Data for electric power consumption in Israel during the COVID-19 crisis indicate that renewable energy companies are dominating the field. Figures show that in March, when the crisis was at its peak, electricity produced from renewable energy sources reached 27% of total electricity production in Israel, as compared with 10%, in ordinary times.
In an interview with "Globes", Asa (Asi) Levinger, CEO of Energix Renewable Energies (TASE: ENRG), explains that, "During a crisis, when there’s less activity, with fewer factories working, demand for electric power drops - as was the case here - and cheaper energy sources are utilized before others. These energy sources are renewable; meanwhile coal-fired stations or liquid natural gas (LNG)-powered stations were not used. So, due to the crisis, the Israeli record [for renewable energy usage] was broken."
"Today, gas and coal are far more expensive than renewable energy," Levinger says. "So, some places give precedence to electricity from renewable energy sources over polluting sources, while the non-renewable energy companies aren’t able to supply power successfully. Their prices are no longer attractive - making it more difficult for conventional energy companies to deal with the crisis, and enabling renewable energy activity to flourish."
Renewable "green" energy is one of the few sectors on the Tel Aviv Stock Exchange (TASE) left unharmed by the COVID-19 crisis, with shares benefiting from ongoing hype that’s particularly noticeable in light of the recent crash for conventional energy company shares.
The leading green energy company shares have rallied at triple-digit rates over the past three years (in the range of 125%-390%). These were not hit by the sharp dives recorded in recent months, and have risen in the range of 10% -25% since the beginning of this year.
The pincer movement in energy stocks is manifest in the market caps of companies in the sector. Energix has a market cap of around NIS 6 billion - more than four times the current value of Delek Group (TASE: DLEKG), that until recently had been one of biggest companies traded on the TASE - and almost twice the value of Oil Refineries (TASE: ORL) or Paz Oil Company (TASE: PZOL), which had also been among the most highly valued companies. The share price for Energix’s main competitor in Israel, Enlight Renewable Energy (TASE: ENLT) has also risen sharply in recent years; its market cap is now over NIS 4 billion.
A number of factors underpin the significant rise in renewable energy stocks. These include regulations intended to encourage "clean" energy and reduce reliance on polluting fuel sources, a significant decrease in the cost of equipment (solar panels, wind turbines, batteries), as well as a low interest-rate environment, which aids the development of new projects.
The high p/e ratios at which renewable energy shares are now traded, with prices at double-digit levels relative to earnings - usually characteristic of high-tech companies - reflect a potential for future expansion that investors have identified.
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"When I entered this field over a decade ago, electric power prices around the world shadowed the price of oil. The two were completely correlated," says Levinger. "With time, however, this correlation ended, and the primary reason for this change is that, today, almost no electricity is produced from oil. So, oil prices no longer have a direct effect on the price of electricity."
"Prices for coal and gas haven’t fallen as drastically as oil, and they’re still far more expensive than renewable energy. So, those countries preferring to buy electricity at the lowest possible price give precedence to renewable energy sources over polluting ones, because it’s the cheapest way these days to produce electricity. It’s hard to compete with the price of electricity produced using renewable energy, and that’s the reason why this field is flourishing around the world, while conventional electric power production is suffering."
Is there justification for the high valuations given to green energy companies relative to veteran energy companies like Delek Group?
"Delek is priced the way it is mainly because of its debt. Energix has a very strong, stable capital structure. We don't have any debt that we have to recycle, and we have leverage of about 50% - which is conservative in our field.
"We’re in the midst of a green revolution, with unprecedented amounts of investment in renewable energy expected in the coming years. Therefore, I believe that the market is pricing in massive growth. Recovery coming out of the coronavirus crisis will be linked to massive investments, including investment in infrastructure for more renewable energy."
"No one can compete with us on price"
Energix, controlled by real estate company Alony-Hetz Properties & Investments (TASE: ALHE), began to be traded on the TASE in 2011. Prior to that, it was part of Amot Investments Ltd. (TASE: AMOT), also of the Alony-Hetz group. Following the spin-off, Alony-Hetz today holds a 57% stake in Energix, worth NIS 3.5 billion. Another major shareholder is Migdal Insurance and Financial Holdings (TASE: MGDL), with a 7% stake.
Levinger (44) has helmed Energix since it began operations in 2009. Before that, Levinger served as the Executive Assistant to the CEO of Amot, Avi Mousler. "While I was working at Amot, solar energy activity began to develop, and we started getting requests to rent out roofs on company properties for solar panels. I researched the sector, saw it was interesting, presented the idea to Mousler and [Alony-Hetz Founder, President & CEO Nathan] Hetz - and built the initial systems myself, together with company workers, on the roof of our building," he relates.
"I always dreamt of founding a billion-dollar company, and I was really happy when this dream came true. But when you look at what’s happening in our field, you understand that Energix and other companies in the sector can reach unimaginable heights. And that’s due to two significant vectors: first is the fact that no one else can compete with us on price - that’s a game-changer; and second are electric vehicles that are changing the electricity market mix and creating a demand which no one had taken into account. You can also factor in discussions around the ‘green Covid-19 exit’ and the desire to reduce environmental damage to the planet."
Energix initiates, develops, finances, constructs and operates renewable energy projects for the production and sale of electric power from those facilities, "with the intention of long-term holding." Power production activity is divided between solar (photovoltaic) and wind (turbines).
The company is active in Israel, the US, and Poland, with commercial projects of almost 340 MW now operational, almost 440 MW under construction, 375 MW "in advanced development", and over 1000 MW in early stages.
"The coronavirus crisis has created business opportunities: we’ve identified market players who came into the crisis insufficiently prepared," Levinger says. "Energix entered with the strongest financial position we’ve ever had, with NIS 550 million in cash reserves, and an untapped credit line of NIS 110 million - powerful for identifying opportunities. Of course, during a crisis, when it’s still not clear what the effects will be, we’re acting with due caution."
Looking ahead, Levinger notes that the current year is one of significant activity for Energix. "This year, we expect to construct capacity of over 400 MW in our current markets. This is a year of significant growth for Energix - and that connects very well to what's happening around the world. For a decade now, I've been saying there's a global green revolution. At first, people didn’t understand what I was talking about, then they said I was a bit too optimistic. Today, I feel like this revolution is beginning to take hold throughout the world."
Published by Globes, Israel business news - en.globes.co.il - on June 11, 2020
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