Author Archives: Richard Asplund

MAC Solar Index September 2020 Quarterly Review Changes
 

As part of the regular quarterly index review process that takes effect after the close of business on September 18, 2020, the following stocks will be added to the index: Renova Inc (9519 JT) with an Exposure Factor of 0.5, Meyer Burger Technology AG (MBTN SW) with an Exposure Factor of 1.0, Azure Power Global Ltd (AZRE US) with an Exposure Factor of 1.0, and Clearway Energy Inc-C Shares (CWEN US) with an Exposure Factor of 0.5. There are no other changes.

MAC Solar Index Constituent Change July 2020
 

Terraform Power Inc A (TERP:US), a constituent stock in the MAC Solar Index, is being acquired by Brookfield Renewable Corp, and will be dropped from the Index as of the close of business on July 30, 2020 when the acquisition closes, and the proceeds will be distributed on a pro-rata weight basis to the other constituents in the Index via a divisor change.

MAC Solar Index March 2020 Quarterly Review Changes
 

As part of the regular quarterly index review process that takes effect as of the close of business on March 20, 2020, Sunnova Energy International Inc. (NOVA US) and Flat Glass Group Co. Ltd. – H shares (6865 HK) will be added to the MAC Solar Index, both with Exposure Factors of 1.0, while the following two stocks will be dropped from the index due to low liquidity: Beijing Enterprises Clean Energy Group Limited (1250 HK) and Meyer Burger Technology AG (MBTN SW).

Solar’s cost falls by another 7% and beats fossil fuels and nuclear by even larger amounts; Corporations show strong demand for solar; UN calls climate outlook “bleak”
 

See full PDF report with graphs at:

MAC-Solar-Sector-Update-Dec-2019

Solar Index Performance

The MAC Solar Energy Stock Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN), has rallied sharply during 2019 and posted a new 4-year high in September. The index has since settled back but is still up 51% on the year.

Bullish factors for solar stocks include (1) the improved global solar demand picture that has resulted from the sharp drop in solar module prices in 2018-19 and the fact that solar has now reached grid parity for two-thirds of the world’s population, (2) the stabilization of solar cell and module prices in 2019 that helped the profitability of solar manufacturers, (3) expectations for strong solar growth in Europe in 2019 as unsubsidized solar grows due to lower solar pricing and the end of Europe’s minimum import price (MIP) scheme, (4) broadening solar growth in India, Turkey, Latin America, Middle East, and Southeast Asia (see page 4 for the world solar growth outlook), (5) strong demand for renewable energy in general as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement, and (6) the reasonable valuation level of solar stocks.

Bearish factors for solar stocks include (1) low Chinese solar installs in the first nine months of 2019 as China shifts its solar policy to phase out subsidies, (2) the continued negative effect on U.S. solar from the Section 201 tariff on imported cells and modules that took effect in February 2018, and (3) the obstacle to India’s solar growth from the government’s safeguard tariff on solar modules.

Solar stocks are trading at reasonable valuation levels compared with the broad market. The estimated positive P/E of 16.68 for the companies in the MAC Solar Index is well below the comparable figure of 19.12 for the S&P 500 index, according to Bloomberg data. Also, the price-to-book ratio of 1.35 for the companies in the MAC Solar Index is far below the 3.52 ratio for the S&P 500. The price-to-sales ratio of 1.11 for the MAC Solar Index is far below the 2.29 ratio for the S&P 500.

Solar stocks rally on expanding solar growth

Solar stocks in 2019 have rallied sharply due to (1) underlying support from the sharp rally seen in the overall global stock markets during 2019, (2) the recovery of the global solar industry after the blow from China’s subsidy cut in May 2018, and (3) expectations for strong global solar growth outside China in 2019 and beyond.

Solar stocks were hit hard in mid-2018 after the Chinese government in May 2018 announced a sharp cut in its subsidy support, which caused a big drop in Chinese solar demand and a big drop in global solar pricing. However, the drop in Chinese demand was less severe than initially expected and solar pricing stabilized in late 2018, which helped to stabilize the profitability of solar manufacturers. Meanwhile, the sharp drop in solar pricing in 2018 was a windfall for solar developers, who could bring more projects to market since solar has become even more economical versus alternatives such as nuclear, coal, natural gas, and wind.

The sharp drop in solar pricing in 2018 made new large-scale solar projects cheaper than fossil-fuel and nuclear plants in many cases, leading to very strong new solar demand from utilities and corporations. There is now a big pipeline of global solar projects, supporting expectations for a strong year for solar installs in 2019 and 2020. Bloomberg New Energy Finance (BNEF) is forecasting that global solar installs in 2019 will grow by +12% to 121 GW from 108 GW in 2018.

