TODAY’S STUDY: WHAT PEOPLE IN NEW ENERGY EXPECT

Question of the day: If New Energy is awful because it requires government subsidies and is expensive without them, what does that say about fossil fuels – which get five times the subsidies New Energies get? And what does it say about nuclear, which can’t get funded by investors even WITH enormous federal government backing?

The survey highlighted below describes how people with money and careers on the line are more confident than ever about the future of the New Energies: Solar will move onto more rooftops and into thin films, wind will get bigger and move offshore, grids will get smarter and cars will get electric.

Two additional insights: Water technologies will grow along with New Energy and New Energy IPOs will come back by the end of this year.

Jefferies 10th Global Clean Technology Survey Results
February 2011 (Jeffries Group Inc.)

Introduction

Jefferies hosted its 10th Global Clean Technology Conference on 16-17th November in London, with more than 150 institutional investors in attendance. The Jefferies CleanTech Survey, which was conducted at the conference, was designed to provide insight into investors’ views towards the fundamentals driving the certain subsectors of the renewable energy and sustainable technologies markets.

Executive Summary

• Overall, respondents are positive on the CleanTech sector despite macroeconomic woes putting a damper on near-term growth prospects

• While stable feed-in-tariff systems are still seen as the most important growth driver for the sector, almost 30% of investors believe capital markets have an important role to play as CleanTech growth weans itself off government subsidies

• Europe continues to be viewed as a technology leader, even though China has established cost leadership in solar and wind

• >50% of investors foresee a full recovery of the IPO market by the end of 2011

• >50% believe that Thin Film remains a viable technology in the face of falling solar module pricing and abundant silicon supply

• Rooftops (residential and commercial) are predicted to be the most important end market for solar in 2011

• Investors are bullish on the growth prospects of offshore wind

• The roll-out of electric vehicles and clean water is expected to gather momentum and are predicted to be commonplace in 10-15 years

Survey Findings

Overall investment climate and economic outlook

Investors continue to believe in industry fundamentals and view growth in the clean technology sector to be sustainable against the backdrop of macroeconomic concerns. While a stable regulatory regime has traditionally been seen as key to driving growth in the sector, investors increasingly consider functioning capital markets to be important.

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The majority of investors believe continued government subsidies are the most important market growth drivers. 28% of respondents considered a recovery of the capital markets to be the most important, followed by almost 21% who believed an accepted carbon pricing policy to have the most impact. This is an almost unchanged assessment compared to our 2009 CleanTech survey where 40% of survey participants felt that continued political support in form of government subsidies were key to the markets and another 30% of respondents felt that a recovery of capital markets was the most important factor.

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Europe continues to be seen as the hub of innovation ahead of North America and emerging markets (China, India and Latin America). Despite China having developed a clear cost leadership position, only a small minority of less than 20% considers China to be a leading force in innovation. This picture is unchanged when compared to our 2009 CleanTech Survey.

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Despite the shaky capital markets environment, over 50% of respondents believe that we will see a full recovery of the IPO market in 2011. However, there is a critical majority of almost 20% who lack confidence in a full capital markets recovery before 2012.

Wind

The wind sector has attracted negative press with turbine manufacturers announcing job cuts and developer valuations being penalized by the markets. However, fundamental growth prospects remain strong against the backdrop of emerging economies’ demand for energy to fuel economic growth. In particular, growth in offshore wind is driven by favourable incentive structures and is viewed as a solution to NIMBY issues and green job creation.

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More than 90% of survey participants believe that 20GW or more of offshore wind power will be built by 2020, up from 350MW today, with nearly 40% of investors believing that 20GW will be deployed by 2020 and a quarter believing that the build out will be even above 40GW.

Solar

Industry fundamentals remain strong and concerns about overcapacity are unwarranted. Despite the anticipated decline of PV demand in Germany, growth in the US and China and new markets such as India, South Africa and the UK is expected to more than offset this. Aside from crystalline modules, thin film also looks set to benefit, especially with the growth prospects of rooftop installations.

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The majority of respondents believe thin film will remain viable even with falling module prices, despite the sector having been heavily hit in 2009 and 2010.

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There is no clear picture emerging regarding the major deployment areas of solar with the three major markets almost evenly split. 40% of investors believe commercial rooftops will be the most important end market in 2011, whereas 33% believe utility scale to be the most important. The percentage of investors who believe that residential rooftops are the most important end market for solar has halved to 25% compared to last year.

Smart Grid

Investors are most bullish on the growth prospects of smart grid in Europe and North America, driven by factors behind such as underinvestment in grid infrastructure, rising demand for electricity and clean energy, government stimulus and an increased focus on energy efficiency.

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Europe and North America are expected to lead emerging economies in the deployment of smart grids.


Electric Vehicles

The Tesla IPO drew new attention to the electric vehicle space, building on momentum over the past few years that is shifting the space close to the mainstream. Whilst challenges in establishing a reliable recharging infrastructure and developing more powerful batteries remain, investors polled are positive on the growth prospects of electric vehicles.

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Over 75% of investors expect mass adoption of electric vehicles by 2025, with nearly 10% expect to see it rolled-out within the next 5 years. This is a much less enthusiastic assessment of electric vehicles than in our 2009 survey where 47% or respondents felt we would all be driving electric cars by 2015.

Clean Water

Innovation in clean water technologies is increasingly coming to the fore of cleantech and sustainable development discussions. The promotion of water treatment solutions in areas without access to clean water is gathering momentum and survey participants consider commercialization of clean water technologies a possibility within the next 5 – 10 years.

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Nearly three quarters of investors believe that water will be an inevitable theme by 2020, with 35% believing that we may see this by 2015. 10% believe that clean water is unlikely to ever be a mass investable theme.