sustainable investment

What are the leading wind and solar investment implications at the corporate level?

January 31, 2022

Need to know

Countries that are most competitive and complex in wind and solar exports do not necessarily dominate the wind and solar industry in the corporate sample
Companies from China, India, Japan, and Thailand all generate well over half of their revenues domestically, whilst for Western companies the values are considerably lower.
China is poised to become the largest market for wind and solar energy

Pureplay wind and solar companies are an increasingly central focus for investors who want to gain exposure to the clean energy transition because of their potential for faster growth and higher returns relative to other types of renewable investments.

Lombard Odier’s exclusive report – “Predictors of Success in a Greening World”, produced with The University of Oxford – carries out an analysis of wind and solar investment implications at the corporate level. A global sample of major wind and solar companies was constructed to capture specialised, pureplay companies with the greatest exposure to wind and solar industries. An examination of the wind and solar product value chain reveals the various activities associated with each technology, ranging from upstream materials production to downstream electricity generation.

The corporate landscape

The framework produced a sample of 93 companies, which operated as the final sample of the corporate landscape for the wind and solar industries. The sample contains companies from nineteen countries, with a strong presence in China and the USA in terms of headquarter location, primarily in midstream activities.

For each company, data was retrieved on revenue breakdown by country. Table 1 shows the top 10 countries in terms of revenue generated from wind and solar companies in the sample. For example, when all revenues generated for each company in the sample were aggregated, 33% were drawn from wind and solar products sold in China. The dominance of China and the US markets in this regard mirrored the number of companies from each country present in the sample, with 32 and 10 companies based in China and the US respectively.

Table 1.

Country	Portion of sample revenue – Wind and Solar (%)	Country	Portion of sample revenue – Solar (%)	Country	Portion of sample revenue – Wind (%)
China	33.0	China	23.6	China	13.7
United States	14.1	United States	11.5	United States	6.8
Japan	6.7	Japan	5.9	India	4.4
India	6.3	Thailand	3.6	Germany	3.1
Germany	4.5	India	3.0	Japan	2.2
Thailand	3.6	Canada	2.5	Canada	2.2
South Korea	3.2	South Korea	2.5	Italy	1.9
Canada	2.7	Germany	2.2	Sweden	1.5
Spain	2.6	Spain	2.2	United Kingdom	1.2
Italy	2.4	Taiwan	2.0	France	1.1
Other	20.9	Other	34.0	Other	54.9

It appears that the countries that are most competitive and complex in wind and solar exports do not necessarily dominate the wind and solar industry in the corporate sample. Table 2 provides evidence of this disconnect. What drives the apparent discrepancies between CI rank and corporate level representation?

Amongst other factors, competitiveness measures based on trade data are based on the relative importance of each product in a country's exports, whereas the corporate level analysis in this section may well be coloured by the size of each country's economy. This highlights the importance of considering multiple factors and indicators when navigating the landscape of green competitiveness. It is also important to note that the location of a company's headquarters can often be different from the location of its manufacturing activities. In general, a reasonable proportion of a company’s revenues in the sample are generated from the country in which the company is headquartered. For example, companies that are headquartered in Canada on average generate 36% of their revenues within Canada. Interestingly, this pattern is far more pronounced for Asian companies.

Companies from China, India, Japan, and Thailand all generate well over half of their revenues domestically, whilst for Western companies the values are considerably lower. Overall, these results seem to explain the differences between CI and corporate level rankings. Germany, with the highest Wind and Solar CI ranking, seems to be the most competitive in exporting wind and solar products; unsurprisingly, companies headquartered in the country only generate 33% of revenue domestically. The fact that Chinese companies generate 85% of revenue at home suggests that China has a very strong domestic wind and solar market. Overall, countries with lower Wind and Solar CI rankings may still be interesting for investors; corporate expertise may just be directed inwards, to the domestic market. Further analysis could draw upon national production data to complement export data, in order to better understand this dynamic.

Table 2.

Revenues (%) generated by country
	Canada	China	Germany	India	Italy	Japan	Spain	Thailand	United States
Canada	36%	3%	6%	0%	0%	23%	1%	0%	5%
China	0%	85%	1%	1%	0%	1%	0%	0%	4%
Germany	1%	10%	33%	1%	4%	2%	1%	0%	16%
India	0%	0%	0%	97%	0%	0%	0%	0%	2%
Italy	0%	0%	7%	0%	67%	1%	1%	0%	2%
Japan	1%	4%	1%	2%	0%	69%	0%	2%	5%
Spain	2%	1%	2%	2%	7%	0%	40%	0%	20%
Thailand	0%	0%	0%	0%	0%	13%	0%	79%	0%
United States	4%	7%	1%	1%	0%	4%	0%	0%	67%
Other	1%	6%	4%	2%	1%	3%	3%	0%	19%

China market

As China is poised to become the largest market for wind and solar energy, comparing the financial characteristics of its companies with other countries reveals interesting results. Table 3 provides more detail on the company profiles, in both midstream and downstream segments of the value chain (upstream activities were left out due to their limited presence in the sample). Chinese wind and solar component manufacturers seem to be, on average, larger than similar companies from other countries, whilst also trading at higher premia based on price-to-earnings (P/E) ratios. However, Chinese wind and solar companies involved in downstream operations operate with higher capitalisation ratios than in other regions.

Table 3.


Wind and Solar	China	Rest of World	China	Rest of World
Average Market Cap. (US$bn)	13.2	9.6	2	3.5
Average price/equity ratio	108	16.2	17	58.4
Average capitalisation ratio (debt/equity)	0.38	0.42	0.72	0.58
Number of companies	16	25	12	32

CI rankings for countries based on wind and solar products provide an insight into who is currently leading the way, and who is well placed to benefit from such profound increases in wind and solar energy capacity in the Net Zero transition. An investigation into the corporate level characteristics provides more detail on the investment opportunities in wind and solar companies. Using both export competitiveness data and corporate level data can help investors navigate the rapidly changing global wind and solar landscape.

The full report is available for download by clicking on the download button.

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