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New Energy Manufacturers Require 17 Billion In Investor Capital

"The defining financial trait of this sector will be a much greater diversity of capital sources than we've seen in either traditional manufacturing or information technology," said David Gross, author of the report.
by Staff Writers
Arlington VA (SPX) Feb 01, 2010
Rapid growth has come to alternative energy. Wind power generation grew more than tenfold in the U.S. in the 2000s, while funding for solar startups soared past many information technology sectors. But in the 2010s, feed-in tariffs will decrease, and many renewable electricity sources will approach cost parity with fossil-fuel sources.

As a result, manufacturers and investors will increasingly depend on production economics, not global politics, to achieve high returns on invested capital. According to FreeSky Research's latest report, Generating Returns on Renewable Generation, this will force adjustments in business and investment practices, with closer attention to specific issues, including:

Raising fixed asset utilization for solar manufacturers - those that operate below free cash flow break-even can get crushed by manufacturing overhead, regardless of whether their products use a-Si, CIGS, CdTe, or crystalline silicon materials - companies that emphasize futuristic deposition techniques will struggle against those that focus on old school factory economics.

Heavy dependence on credit markets and syndicated loans to finance capacity expansion - while IPOs and VCs grab the headlines, they account for less than 25% of the capital raised by wind, solar, and ocean power manufacturers Variable costs, not costs of capital, determining who owns generation facilities, just as renewable electricity has vastly different O and M requirements compared to fossil-fuel burning technologies, it is not well-served by cost of energy calculations designed to compare natural gas to coal to nuclear

"The defining financial trait of this sector will be a much greater diversity of capital sources than we've seen in either traditional manufacturing or information technology," said David Gross, author of the report.

"Additionally, manufacturers and electricity providers will need to develop new financial models and expand beyond traditional LCOE analysis, particularly when most retail customers must still pay by the kilowatt hour even where variable costs are exceptionally low."

The report also includes forecasts for capital requirements by industry sub-sector. It incorporates financial analysis and market assessments to determine how capital is likely to shift, and which technologies will benefit as the industry continues to grow.



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