In China, solar installs in the first nine months of 2019 were disappointing at only 16 GW because the government was slow to announce the details of its new policies for subsidized and unsubsidized solar. However, Chinese-based solar companies responded by exporting some 70% of their output to other areas of the world that are showing very strong solar growth.

In the U.S., solar growth is expected to be particularly strong over the next several years as developers take advantage of the investment tax credit (ITC) before it progressively steps down to 10% in 2022. In Europe, utility-scale project pipelines are filling up now that solar has become competitive on an unsubsidized basis.

Solar’s electricity cost falls 7% and beats fossil fuels and nuclear by even larger amounts

The levelized cost of electricity (LCOE) for newly-built U.S. utility-scale solar PV plants in late 2019 fell by -7% yr/yr to a midpoint of $40 per MWh ($36-44 range) for crystalline PV on an unsubsidized basis, adding to 2018’s -13% decline, according to Lazard in the latest annual edition of its comprehensive “Levelized Cost of Energy Analysis-Version 13.0” released in November 2019. The LCOE for thin-film utility-scale solar fell by a similar -7.5% yr/yr to an even lower mid-point price of $37 per MWh ($32-42 range).

The cost of residential and corporate solar PV systems also fell. The Lazard report found that the unsubsidized mid-point LCOEs fell by -3% yr/yr for Community Solar to $106/MWh ($64-148 range), -9% yr/yr for Roof-Top Commercial and Industrial to $114.5/MWh ($75-154), and -8% yr/yr for Rooftop Residential to $196.5/MWh ($151-242).

The Lazard report found that the mid-point cost for utility-scale crystalline solar PV of $40/MWh is now 63% cheaper than the $109/MWh mid-point cost for newly-built coal plants, 74% cheaper than the $155/MWh mid-point cost for nuclear plants, and 77% cheaper than the $174.5/MWh mid-point cost for gas-peaking plants.

The Lazard data shows that in most areas it is no longer economical for a utility to build any new coal or nuclear plants.

Regarding the natural gas comparison, the crystalline solar PV midpoint cost of $40/MWh (range $36-44/MWh) is now 29% cheaper than the mid-point cost of $56/MWh (range $44-68) for natural gas plants. That illustrates that the cost of utility-scale solar now beats the cost for building a natural gas plant in many cases.

While solar clearly wins against coal and nuclear for newly-built plants, the fact remains that existing coal and nuclear plants are still relatively cheap to operate. Lazard estimates the average marginal cost for running a nuclear plant is only $29/MWh and $33/MWh for coal, which is below the $40/MWh mid-point cost for building a brand-new utility-scale solar plant.

That shows that solar and wind are not yet cheap enough that utilities have an economic incentive to mothball all their existing nuclear and coal plants and build new solar and wind plants. However, as coal and nuclear plants reach the end of their useful lives, utilities will clearly decide to switch to building new gas, solar and wind plants based on economics, with gas being their preference for baseload until storage starts to play a bigger role in supporting solar as a 24/7 base-load electricity resource.

The average age of power plants in the U.S. is 39 years for coal plants and 37 years for nuclear plants, illustrating that utilities are facing pressure to build new electricity plants as old coal and nuclear plants reach the end of their useful lives and must be retired. In addition, increased pollution and carbon constraints mean that the marginal cost of operating coal plants will steadily rise in coming years, thus encouraging utilities to phase out their aging coal plants sooner rather than later.

It is also worth noting that the marginal cost of running an existing solar plant is negligible compared with the cost of running coal, gas, or nuclear plants since the sun is free. In addition, the operating costs of a solar plant are very predictable and present much less cost risk for a utility than a coal or natural gas plant where the future cost of the fuel is not known.

Solar has become cheaper than new fossil fuel plants, not just in the U.S., but also globally. BNEF reports that for two-thirds of the world’s population, it is already cheaper to get new power from solar or wind than from new fossil fuel plants.

Corporations show strong demand for solar

Corporations are becoming increasingly important buyers of solar power. Corporations can buy solar power by (1) buying solar panels and installing them onsite, or (2) buying solar power through Power Purchase Agreements (PPAs). With a PPA, a corporation enters into a contract with a solar facility owner to pay a certain price per megawatt-hour of electricity that the corporation uses over a long period of time such as 10 years or more.

