Watching President Obama sign the Jumpstart our Business Start-ups Act into law last week brought to mind a company I have followed since they filed a prospectus with the SEC to go public last year. The night before its shares were to begin trading on the NASDAQ, a week after the president signed the law, BrightSource Energy cancelled the offering due to “adverse market conditions.”
BrightSource Energy Inc.’s decision to pull their initial public offering the night before its shares were to begin trading on the NASDAQ was a blow for the Oakland, Calif.-based solar thermal company and for the renewable energy industry.
Hurt by a double whammy of weak solar photovoltaic prices and natural gas trading below $2 per million British thermal units, the roughly $182 million stock offering, relaunched in March after being shelved for almost a year, was closely watched by both wind and solar companies as a bellwether for the health of their industry. Its failure raises concerns about the financial markets’ view of clean energy.
“It certainly has a negative impact. It is a blow for solar IPOs, and a disappointment to the clean tech sector,” said Sheeraz Haji, CEO of Cleantech Group, a research and advisory firm based in San Francisco.
BrightSource, the most established solar thermal company in the U.S., with investors that include Google Inc., NRG Energy Inc., Alstom Power Inc., Morgan Stanley and a handful of top venture capital firms, shelved its IPO plans in 2011 as the solar industry struggled with falling PV prices and negative headlines from the Solyndra Inc. bankruptcy.
With work on the marquee 392-MW Ivanpah solar thermal project it jointly owns with NRG and Google in California’s Mojave Desert more than 25% complete, the thermal solar developer/manufacturer dusted off its offering plan March 21 and kicked off its road show to sign up new equity investors.
Unfortunately for BrightSource, a rash of high-profile solar company bankruptcy filings, including one April 2 by its closest U.S. competitor, Solar Trust of America LLC, didn’t help it fill its order book in the run-up to its public offering.
“The bet BrightSource was making was that while there was negativity in the solar space, they had 13 power purchase agreements from Pacific Gas and Electric Co. and Southern California Edison Co., and they thought they could break through the [bad headlines] and explain the difference in their business and how they have real revenues, real contracted bookings for their power purchase agreements,” Haji said.
Perhaps most important, historically low natural gas prices overshadowed the IPO process for BrightSource and dampened investor interest in the solar sector, Haji said.
A lack of familiarity with concentrating solar power’s technology also hurt the offering. In March, BrightSource joined forces with solar thermal developers Abengoa Solar Inc. and Torresol Energy to promote concentrating solar power, a recognition that their technology is not well understood.
“Solar thermal is really different from PV, but I don’t think Wall Street gets that, and tends to lump them together,” said Tom Konrad, a clean energy portfolio manager, and blogger at AltEnergyStocks.com.
Unfortunately, solar stocks have underperformed the market for a couple of years and have done particularly poorly in 2012.
“Valuations are bad, and [companies] don’t go public when valuations are bad,” Konrad said. “In the past month solar stocks have fallen 13%.”
Investors are beginning to recognize the value of renewable energy production, though, and the value of a long-term power purchase agreement from an investment-grade utility, Konrad said.
“I think Wall Street will get its head around it, especially since parts of the debt market have,” Konrad said. “The strongest evidence is when you see [Warren] Buffett buying. His [MidAmerican Energy Holdings Co.] keeps buying solar and wind farms … and Buffett is all about buying things at less than their future income stream.”
MidAmerican, which owns more wind-powered capacity than any other regulated utility, invested several billion dollars in solar at the end of 2011.
“Because valuations are so bad now, we see people like Buffett coming in,” Konrad said. “People follow Buffett. It is dead certain that at some point this will become a boring asset class, and everyone will have a lot of money in it. It will be [considered] infrastructure, like a toll road.”
Until then, or at least for the immediate future, BrightSource will need to find another way to raise equity capital besides the public markets.
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