Read report in PDF with graphs: MAC-Solar-Sector-Update-Apr-2014
Solar Index Performance
The MAC Solar Index, which is the tracking index for the Guggenheim Solar Energy ETF (NYSE ARCA: TAN), is up by 23% so far in 2014 (through April 9), adding to the 127% rally seen in 2013.
The rally in solar stocks over the past year has been driven mainly by a surge in end-market demand, the stabilization of polysilicon and solar panel pricing (see charts on p. 3), and the improved profitability of solar manufacturers. The surge in demand seen over the past year has allowed the solar industry to move past the 2011-12 shake-out that was driven by over-capacity and a sharp decline in polysilicon and solar cell/module pricing. That sharp decline in solar pricing, however, led to a surge in demand as solar power becomes economical for a much wider customer target market.
2014 starts with record-breaking solar demand
World solar PV demand in Q1-2014 exceeded 9 gigawatts (GW), according to NPD Solarbuzz. That was a new first-quarter record and was up +35% y/y. Solar demand will exceed 40 GW in 2014 and then grow by another 25% to 50 GW in 2015, according to NPD Solarbuzz. The research group also forecasts that the global solar industry will grow by more than +25% per year over the next four years and will reach 100 GW of production by 2018. The surge in Q1 solar demand was mostly due to strong growth in Japan and the UK. Global solar PV installations in 2014 of more than 40 GW translates to more than $86 billion of revenue for the industry, according to IHS.
U.S. solar PV soared by 41% in 2013 and became the second largest source of new electricity
U.S. solar PV installations soared by 41% in 2013 to 4.751 GW, according to the “2013 Year-in-Review” report from SEIA and GTM Research. U.S. solar PV in 2014 will grow by another 26% to 6 GW, according to the report. The report notes that more U.S. solar has been installed in the past 18 months than in the previous 30 years combined. The report also notes that U.S. solar PV installations in 2013 totaled $13.7 billion in terms of industry revenue.
Moreover, solar PV in 2013 became the second largest source of new electricity capacity generation in the U.S., rising to a 29% share of new electricity generation from a 10% share in 2012, according to the SEIA/GTM report. Solar PV’s 29% share of new electricity generation in 2013 handily beat coal’s 10% share by 20 percentage points and was only 17 points behind the natural gas share of 46%.
The cost of installing solar PV in the U.S. fell by -15% y/y, according to the SEIA/GTM report, which makes solar attractive to an increased number of end-users. The report found that PV module prices increased slightly during 2013 but that the overall cost of solar fell -15% due to lower prices for inverters (which fell -15% to -18%), racking systems (which fell -14% to -24%), and other downstream innovations such as lower financing costs. Regarding pricing by segment, solar PV costs fell by -9% in the residential market, -16% in the commercial market, and -14% in the utility market, according to the SEIA/GTM report.
Solar reaches grid parity in more markets
Solar PV has now reached grid parity in the commercial market segments in Germany, Italy, and Spain, according to a comprehensive analysis by research group Enclareon in their new report, “PV Grid Parity Monitor: Commercial Sector.” The report found that the levelized cost of solar PV in those segments has fallen below the price of electricity charged by the utility in those areas.
The report found that solar PV in the French commercial segment has not yet reached grid parity because of low French utility electricity prices in the commercial segment. The report found that the commercial segments have also not yet reached parity in the Latin American countries of Mexico, Brazil and Chile because of higher PV installation costs and a high discount rate.
Meanwhile, Deutsche Bank in January released a report showing that solar PV has reached grid parity without subsidies in a variety of markets. Residential markets that have reached grid parity include California, Germany, Italy, Spain, Greece, Japan, Thailand, Australia, South Africa, Turkey, and Israel. Deutsche Bank analysts also found that solar PV has reached grid parity in the industrial segments in China, Germany, Italy, Greece, and Mexico. Deutsche Bank analysts expect solar PV to be sustainable at grid parity in three-quarters of the world’s market by next year.
Citigroup released a major report in March saying that the “Age of Renewables” has begun. Citigroup analysts said, “We predict that solar, wind and biomass will continue to gain market share from coal and nuclear into the future.” The Citigroup report was downbeat on coal since it says that coal has been priced out of the market by stricter regulations with a levelized cost of 15.6 cents/kWh for new plants. Citigroup believes that nuclear will not be able to compete on its economic merits, either. Citigroup notes that the new Vogtle nuclear plant under construction in Georgia will have a levelized cost of about 11 cents/kWh. Citigroup is also cautious about the costs of natural-gas-fired electricity plants, noting that natural gas prices have more than doubled in the past two years and that natural gas prices are likely to rise further as the U.S. starts to export liquid natural gas (LNG) in quantity.
Utility-based solar PV falls below 5 cents/kWh
Solar PV reached a pricing milestone with news that Austin Energy entered a 25-year power purchase agreement for solar power from SunEdison at a record-low cost of “just below” 5 cents per kWh. The low cost was helped by the federal Investment Tax Credit but not by any state-level tax break. Austin Power reportedly received about 30 other proposals with solar PV costs near 5 cents/kWh. The cost of solar PV was below Austin Energy’s cost estimates for other types of new power plants such as natural gas at 7 cents/kWh, coal at 10 cents/kWh, and nuclear at 13 cents/kWh.
IPCC issues comprehensive new climate warning
The UN Intergovernmental Panel on Climate Change (IPCC) in early April issued a new warning on climate change in its “Fifth Assessment Report” (AR5). The comprehensive report concludes that the world needs to cut emissions by 40-70% by 2050. The report recommends that low-carbon sources of energy (including solar power) need to rise to 51% of total energy sources by 2050, more than triple the 17% share seen in 2010. The report says that in order to meet climate goals, investment in fossil fuels should drop by -$30 billion per year and that spending on renewables needs to go up by +$147 billion annually.
SolarCity’s second securitized solar note sees strong demand
SolarCity on April 3 sold another $70 million of notes securitized by solar leases and power purchase agreements. The yield on the latest deal of 4.59% was 21 basis points below the 4.80% yield on SolarCity’s first securitized note sold in November 2013. This month’s note offering saw strong demand and was oversubscribed, according to Roth Capital Partners. Now that SolarCity has paved the way with two securitization deals, many other solar companies are expected to tap the securitization market as well to gain access to low-cost financing and build more solar projects.