In the aftermath of Japan's earthquake, tsunami and reactor breakdown, clean technology stocks in Canada and abroad surged as investors anticipated that governments would shift their energy choices away from nuclear plants and toward renewables such as wind and solar power.
In the first three weeks after the nuclear disaster hit the headlines, the S&P/TSX Clean Technology index jumped by 10 per cent, while the S&P Global Clean Technology index rose more than 17 per cent.
Now, both have settled back somewhat, raising questions about whether the intense focus on the renewable sector was a flash in the pan.
Over the long term, however, the interest in clean technology stocks is likely to intensify - and their valuations increase - as concerns over nuclear energy persist.
There's no doubt that concerns over the future of nuclear power caused the jump in stock prices among firms in the clean-tech sector just after the Japanese accident, said John McIlveen, director of research at Jacob and Co. in Toronto
"It's definitely related," he said. "The timing is just too tight to be merely coincidence." He noted that uranium futures dropped at the same time, suggesting traders were "playing one against the other."
'Enduring Disaster?'
But will a sustained shift away from nuclear power result from the Japanese accident?
Mr. McIlveen said there is still so much uncertainly about the situation surrounding Japan's reactors that it is very difficult to make that kind of projection. Just as the situation seemed to be stabilizing this week, Japanese regulators upped the severity level of the accident to the maximum rating.
If the story continues to unfold as an "enduring disaster" there could be more political decisions that are damaging to nuclear energy, Mr. McIlveen said. Already, Germany has shut some of its nuclear plants and China has said it will halt new plant development.
The most likely scenario is that the disaster will make it difficult for any Western politician to approve any new nuclear plants for some time, said David Berkowitz, who runs a clean technology portfolio at Ventures West Management Inc. in Vancouver.
"I envision a future where the price of electricity will skyrocket, particularly as aging nuclear and coal plants go offline," Mr. Berkowitz said. That means the generation of biofuels, hydro power, solar power, geothermal energy and wind energy will become more economic, at least in the short term.
Larger Companies Surge
Among Canadian clean technology stocks, the larger, more diversified power companies have seen the sharpest stock growth recently, continuing an uptrend that has been in place for many months. Companies such as Brookfield Renewable Power Inc., Boralex Inc., Algonquin Power & Utilities Corp. and Capital Power Income LP have all moved up in the past month.
Smaller firms with a handful of power projects in development tend to be much more volatile, shifting in price sharply on the basis of news related to project financing or regulatory approvals. That trend hasn't changed with the Japanese disaster.
Indeed, the companies in the diversified power group, which are generally profitable and in some cases deliver dividends, tend to be valued in a similar manner to other industrial firms, with price-earnings ratios below 20. The "project" companies are mostly not yet profitable and thus their valuations vary widely.
Analyst Rupert Merer of National Bank Financial said he doesn't think the nuclear disaster, and the political fallout, will have much of an impact on Canadian clean technology stocks beyond the short-term reaction we've seen already. Other factors, such as the support U.S. President Barack Obama recently gave to alternative automotive fuels, will have a much bigger impact, he said.
Mr. Merer said investors looking to gain from the long-term shift to renewables, but worried about volatility, should stick with the dividend paying utilities such as Brookfield, Capital Power or Innergex Renewable Energy Inc.
Over all, Mr. McIlveen said, the outlook for clean technology stocks is very positive. "I think [clean tech stock performance]is going to be lumpy, but there is too much momentum there for it to go away," he said. While governments in the United States, Canada and elsewhere are backing away from direct support for the sector, using the excuse of an uncertain recovery, "in a good economy this will become one of the natural top priorities of governments," he said.