Industries to Watch: European Alternative Energy

Although the European alternative energy industry held on for quite a bit longer than its US-based counterpart, the industry is now are seeing a spike of insolvencies that is unlikely to stop soon. Like those in the US, the sector is contending with lower demand amid outsized supply, extremely aggressive pricing from Asian competitors and the slashing of existing government subsidies--all at the same time.

“You see it already. Everything linked to alternative energy is having difficult times these days,” said Freddy Van den Spiegel, chief economist and director of public affairs at BNP Paribas Fortis. “That sector was really growing very quickly thanks to government support and plans to increase renewable energy by 2020 as a significant part of total energy. But, given the budget situation in many [EU] states, the subsidies have been reduced, even in Germany and Belgium. Some of these new companies don’t have a business model anymore given the financials.”

At the beginning of the year, solar developer S.A.G. Solarstrom AG attempted a self-imposed insolvency restructuring, but is now going through more typical European insolvency proceedings, which yield far fewer restructuring success stories than the US Chapter 11 bankruptcy system. Also entering insolvency this year so far are Wirsol Solar Energie GmbH and wind-energy-focused Prokon Regenerative Energien GmbH. Meanwhile, Robert Bosch GmbH opted to shed its majority stake in aleo solar AG, leaving liquidation the only option for the solar module manufacturer.

While EU-based alternative energy certainly bears watching because of various red flags, it does not mean the sector is bereft of opportunities, especially down the road. Those who survive the shakeout by putting out top-quality products and without overreliance on government subsidies will be positioned well when the market boasting fewer competitors rebounds.

“The alternative energy and renewable debate will continue,” said Van den Spiegel. “Some of these companies, after mergers and acquisitions, will come up with technologies that are sustainable. I have confidence in the sector, but certainty in the next two to three years it will be tougher times.”

- Brian Shappell, CBA, CICP, NACM staff writer
Van den Spiegel will be among the featured speakers at FCIB’s Annual International Credit & Risk Management Summit in Munich. For more information on the May event or to register, click here.
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