
Scharfsinn86
Plug Energy (NASDAQ:PLUG) was already in a precarious place previous to but once more disappointing traders with one other dangerous quarter. The hydrogen gasoline firm now faces liquidity issues, whereas authorities laws seem to not favor the business. My funding thesis stays Bearish on the inventory, although the current bounce within the face of destructive information is price discover.
Supply: Finviz
Liquidity Considerations
Plug Energy has boxed the corporate right into a nook after years of lacking targets, resulting in mounting losses. The corporate continues to face huge delays in new hydrogen gasoline crops, with the Georgia plant nonetheless not producing hydrogen after internet hosting the Investor Day there on August 23.
Supply: Plug Energy Q3’23 shareholder letter
The Q3 outcomes generated one other practically $300 million loss after Plug Energy missed income targets once more. The prime difficulty dealing with any enterprise with delays is that prices don’t disappear and must be absorbed whether or not producing revenues or not. Administration even steered the gasoline enterprise wouldn’t be worthwhile till the Texas plant was operational, and this isn’t focused till 2025 now.
Plug Energy burned $1.2 billion in money YTD and the non-restricted money steadiness sat at solely $500 million, down from over $2.0 billion firstly of the 12 months. The corporate is engaged on DOE loans of as much as $1.5 billion for 80% financing of presumably current hydrogen crops beneath development, together with pursuing different types of financing initiatives as follows:
Supply: Plug Energy Q3’23 shareholder letter
Naturally, the issue dealing with an organization needing entry to capital is that the phrases aren’t at all times conducive to traders. Public market traders are normally higher off ready till the phrases of recent capital are launched to the general public to make sure any new funding isn’t compromised.
Restrictive Subsidy Guidelines
What gained’t assist Plug Energy is that the brand new proposed guidelines from the Biden Admin for the hydrogen Manufacturing Tax Credit score (PTC) are very restrictive. The brand new guidelines will undoubtedly trigger delays and doubtlessly cancel plans for hydrogen manufacturing and use.
The Treasury Division issued tighter restrictions than anticipated, requiring the usage of clear vitality constructed throughout the prior 3 years and for the usage of the identical grid. Much more troubling, the electrolyzers used to separate water into oxygen and hydrogen should run throughout the identical hours that the wind and photo voltaic farms function beginning in 2028.
The American Clear Energy Affiliation chief government Jason Grumet made the next assertion to the New York Occasions concerning the hourly restrictions:
…will discourage a major majority of unpolluted energy corporations from investing in inexperienced hydrogen manufacturing and amenities.
The restrictions are supposed to stop from new hydrogen crops to depend on carbon vitality sources to provide the hydrogen. The concern is that with out requiring new matching clear vitality sources, coal or gasoline energy crops would possibly find yourself compensating for the misplaced energy from a photo voltaic or wind farm contributing electrical energy to a hydrogen gasoline plant.
Any clear hydrogen plant with entry to new wind or photo voltaic electrical energy can make the most of the $3/kg tax credit score to make the manufacturing of inexperienced hydrogen akin to with pure gasoline. In any other case, the clear hydrogen course of prices an estimated $4/kg to $6/kg and isn’t very possible.
On the Q3’23 earnings name, the Plug Energy CEO highlighted issues on a hourly matching program as follows:
We additionally assume that if you consider time matching, it’s fairly clear that treasury has realized that hourly time matching doesn’t work due to direct marketplace for that basically doesn’t exist.
Morgan Stanley just lately minimize Plug Energy to a $3 worth goal as a result of points with larger capex inflation, rates of interest and the truth that inexperienced hydrogen is simply too reliant on subsidies. This destructive ranking was based mostly on the uncertainty of the proposed laws launched right now, and the precise guidelines solely reinforces these issues.
Plug Energy reacted considerably positively to the information, in all probability as extra of a aid rally that the Treasury Division truly issued steerage. Quite a lot of hydrogen initiatives have probably been on maintain ready on last particulars of the clear hydrogen tax subsidy, and this at the least permits these qualifying for the credit to maneuver ahead.
Takeaway
The important thing investor takeaway is that Plug Energy has too many capital wants in a brand new market like clear hydrogen to spend money on the inventory right here. As well as, the proposed guidelines for hydrogen subsidies seem far too restrictive for the business and Plug Energy has no margin of security to deal with any guidelines that additional delay and even doubtlessly cancel initiatives.