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Market jitters

The prospects for wind power have never looked better, yet the share prices of the two largest publicly traded wind companies, Vestas and NEG Micon, are heading for an all-time low. So what lies behind this seemingly dire state of affairs? Nothing less than the announcements from both companies that they are in the position of having to admit that growth for 2003 will "only'" be about 30% for Vestas and 25-30% for NEG Micon. Four years of wind-watching cannot make analysts experts on the intricate workings of this 25-year-old market and its positive underlying trends. Yet they clearly think they know better. That should be of great concern to the industry.

It's perplexing, if not downright incomprehensible. The prospects for wind power have never looked better, yet the share prices of the two largest publicly traded wind companies are conversely heading for an all-time low. Since late summer, when Vestas issued the first of two profit warnings, wind shares have raced down even faster than the global share index. Last month they took another hammering after a surprise profit warning from NEG Micon too (page 35). This time it was Vestas' turn to get sucked into a free-fall on the Copenhagen bourse of its competitor's making; a further 10% was knocked off its share value while NEG Micon lost 30%. Both are trading at half their late summer value.

So what lies behind this seemingly dire state of affairs? Nothing less than the shock-horror announcements from both companies that, well, they are in the embarrassing position of having to admit (what tidings of woe) that growth for 2003 will "only'" be about 30% for Vestas and 25-30% for NEG Micon. Vestas had earlier forecast 50%. In a world of economic stability and non-jittery markets, the share prices of companies in profit and with growth expectations of 30% would not be expected to crash. But these are not ordinary times. Only three short years ago wind was the new wonder-kid and Vestas' share price was being talked up to a level nine times that of today -- talked up by analysts, that is. At the time, veterans of the wind sector shook their heads in disbelief.

What gets talked up, however, can get talked down -- and the analysts are doing just that. Yet neither Vestas nor NEG Micon have reported fundamental technology or financial flaws in the past half year to justify such talk. In fact, business continues as usual -- and in wind power that means serving a market with a compound annual growth rate of 28% over12 years. True, NEG Micon dropped a bombshell with its profit warning, but the cause appears to be no more than a human error in timely reporting of some delayed deliveries. The story with Vestas (Windpower Monthly, January 2003) is similar -- an error of market judgement, which while far from confidence-boosting, can hardly be regarded as a fatal blow. But three profit warnings in the space of six months is nerve-wracking stuff for analysts, especially at a time when their entire profession is in disgrace for failing to recognise shaky management. Vestas aggravated the nervous pecking at wind by effectively excluding all non-Danish speakers from an investors' conference. Many were incensed, branding the behaviour "unprofessional." Seen in this light, negative wind talk by analysts has not only been a reaction to investor-driven financial pressures. Poor industry input has played its part.

Four years of wind-watching cannot make analysts experts on the intricate workings of this 25-year-old market and its positive underlying trends. The industry knows that price on energy markets is relative and as fossil fuel prices go up, wind, with no fuel price, gets ever-more competitive; that wind power is getting cheaper and will continue to do so, thanks to technology advances and economies of scale (Windpower Monthly, January 2003); that wind has no price volatility (a huge plus on volatile energy markets); that wind is a bright-green hedge against future emissions penalties; that the dispersed nature of wind plant largely makes them safe from terrorist attack; that regulatory regimes are increasingly favourable to wind.

Big business leaders in the energy and engineering sectors have noted it all and are taking action, as this column pointed out last month. When a company like GE not only enters wind power in earnest, but is willing to stand up and be counted in a battle against some of the most powerful names in US politics (page 25), there can be little doubt that wind has a future. Even the European electric utility sector, hardly known for its adventurous business practice, is keen to get in on the wind act (page 60).

A cruel irony

Yet market analysts and investors clearly think they know better. They are wary of wind. That should be of great concern to the industry. Crashing share prices create frightening headlines which influence politicians. At the risk of repeating ourselves, nothing is more scary for the continuity of a carefully crafted regulatory regime than the unpredictability of politicians in panic. Political risk can price any product out of the market.

What's more, to realise its full potential, the wind sector needs money. Lots of it, from the capital markets. The cruel irony is that just as wind is moving into the energy market mainstream, it is paddling out to the periphery of the Wall Street consciousness. The danger is that the falling market valuation of the wind sector will slowly sink it below the eye-level of analysts -- and into a nether world not much visited by investors. The money needed will dry up. Budding wind companies intending to go public will change their minds -- and existing companies will run short of money for investment in growth and technology advances.

Some years ago the current leader of Denmark's Social Democrats, Mogens Lykketoft, delighted newspaper headline writers by referring to stock market analysts collectively as a flock of hysterical hens. For hens, they have a lot to answer for. But the output of analysts can only be as good as the input from the wind industry. If the analysts stop analysing, the sector's market valuation falls and the analysts lose interest in promoting it to investors who can raise the valuation. A chicken and egg situation if ever there was one.

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