘soft’ to put it nicely, and without those two it could be a failure. A quick 10% correction afterwhich life has largely returned to normal after a huge bull market run (which may now continue if the larger economy doesn’t slow too badly) is absolutely just the excuse that they were hoping for.
More private equity?
The venture capital to IPO model to get business up and running can work well, but in the solar business, the cost of equipment can be a barrier to adoption. The capital cost of fabrication plants is a small fraction of the cost of production with energy and raw materials making up the bulk of the cost. This means that there are opportunities for private equity or investment banking to profit from the secured credit path that solar power equipment provides. Morgan Stanley, for example, will own a portion of Walmart’s solar power generation. With the financing of real estate seeing problems, I would not be too surprised if these financing mechanisms don’t seek the more liquidatable assests involved in solar power. Thus, an IPO rate that does not reflect the 30% real annual growth in the solar market may not be owing to entirely to market uncertainties but rather to alternative methods of raising funds. One 500 MW fabrication facility planned for the US northeast will be financed in this manner. And, that is a big addition to US capacity.
I suspect that it is not so much that the bloom is off the rose, but rather that the rose is being moved to a private garden. I would guess that the growth is solar will be accelerating and raising capital will not be a big problem largely because solar is now competitive with delivered electricity and its regulatory environment is becoming more and more even with central generation methods. The big challage will be to find ways to maintain or enhance market share in a period of exponential growth. Large manufacturers today will be bit players tomorrow if they can’t both increase output and reduce costs. Fortunately, economies-of-scale savings have yet to be fully realized so that investing in agressive publicly traded companies could yield benefits.