Alternative energy -- "green power" solutions as they are called -- is the most discussed topic regarding the widespread desire to combat global warming worldwide.
Despite the multitude of macro challenges like deflationary worries in Europe, slowdown in China and Japan, along with the oil price carnage in the market, the long-term outlook for the alternative energy space has held up pretty well. The latest report from by the U.S. Energy Information Administration ("EIA") shows that renewable energy will be the fastest growing power source through 2040.Solar and wind are gradually transforming the way we produce and consume energy, driving the ongoing global energy transition. Although some better-established sources of alternative energy -- hydro, wind, biomass and waste, not to mention solar photovoltaics ("PV") -- are supported extensively, niche renewable energy sources such as geothermal and concentrated solar power ("CSP") are also on the rise, natural conditions permitting.
Other upcoming alternative sources include the prospect of harnessing sea power. Numerous new ocean power technologies are on the verge of commercial development. Although this form of renewable energy is one of the most notable, it involves technologies with high research and development as well as startup costs. This has inhibited its all-out adoption so far.According to the latest "Energy Infrastructure Update" report from the Federal Energy Regulatory Commission's ("FERC") Office of Energy Projects, wind, solar, geothermal, and hydropower combined provided more than 75% of the 1,229 megawatts ("MW") of new U.S. electrical generating capacity placed into service during the first quarter of 2015.
Here we take a look at the alternative energy space and attempt to identify this nascent industry's strengths.
U.S. Administration's green energy drive: "Clean energy" has long been the focus of the current administration. President Obama's "Climate Change Action Plan" and the favorable green energy trends have already done a lot in pushing the sector northward. Now, the budget proposal seeks an approximate a 7.2% rise in funding for a clean energy space .
The proposal asks Congress for a permanent extension of tax credits for the solar and wind industry. The fiscal 2016 budget request includes a $7.4 billion fund for clean energy technologies, up 7.2% from the $6.9 billion proposal for fiscal 2015 and above the $6.5 billion enacted by Congress for fiscal 2015.
New tariffs and solar-trade war: Washington imposed new import duties on solar panels and other related products from China and Taiwan. The new duties would further escalate trade tensions between the two countries at a time when the two nations were planning to work together in the common fight against global warming and carbon emissions. The U.S. believes that Chinese manufacturers have hitherto benefited from unfair subsidies offered by their government.
The U.S. Department of Commerce ("DOC") in Dec 2014 set anti-dumping duties at about 52% on most module imports from China and at 19.5% on most imports of Taiwanese cells. It has also slapped 39% anti-subsidy tariffs on most China-made panels.
The continued invasion of low-priced Chinese solar products had pushed many American manufacturers out of business. In retaliation, the Department of Commerce implemented anti-dumping duties in 2012. Tariffs were only applied on Chinese-made cells that were used to make panels. Many Chinese solar manufacturers were able to dodge the hefty levies by assembling panels from cells produced elsewhere, especially in Taiwan. Yet those cells were derived from components -- ingots and wafers -- from China.
Hence the latest move is intended to close a gap in which Chinese companies could use solar cells made in Taiwan to avoid paying higher tariffs.
In the meantime, some U.S. solar stocks like SunPower Corp. ( SPWR ), First Solar Inc. ( FSLR ) and SunEdison Inc. ( SUNE ) are expected to make the most of the conflict.
The sun is everywhere: Solar power is generally located at a customer's site due to the universal availability of sunlight. As a result, solar power limits the expense and losses associated with transmission and distribution from large-scale electric plants to the end users. For most residential consumers seeking an environment-friendly power alternative, solar power is currently the only viable choice.
Among the renewable energy pack, we would advise investors to look for companies like rooftop solar energy systems provider SolarCity Corp. ( SCTY ) with an innovative game plan. The downstream solar company plays on its strength providing renewable power lower than the grid price to residential and commercial markets in the U.S. California-based SolarCity's MyPower loan plan allows its customers to own their solar systems and still pay less for electricity when compared to leasing them through power purchase agreements.
Residential solar in the U.S. has been one of the success stories in the alt-energy space. As per the Solar Energy Industries Association ("SEIA"), residential PV installation grew 51% year over year in 2014.
Japan looks bright: We note that Japan has recently been a happy hunting ground for solar companies in search of new markets. The country is going to be a key energy market as the recent strategy document released by Japan's Photovoltaic Energy Association (JPEA) outlined how Japan solar could reach 100 GW of installed PV generation capacity by 2030. "By 2020, Japan could target 65.7 GW of solar capacity, raising the bar from predictions made in 2013 for 49.4GW by that date," a JPEA statement said. "By reaching 100 GW by 2030, the country would be meeting around 11.2% of its overall power generation demand with PV."
