The market for initial public offerings is red-hot right now in the U.S., but don’t expect to see many clean energy companies make their trading debuts soon.
That’s the view of Skip Grow, head of the clean technology group and a managing director at Morgan Stanley, who believes the number of renewable energy companies trading on U.S. stock markets may actually decline from where it stands today.
By any measure, 2019 has been a big year for IPOs, from ride-sharing giants Uber and Lyft to denim retailer Levi Strauss to Beyond Meat, a darling of the “alternative meat” sector.
The energy industry has seen its share of action, including the flotation last month of Rattler Midstream, an oil and gas infrastructure company focused on Texas, now valued by the market at $3 billion.
“Clearly the IPO markets are open for good companies,” Grow said. But there are not a lot of obvious candidates from the clean energy industry, he added, speaking last week at the Renewable Energy Finance Forum in New York.
“The bar has risen broadly in IPO markets in terms of the size of the market cap and the daily [trading] volume that’s required to be a public company,” Grow said. “It used to be you could take a company public with a $250 million market cap. That number is more like $600 million to $750 million today.”
“There are just not a lot of companies in the cleantech and renewables space that have that sort of scale.”
U.S. clean energy IPOs have grown rare in recent years. One exception was the flotation last year of fuel-cell specialist Bloom Energy, a process in which Morgan Stanley played a role.
Recent press reports have indicated that Sunnova, a Houston-based residential solar and storage provider, is readying an IPO that could value the company at $1 billion including debt. That would be the first major U.S. solar IPO since Sunrun went public in 2015.
The U.S. got a rare wind energy IPO in 2016 with the flotation of blade-maker TPI Composites, currently valued at around $870 million.
Tough sledding for yieldcos
If anything, though, the trend has been moving in the opposite direction in recent years, with several big Chinese solar companies delisting from U.S. stock exchanges, including JA Solar and Trina Solar. SolarCity, once the leading U.S. residential solar installer, was rolled into Tesla.
One bright spot for renewables IPOs earlier this decade was the yieldco sector, bringing companies like NextEra Energy Partners, Pattern Energy and TerraForm Power onto exchanges.
But there, too, the market has been in something of a retreat, with some yieldcos — like First Solar and SunPower’s joint 8point3 Energy Partners vehicle — getting acquired and taken private.
These days, many U.S. portfolios of solar and wind projects are acquired by infrastructure funds, insurance companies and pension funds, whose cost of capital can be substantially cheaper than that of yieldcos.
“The concept of having a public vehicle to hold assets when your cost of capital is your primary differentiator and it’s subject to the whims of the market…you can very easily be put out of business because your cost of capital is too high for reasons entirely beyond your control,” Grow said of yieldcos.
The pendulum has not yet stopped swinging backward, he added. “In the same way we’ve seen the universe of public [independent power producers] shrink; I think we’ll continue to see the number of public yieldcos shrink.”