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Is The Green Energy SPAC Bubble Imploding?

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Rakesh  Sharma's picture
Journalist, Freelance Journalist

I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

  • Member since 2006
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  • Jun 21, 2021
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A while ago, I wrote about the latest Wall Street craze – Special Purpose Acquisition Companies or SPACs. Briefly, SPACs are reverse mergers in which a startup combines with a publicly-listed shell company to go public. The arrangement is beneficial to both parties. The startup gets access to public funds and investors in shell companies are rewarded with, possibly, exponential returns during the initial pop in share prices that generally accompanies public listings.

While they have been around since the 1970s, SPACs became popular only in the last couple of years or so. Startups in industries that are expected to dominate in the future went public at lofty valuations using SPACs. A slew of green energy and climate change startups also used them garner hefty public market capitalizations even without much revenue.

But what goes up must come down. Green energy SPACs have underperformed the broader market this year as investor enthusiasm for risky instruments waned and realities of the slog ahead – as far as climate change and green energy are concerned – became apparent.

According to the Wall Street Journal, SPACs with a green focus posted average share price gains of just over 10 percent, lagging the rest of the market. The report states that shares of green-focused companies that have announced acquisitions but have yet to close their deals have fallen by an average of 24% in 90 days after the deals were announced. The decline in green energy SPACs mirrors a broader waning of enthusiasm for green energy. The Invesco Solar ETF reached a peak of $121.35 in February but is now trading at $81.13. Similarly, the iShares Global Clean Energy ETF had a peak of $33.41 in January but is down to $22.39 as of this writing.

Part of the problem is that green energy SPACs are, well, green as far as finances and markets are concerned. Their overvaluations made problems worse. 

With public listings also come accountability and revenue targets. But green energy SPACs seem to have forgotten that part of the equation. For example, EOS energy systems, a battery storage company whose share price reached a peak of $30.67 in January at the peak of SPAC mania, closed trading on Friday at $19.39. The New Jersey-based company missed analyst estimates in both quarters since it began reporting results.

Electric vehicle startups SPACs attracted the most funding and hype. Their share prices have also declined. Nikola Corp., the poster child of SPAC success, traded at a peak of $23.60 on February 1 but is now down to $16.51. Lordstown Motors Corporation, which has been in the news recently for its problems, is also down from a high of $26.77 on Feb 1 to $10.65 at close of trading on Friday.

The Journal report quotes Erika Karp, chief impact officer for Pathstone, an investment advisory firm, as saying that the incentive structure is screwed up. “Transparency is not present unlike other publicly-listed companies,” she told the publication.

Transparency itself is no guarantor of an accurate valuation. Take the case of Lordstown Motors Corp. and Nikola once again. Both companies reported news that would be considered adverse for any other publicly-listed company but their stock price remain steady. Or, to quote the Journal, investors remain “unfazed”.

It is hard not to compare the recent set of events to the dotcom bubble at the turn of the century. Back then, the share prices of tech startups without any revenue were bid up to outlandish valuations. When the dotcom bubble burst, it left many companies and investors bankrupt.

The chances that a collective implosion of green energy startups will occur are slim. These startups have regulatory tailwinds and retail investors, the same group of people who bid up the prices of Gamestop, backing them up. They will also have to contend with extensive SEC scrutiny. That said, green energy is still a nascent sector. Some failures are inevitable. The ones that survive will be those with a sound business model and a prudent approach to finances.

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