Japan was the world's second largest market for solar PV growth in 2013 and 2014, adding a record 6.9 GW and 9.6 GW of capacity, respectively. In 2014, cumulative capacity reached 23.3 GW, ahead of Italy (18.5 GW) making the country the world's third largest power producer from solar PV, behind Germany (38.2 GW) and China (28.2 GW).
Japan's need for electricity is on the rise, particularly after the Fukushima nuclear power plant accident which triggered a complete phase-out of all nuclear reactors in the country. Presently, the Japanese government is looking for alternate resources to meet the growing need for power in this very industrialized nation.
Companies like First Solar are investing substantially to install emission-free renewable set-ups. The country is expected to become the second largest market for solar products after China. First Solar -- the largest U.S. solar company -- has been teaming up with Japanese counterparts to develop, build and operate solar power plants.
India holds promise: While the U.S. and China have been in the forefront in recent years in driving the industry, other nations are also pushing hard to have their home-grown solar generation capacity as a remedial measure to solve the electricity crisis. The latest to join this list is Asia's third largest economy, India.
Prime Minister Narendra Modi had revealed ambitious plans at the Vibrant Gujarat Summit held earlier this year for the solar industry in the country. India is striving to enhance its solar energy capacity to 100 GW by 2022. Moreover, India intends to increase its renewable energy share to at least 15% from the present 6% by 2020. Presently, India's solar power capacity is below 3 GW. This has kindled the interest of the global solar players in the Indian market.
India signed a $1 billion agreement with the Export-Import Bank in 2014 for companies willing to ship equipment from the U.S. First Solar and SunEdison Inc. have ample businesses in India and, together with local firms, will invest $6 billion in the country for the fiscal year ending Mar 31, 2016.
Environmental legislation: Alternative energy companies are increasingly benefiting from new legislation in the U.S. stipulating installation of renewable sources of electricity generation as mandated by Renewable Energy Standards ("RES"). As of now there are 29 states, the District of Columbia and two territories that have RES legislation in place. Another eight states and two territories also have goals for adopting renewable energy standards.
At the federal level, investment tax credit ("ITC") is currently at 30%, which will remain in effect through Dec 31, 2016. Beginning 2017, the solar tax credit becomes 10%. The industry will likely see many companies taking advantage of the 30% ITC, and build more panels, storage capacity and other production items up to the end of 2016. Once the ITC drops to 10%, these companies can also utilize a higher rate of depreciation to protect their profits. So, the cut in ITC will not likely dent these companies' profitability.
The wind sector also benefited significantly from the production tax credit ("PTC") over the last few years. It began as part of the Energy Policy Act of 1992. Subsequent to that it received life extensions of half a dozen times.
In the first decade of a renewable energy facility's lifespan, the PTC provided 2.3 cents/kilowatt-hour ITC benefit for wind turbines and 1.1 cents for some other renewable energy sources. In early 2013, the renewable electricity PTC was extended for one more year. However, it expired by the end of 2014 due to Congressional gridlock.
Need for a pollution-free environment: Globally, utilization of renewable energy is rising primarily due to its clean nature and a growing awareness among the masses regarding its benefits. In Jun 2014, the Obama administration proposed a commonsense plan to curtail carbon emissions from power plants by 30% by 2030 from 2005 levels.
The proposed rule was expected to come into effect this year. This has influenced utility providers like NRG Energy Inc. ( NRG ), Sempra Energy ( SRE ) and Duke Energy Corp. ( DUK ) to gradually shift their mode of power generation to solar, wind and water.
The EIA projects that utility-scale solar capacity will expand by about 84% between year-end 2014 and year-end 2016 in the U.S., in tandem with considerable consumption growth in renewables for electricity and heat generation purpose. California is expected to grab most of the growth with approximately 70% of the new capacity being built in the state.
To Sum Up
It is evident that demand for renewables is strengthening at a rapid clip. Moreover, the gradual widening of the solar markets will bode well for all global players and instill confidence in the industry over the long term.
Check out our latest "Can Alternative Energy Stop Global Warming?" here for more on the current state of affairs in this market from an earnings perspective, and how the trend is looking for this important sector of the economy now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SUNEDISON INC (SUNE): Free Stock Analysis Report
SEMPRA ENERGY (SRE): Free Stock Analysis Report
SUNPOWER CORP-A (SPWR): Free Stock Analysis Report
SOLARCITY CORP (SCTY): Free Stock Analysis Report
NRG ENERGY INC (NRG): Free Stock Analysis Report
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
You might be qualified for a new solar energy rebate program.
ReplyDeleteFind out if you qualify now!