Analyzing the Leverage of Renewable Energy Companies



Interest coverage ratio

Experts don’t expect the low interest rate scenario to continue in 2016. Therefore, it’s important to understand the different financial impacts related to the interest rate scenario. The EBIT-to-interest ratio for FuelCell Energy (FCEL) is -9.8x. For EnerSys (ENS), it’s 12x. Plug Power (PLUG) has a ratio around -97x. The statistics suggest that EnerSys will be less sensitive to a change in the interest rate. The EBIT-to-interest expenses measure the sensitivity towards a change in the interest rate. The sensitivity decreases with a higher ratio. Negative ratios are due to a negative EBIT (earnings before interest and tax).

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Weighted average cost of debt

For these renewable energy companies, the median weighted average cost is around 2.8%. Plug Power has the highest weighted average cost of debt at about 3.1%. For FuelCell Energy and EnerSys, the weighted average cost of debt stood at 2.4% and 2.5%, respectively. SolarCity’s (SCTY) weighted average cost of debt was 2.9%.

SolarCity has a 4.7% weight in the Guggenheim Solar ETF (TAN). EnerSys accounts for 4.2% of the VanEck Vectors Global Alt Energy ETF (GEX). SolarCity has a 1.8% weight in the PowerShares WilderHill Clean Energy ETF (PBW).

Experts think that after the Paris Climate Agreement, the rating agencies could upgrade these stocks and the industry’s overall outlook. With a boost in the ratings, the weighted cost of debt can come down.

Debt growth

SolarCity’s debt grew by 340% while EnerSys’s and Plug Power’s debt grew by 60%. The above chart shows these companies’ debt and weighted average cost of debt.


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