Corporations have entered into 15.5 GW of clean energy PPAs so far in 2019 across the world, which is more than double the year-earlier figure of 6.2 GW, according to BNEF. Corporate PPAs are the most popular in the Americas, which account for 82% of this year’s corporate PPAs, according to BNEF. However, corporate PPAs are also starting to boom in Europe, reaching a record high of 200 MW so far this year.

There are now more than 200 global companies that have joined the RE100 initiative and have agreed to move towards getting 100% of their electricity from renewable sources. These RE100 corporations already effectively get 39% of their electricity from clean energy, mostly by buying renewable energy credits.

However, the RE100 companies need to buy 189 terawatt-hours of clean electricity through 2030 to meet their 100% renewable energy goals, according to BNEF. That represents a massive $97 billion worth of clean energy purchases through 2030.

Regarding the breakdown of corporate clean energy purchases, Wood Mackenzie reports that corporate solar purchases in 2019 of 1.3 GW are expected to lag wind purchases of 3.9 GW. However, Wood Mackenzie expects solar to quickly overtake wind in coming years with annual purchases of 6.6-12.5 GW of solar purchases by 2030, far more than wind purchases of less than 2 GW.

The Solar Energy Industry Association (SEIA) in July released a comprehensive report on corporate solar entitled “Solar Means Business.” The SEIA report found that there is currently 7 GW of corporate solar power installed in the U.S. across 35,000 installations, which is 23 times what it was a decade ago.

The report found that the biggest corporate users of solar power are Apple, Amazon, Target, Walmart, Switch (data centers), and Google. Other notable big corporate solar users include IKEA, Macys, Kohls, Costco, Starbucks, Paypal, Home Depot, and many others.

UN calls climate outlook “bleak” as global emission cuts fall far short

The UN Environmental Program (UNEP) in its annual Emissions Gap Report said that the world is falling far behind in the goals for limiting global warming.

The report said, “The summary findings are bleak. Countries collectively failed to stop the growth in global GHG emissions, meaning that deeper and faster cuts are now required.”

The world has already warmed by 1 degree Celsius (1.8 degrees Fahrenheit) from pre-industrial levels. The goal is to limit the warming to well below 2.0 degrees Celsius (3.6 degrees Fahrenheit) and preferably below 1.5 degrees Celsius. However, the world is currently on track for warming of 3.9 degrees Celsius (7 degrees Fahrenheit) by the end of this century, which would result in catastrophic damage, according to UNEP.

The current pledges in the Paris agreement for emission cuts are not enough to keep warming below 2 degrees Celsius. To make matters worse, most countries aren’t even meeting their current Paris pledges. The Trump administration is in the process of withdrawing the U.S. altogether from the Paris climate agreement and reneging on America’s previous emission-cut pledge. The UNEP report says that the Paris pledges need to be tripled and then met in order to prevent global warming from causing catastrophic damage.

The report said that “Incremental changes will not be enough and there is a need for rapid and transformational action.” The report says those changes will require the investment of at least $1.6 trillion annually in energy-sector investment through 2050, for a total of $48 trillion. That illustrates the massive opportunity for solar power to provide one of the most economical solutions for global warming.

MAC Solar Index June 2019 Quarterly Review Changes
 

As part of the regular quarterly index review process that takes effect as of the close of business on June 21, 2019, REC Silicon ASA (REC NO) will be removed from the index due to below-threshold solar revenue exposure, and Xinyi Energy Holdings Ltd (3868 HK) will be added to the index with an Exposure Factor of 1.0 as a spin-off from an existing constituent (Xinyi Solar Holdings Ltd-968 HK).

Solar stocks rally on expectations for solid 2019 solar growth; Solar-plus-storage goes big; Chinese inverters see tariff hike
 

See full PDF report with graphs at:

MAC-Solar-Sector-Update-May-2019

Solar Index Performance

The MAC Solar Energy Stock Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN), rebounded sharply higher to a 1-year high in May 2019 from the 2-year low seen in October 2018. The index is currently up +38% on the year, more than reversing the -27% decline seen in 2018. The index in 2017 showed a strong gain of +52%.

Bullish factors for solar stocks include (1) the improved global solar demand picture that has resulted from the sharp drop in solar module prices in 2018-19 and the fact that solar has now reached grid parity in many cases, (2) the stabilization of solar cell and module prices in late 2018 and early 2019 that helped the profitability of solar manufacturers, (3) expectations for strong solar growth in Europe in 2019 as unsubsidized solar grows due to lower solar pricing and the end of Europe’s minimum import price (MIP) scheme, (4) broadening solar growth from India, Turkey, Latin America, Middle East, and Southeast Asia (see page 3 for the world solar growth outlook), (5) strong demand for renewable energy in general as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement, and (6) the reasonable valuation level of solar stocks.

