Like most ASX-listed companies, the mixed bag of cleantech stocks – comprising technology, environmental and infrastructure-based companies – were harshly overlooked amid last year’s investor flight-to-safety. But signals of renewed sentiment, buoyed by recovering appetite for risk, a notable uptick in solar and wind stocks, plus macro-economic drivers like the Federal Government’s (and a global) green stimulus push – bode well for a cleantech come-back.

While the ACT Australian Cleantech Index (ACT) typically outperforms both the S&P/ASX 200 and other benchmarks, its recent performance reflects investor preoccupation with capital preservation. Unsurprisingly, cleantech stocks, most of which comprise small-caps yet to make money, have been persona non grata.

Over the third quarter of the 2009 fiscal year, the ACT Index recorded a loss of 9.3 percent, compared with a loss of 1.4 percent and a 0.4 per cent gain by the S&P ASX200 and S&P/ASX Small Ordinaries respectively. Now valued at around $7.4 billion, the market cap of the 77 stocks comprising the ACT Index has fallen from its peak of $16.3 billion in July 2007.

Poor performances by Viridis (VIR), Sims Metal (SGM), Ceramic Fuel Cells (CFU), and Energy Developments (ENE) dragged the index lower. But while the entire index may have been down-graded over debt level concerns, John O’Brien Australian CleanTech director says ‘green shoots’ are starting to appear within better performing sub-indices (see table below).

Market Cap Ranking  Company
 1 Sims Group
 2 Babcock & Brown Wind Partners
 3 Transpacific Industries
 4 Crane Group
 5 Geodynamics
 6 Transfield Services Infastructure   Fund
 7 Coffey Environments
 8 Energy Developments
 9 Quantum Energy
 10 Tox Free Solutions

Source: ACT Australian Cleantech Index (31 March 09)

Over the last 12 months O’Brien has noticed an investor swing away from carbon-reliant projects and more investment in cleantech technologies, which are not propped-up by carbon prices. He says renewed confidence in the underlying assets and operations of Babcock & Brown Wind Partners Group (BBW) and environmental services firm, Coffey International (COF) directly attributed to both Solar and Environmental Services being the only two sub-indices to record positive results (for the three months to March 09).

Nevertheless, better performing stocks across the index weren’t hard to find, they included: GRD Ltd (GRD), Quantum Energy (QTM), Tox Free Solutions (TOX), Bluglass (BLG), Coffey Environments, Eco Quest (ECQ), Carnegie Corp (CHM), Orbital Corp (OEC), Torrens Energy (TEY), and stellar performer AnaeCo (ANQ) which gained 267 percent.

So given that most cleantech stocks are pre-revenue (yet to make dollar) what criteria should investors focus on when deciding which ones to back?

Akin somewhat to biotech stocks, Jamie Taylor of Wilson HTM says it’s important for investors to do their homework and scrutinise the business model, the quality of its management, and most importantly how any cleantech stock is performing against its key milestones. “It’s all about proving-up the technology, as this will attract both third-party technical expertise, and the public funding needed to make commercialisation a reality,” says Taylor.

He says while the cleantech sector is at the risky-end of the investment spectrum, investors need to keep a close eye on which stocks will directly benefit from abnormal events, notably the Federal Government’s green stimulus package. While still requiring passage through the senate, the most ambitious of these is the proposed mandate for energy retailers to source a pre-determined amount of energy (ultimately 20 percent) from renewable sources.

And given that it’s considerably further along the commercialisation-curve, Taylor expects wind stocks to receive the lion’s share of this allocation with emerging energies (notably solar, wave and tidal) becoming part of the mix.

But the more immediate catalyst for investor excitement is the $435 million Renewable Energy Demonstration Programme (REDP). Announced last December by Prime Minister Kevin Rudd, REDP is expected (some time during the September quarter) to provide a handful of grants (of between $50m-$100m each) towards demonstration projects of renewable energy technologies for power generation.

Taylor says investors shouldn’t underestimate the turning point that REDP funding will make in proving-up (at scale) technologies that would have otherwise struggled to reach commercialisation. But he warns that while REDP grants could create a share price spike, cleantech stocks are ‘buy and hold’ growth plays over a long-term time horizon.

Based on their proven performance so far, and the likelihood of REDP funding being divided evenly between solar, wave, wind, geothermal, tidal and biopower technologies, Taylor’s favoured stocks include: former CSIRO start-up, Ceramic Fuel Cells Ltd (CFU), solar company Dyesol Ltd (DYE), greenhouse abatement company CO2 Group (COZ), geothermal energy explorer Geodynamics (GDY), wave-power hopeful Carnegie Corp (CNM), and Origin Energy (ORG).

Out of the 27 ASX-listed cleantech energy stocks on her watch-list, Jo Hume investment analyst with CVC Ltd expects beneficiaries of the REDP programme to include one or more of the following geothermal stocks: Geodynamics (GDY), Petratherm (PTR), Panax Geothermal Ltd (PAX), Kuth (KEN), and Torrens Energy (TEY). And while Geodynamics has applied for $90 million in funding, rival Petratherm (PTR), together with its JV partners Beach Petroleum and TRUenergy Geothermal has applied (under REDP) for a third of the $200 million needed for a commercial demonstration project at its flagship Paralana project site.  It’s understood the Paralana project has the potential to stgelop and deploy large-scale, base load power to the local market (30 MW), and later the National Electricity Market (NEM) (260 MW to 520MW).

Meantime, the one listed wave energy stgeloper O’Brien expects to be amongst REDP recipients is WA-based, Carnegie Corporation (CNM). Curiously, it was at Carnegie’s site that the Federal Minister for Energy chose to launch the REDP programme late February. But REDP aside, specialist banking group, Investec (subject to certain milestones) plans to provide or procure funds of up to $250 million for Carnegie’s commercial demonstration wave power project, using its CETO technology, in southern Australia.

Licensed by the South Australian Government to explore the seabed off the South-East coast for the state’s first wave farm, Carnegie will spend up to $2 million on the assessment before committing to a $400m, 50MW trial plant to come on line in 2011.

   FY07 FY08  3Q09
 ACT Solar Index  36.5% -31.1%  0.5%
 ACT Wind Index  73.3%  -28.3%  -11.6%
 ACT Biofuel Index  -46.2%  -55.5%  -9.7%
 ACT Water Index  32.9%  -18.9%  -8.2%
 ACT Waste Index  56.3%  -0.4%  -8.6%
 ACT Efficiency/Green Buildings/Bimaterials/Energy Storage/Fuel Cells Index  58.5%  -47.1% -13.2%
 ACT Geothermal Index  205.9%  -29.6%  -0.4%
 ACT Environmental Services Index  12.1%  -34.1%  2.1%

 Source: ACT Australian CleanTech Sub-Indices


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