Goldman Sachs Group Inc. (GS:US), the top arranger for renewable-energy stock offerings last year, is accelerating its funding efforts as it anticipates a rebound in an industry that’s slumped every year since 2009.
Goldman overtook Morgan Stanley as the biggest lead manager for share offerings with three deals valued at $405.6 million, according to an annual ranking by Bloomberg New Energy Finance.
The investment bank is backing renewable energy that it expects will gain favor in a global shift it says is inevitable. That’s why short-term volatility will be trumped by long-term gains as emerging technologies first become commonplace and then become indispensable, according to Stuart Bernstein, the Goldman partner overseeing its renewables unit.
“It feels like the worst is behind us,” Bernstein, 49, said in an interview from his office in San Francisco. “I’m a contrarian, so when everyone else is capitulating, I think it’s time to invest.”
Goldman may boost its financing efforts this year as it seeks to meet a pledge made in May to invest and finance more than $40 billion in the industry in the next decade. Worldwide, more than $395 billion will be invested annually in renewable energy by 2020, he said.
The company has made equity investments in solar developer BrightSource Energy Inc. (BRSE:US) and Horizon Wind Energy, which it sold to EDP-Energias de Portugal SA in 2007.
In September, Goldman underwrote a $225 million follow-on offering for the electric-car company Tesla Motors Ltd. (TSLA:US), along with IPOs for the rooftop photovoltaic developer SolarCity Corp. (SCTY:US) in December and the biofuel crop developer Ceres Inc. (CERE:US) in February.
Backing renewable energy isn’t just an investment strategy, it’s a necessity.
The industry is so important that when Goldman’s top executives visit the West Coast, up to Chief Executive Officer Lloyd Blankfein, “they don’t just visit our largest market-cap clients, they also spend time with our early stage clean-tech companies,” Bernstein said. Clean energy is “central to the Goldman Sachs franchise.”
The WilderHill New Energy Global Innovation Index (NEX), known as the NEX, slumped 5.5 percent last year, adding to 40 percent and 15 percent declines in the two previous years as investors pared their appetite for risk and governments slashed incentives for the industry. The Bloomberg Industries Large Solar Energy (BISOLAR) index of 17 companies fell 26 percent last year.
Renewable shares have rebounded in the past few months as risk appetite returned. The NEX, which tracks 94 clean-energy stocks, has climbed more than 20 percent since Nov. 16, and the Large Solar index surged 81 percent.
“The market appears to have toughed in the fourth quarter of last year and several sectors have rallied meaningfully since then,” Bernstein said.
His comments coincide with a deal in the U.S. to extend a tax credit that supports wind-turbine installations. The policy was due to expire Dec. 31 and lobbying efforts to renew it received a boost after President Barack Obama’s re-election.
The solar industry is also gaining, with the first consecutive monthly increases in polysilicon prices since January 2012. Polysilicon, the raw material in most solar panels, has risen 1.3 percent since Dec. 24 to $16.03 a kilogram on Jan. 7, according to data from New Energy Finance.
Goldman has been investing in renewable energy since at least 2005, and has a long-term view, said Ethan Zindler, an analyst with New Energy Finance.
“They have considerable credibility within this sector,” he said in by e-mail. “They have seen the various ups and downs, so they have significant perspective as well.”
Goldman last took the top position in 2010, losing the slot to Morgan Stanley (MS:US) both in 2011 and in 2009. Morgan Stanley and UBS AG (UBSN) were co-lead managers on China Longyuan Power Group Corp. (916)’s $375 million stock offering in December, the biggest fund-raising in the public markets in 2012.
"This is going to be an extraordinarily large emerging market much the same way we viewed the BRICs."
The deals by Goldman last year trumped the $363.8 million managed by Shanghai-based Guotai Junan Securities Co. Ltd., according to data compiled by New Energy Finance, a Bloomberg research company. The Chinese company handled the secondary stock placement of power-generator Shanghai Aerospace Automobile Electromechanical Co. (600151) and Shenzhen Jiawei Photovoltaic Lighting Co. (300317)’s IPO.
Tesla, based in Palo Alto, California, has more than doubled since its June 2010 IPO, and its shares are up (TSLA:US) 49 percent in the past year. SolarCity has gained (SCTY:US) 77 percent since trading began.
“The success of SolarCity’s IPO may bring investors back to the markets and create future financing and M&A opportunities,” Bernstein said. “There will be interesting IPOs in several sectors over the next few years.”
Bernstein, a Goldman partner, has also worked in private equity and is on the selection committee for the company’s clean technology and renewables group. He spends most of his time at Goldman’s office on Sand Hill Road in Menlo Park, California, famous for its venture capital culture.
The investment bank created Bernstein’s unit about three years ago to focus exclusively on renewable energy and take advantage of what it saw as a promising long-term play, he said. He compared the industry to the technology market in the 1990s, which was once seen as fraught with risky new technologies that are now the backbone of the information age.
“We have a growing global population coupled with an increasing per capita consumption of energy, while fossil resources are finite and shrinking,” he said. Backing renewable energy isn’t just an investment strategy, it’s a necessity, he said. “How can one not consider clean energy and renewable alternatives?”
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