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NEX update: April – May

Tom Greenwood

It has been a rollercoaster ride for the NEX since its slide at the beginning of 2008, but the months of April and May saw investors again keen on solar, wind and power storage, reports New Energy Finance's Tom Greenwood.

The months of April and May saw the WilderHill New Energy Global Innovation Index (NEX) take a significant rebound from the huge falls at the beginning of the year, as investors began to regain confidence in the sector. The NEX rose over 13% during the two months, beating both the Nasdaq and the S&P 500, but couldn’t match the 18% gains of AMEX Oil – attributable to the soaring prices for the commodity. It should also be noted that all of the major indices in the US, Europe and Japan also rose during the period.

Every renewable energy sector was up, with even the worst performer biofuels and biomass (which are treated as one sector), still gaining 5.3%, despite suffering from increasingly bad press as the global concern over food prices gains momentum – with some eager to lay the blame on the diversion of a portion of food crops to the energy industry. However, the strength of the oil price continues to be a positive driver behind biofuels in particular, as well as the other clean energy sectors.

Shares in solar companies in the NEX went up more than any other sector, rising 19.2% on average. A series of large secondary offerings in the sector, as well as some good financial results announcements served to facilitate a bounce back from the falls of over 30% that were seen earlier in the year.

The next best performing sector was wind, which saw average share prices rise 14.5%. Turbine manufacturers, which traditionally outperform project developers in the wind sector, continued to benefit from strong demand for turbines, with several supply contracts being signed guaranteeing business well into the future. Additionally margins continued to improve as the industry matures, improving cash flows with the majority of the larger players now turning a profit.

The power storage sector – excluding fuel cells which are classed as their own sector along with hydrogen on the NEX – also showed “standout” performance, almost matching wind with a rise of 13.5%. Companies in this sector support a wide range of markets from electric vehicles to power for laptops, so performance cannot be attributed to one factor. The sector is up around 30% for 2008, possibly due to broader demand coming from the electronics markets, as well as growing interest in electric vehicles, more recently.

Energy Conversion Devices, a US-based firm which operates in the solar PV thin-film manufacturing equipment market (as well as in materials for PV solar, power storage and fuel cells applications), was the top performer during April and May, rising a massive 112%. On 8 May the company released results which beat analysts’ expectations, causing the shares to jump 36% on the day.

Capstone Turbine, another US-based company which produces low-emission micro turbines for on-site generation was the second top performer with a gain of over 77%. Capstone booked strong orders in April, for applications ranging from biogas fuelled power plants to hybrid electric buses.

Other top performers were Chinese LDK Solar, a silicone wafer producer, US FuelCell Energy, and American Superconductor, a high tech energy efficiency company, rising 71%, 52% and 52% respectively.

Companies that suffered during the period were German Schmack Biogas, Irish insulation supplier Kingspan, Chinese efficient lighting company Zhejiang Yankon Group and US-based fuel cell developer Medis technologies, with the worst performer, fittingly, being a US biofuel producer, Verenium.

Although Medis has one of the more marketable products for a fuel cell company its Q1 results were disappointing and the company is still spending on developing its production line.

Verenium announced at the end of March that it made a loss of nearly US$108 million in 2007, causing auditor Ernst and Young to record substantial doubt about the company's ability to continue as a going concern. Verenium is active in the field of cellulosic ethanol research and has spent huge amounts on R&D but has yet to generate any significant revenues from sales. Both companies fell by nearly 32% during April and May.

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