Low Oil Prices and Recession Hurt Demand – But Hope from Washington Boosts Future Expectations

February 10, 2009

Even as low oil prices and a severe recession have taken their toll on alternative energy demand, a green-oriented presidential administration has brightened the hopes for renewed growth in the sector - particularly for solar and wind power.

These are some of the key findings from ChangeWave's latest Alternative Energy Industry survey, conducted December 29, 2008 through January 5, 2009. A total of 210 respondents working in the industry participated.

Industry Trends - Past 12 Months

Industry respondents report the Solar sector (51%; unchanged) has experienced the most rapid economic growth over the past 12 months - similar to the findings of the August 2008 survey. Wind Power (43%) came in second; however, that number is 6-pts lower than previously.

The Hybrid/Electric Vehicle sector (23%; down 9-pts) continues to take a hit, with lower gas prices putting a significant damper on demand. Biomass (20%; up 3-pts) and Fuel Cells (10%; up 4-pts) bring up the rear, though each has shown some improvement since the August measure.

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90-Day Outlook

In a reversal of the relatively upbeat findings from our previous survey (conducted before the collapse of energy prices), industry respondents are reporting a slowdown in demand for their own company's alternative energy products and services.

Next 12-24 Months

Looking further out, industry respondents continue to project Solar (48%; down 8-pts) will achieve the most rapid growth over the next 12-24 months, but sentiment has slowed since its peak in December 2007. One reason for this: "The second- and third-tier players are getting squeezed as the photovoltaic (PV) solar panel market consolidates," according to alternative energy expert Lee Bruno. "Look for an industry shakeout later this year."

We note that Wind (40%; down 1-pt) remains near its all-time high in terms of industry sentiment.

On the other hand, the Hybrid/Electric Vehicles sector (30%; down 3-pts) has lost momentum since the previous survey - understandable with the collapse of gas prices. And the Biomass sector (18%; up 3-pts) is near its all-time low in terms of industry growth sentiment.

Hope for the Future - A New Regime in Washington

In a clear signal that the industry expects big things from the Obama administration, 49% of respondents say the government market will be the biggest driver for the industry - more than double the percentage from August.

Moreover, four-in-five (81%) see the new administration providing a substantial or moderate government investment in energy infrastructure projects over the next two years. We note that General Electric (GE) is seen as the top beneficiary from this infrastructure spending.

Three government initiatives will likely provide most of this infrastructure investment . And while it's unclear exactly how these different initiatives will play out, industry respondents see the following sectors as benefiting most:

The Smart Grid sector should also benefit from this spending. Three-in-four respondents (74%) believe this sector - focused on greater efficiency and flexibility in energy distribution and transmission - will experience a spending increase over the next 12 months.

Wind and Solar Leaders

We also asked a series of questions on alternative energy companies. Here are the leaders for the Wind and Solar sectors - as identified by our industry respondents:

There's no denying that we are in the midst of a challenging environment for energy alternatives - especially in comparison to our August 2008 survey findings. But if the Obama administration even partially succeeds in implementing its green initiatives, 2009 will likely prove to be a historic turning point for the industry.

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Jim Woods and Andy Golub co-wrote this article.