Upside lurking in battered green energy sector

Sun Dec 18, 2011 10:41am EST
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By Allison Martell

TORONTO (Reuters) - Many stocks in Canada's battered green energy sector may be set for gains in early 2012 as the Ontario government wraps up its review of the generous rates paid to producers and provides investors with much needed clarity.

Like Germany, Canada's most populous province pays well above market rates for solar, wind and other renewable power under its feed-in tariff (FIT) program, in a bid to spur development of a local green energy industry.

Those rates are widely expected to fall after the review, which follows a provincial election in which the high cost of green power was a flashpoint.

Projects that are already in operation or near commissioning will not be affected by the new tariff, as they are locked into long-term power purchase agreements under the old regime.

But analysts said there may be upside lurking in companies with early-stage projects, to which investors are currently assigning little or no value. That could change if Ontario ramps the program back up in early 2012.

"For the public stocks, they are not getting any value for the pipeline," said John McIlveen, an analyst at Jacob Securities.

"The junior developers are undervalued. If I look at what the values of some of these companies would be in the private market, I think their public market caps are below that."

McIlveen highlighted Western Wind Energy Corp WND.V, a TSX Venture Exchange-listed company with wind farms in operation in Arizona and California and a pending FIT application for a solar project in Ontario, as one company that should be trading higher.   Continued...