Bearish factors for solar stocks include (1) low Chinese solar installs in the first half of 2019 as China transitions to its new solar policy that should produce strong solar installs in the second half of 2019, (2) the continued negative effect on U.S. solar from the Section 201 tariff on imported cells and modules that took effect in February 2018, and (3) the obstacle to India’s solar growth from the government’s safeguard tariff on solar modules.

Solar stocks are trading at reasonable valuation levels compared with the broad market. The estimated positive P/E of 17.79 for the companies in the MAC Solar Index is mildly above the comparable figure of 16.95 for the S&P 500 index, according to Bloomberg data. However, the price-to-book ratio of 1.54 for the companies in the MAC Solar Index is far below the 3.27 ratio for the S&P 500. The price-to-sales ratio of 1.14 for the MAC Solar Index is far below the 2.09 ratio for the S&P 500.

Solar stocks rally on expectations for solid 2019 solar growth

Solar stocks in early 2019 have rallied sharply due to (1) the recovery of global stock markets in early 2019 after the sharp downside correction seen in Q4, (2) the recovery of the global solar industry after the blow from China’s subsidy cut in May 2018, and (3) expectations for strong global solar growth in the second half of 2019.

Solar stocks were hit hard in mid-2018 after the Chinese government in May 2018 announced a sharp cut in its subsidy support, which caused a big drop in Chinese solar demand and a big drop in global solar pricing. However, the drop in Chinese demand was less severe than initially expected and solar pricing stabilized in late 2018, which helped to stabilize the profitability of solar manufacturers. Meanwhile, the sharp drop in solar pricing in 2018 was a windfall for solar developers, who can now bring more projects to market since solar is now even more competitive against alternatives like natural gas and wind.

The sharp drop in solar pricing in 2018 has made large-scale solar very competitive and is drawing major purchasing interest from utilities and corporations. There is now a big pipeline of global solar projects that supports expectations for a strong year for solar installs in 2019. In China, the new year has brought the return of China’s solar subsidy programs as well as a pilot program for unsubsidized solar projects. In the U.S., solar growth is expected to be strong over the next several years as developers take advantage of the investment tax credit (ITC) before it progressively steps down to 10% in 2022. In Europe, utility-scale project pipelines are filling up now that solar has become competitive on an unsubsidized basis.

Solar-plus-storage goes big

The combination of solar plants with battery storage systems (“solar-plus-storage”) is taking off quickly in the U.S. and the size of the battery systems is multiplying. Florida Power & Light is planning to build what would be a record-sized battery plant with 409 MW of capacity. The battery plant will be powered by an existing solar plant that has 900 MW of capacity. The battery plant will be built by 2021 and will help accelerate the decommissioning of two nearby natural-gas power plants.

Not to be outdone, the Electric Reliability Council of Texas, which operates most of the Texas electricity grid, will build an even larger 495 MW battery storage system in Texas. The storage system will be powered by a newly-built 495 MW solar plant.

Meanwhile in Hawaii, regulators approved seven solar-plus-storage projects totaling 262 MW of solar and 1.048 GWh of battery storage. The projects are being built by Hawaii’s utility company, Hawaiian Electric, on three different Hawaiian islands.

The average price of 9 cents/kWh for the Hawaiian solar-plus-storage projects is well below Hawaii’s cost of about 15 cents per kWh for generating electricity by burning oil, which is currently Hawaii’s primary means of generating electricity. The average price of 9 cents is also below Lazard’s LCOE estimate for a solar-plus-lithium-battery system of 10.8-14.0 cents/kWh in its November “Levelized Cost of Storage Analysis V4.0” report. The low prices of the recent solar-plus-storage projects in Hawaii are particularly impressive given the relatively high construction costs on islands in Hawaii.

On the U.S. mainland, solar-plus-storage systems are coming in at significantly lower prices. A solicitation last year by Xcel Energy for a solar-plus-storage plant in Colorado saw a median bid of an extremely low 3.6 cents/kWh for delivery in 2023. That was even lower than a deal signed by Tucson Electric in May 2017 of 4.5 cents/kWh.

Solar-plus-storage will become even cheaper in coming years. Lithium-battery prices have already plunged by 85% since 2010 and will fall by another 52% by 2030, according to BNEF.

U.S. raises tariffs on Chinese inverters to 25%

President Trump on May 10 announced a hike in the penalty tariffs on Chinese solar inverters to 25% from 10%. Solar inverters are electrical devices that convert the direct current (DC) from solar panels into the alternating current (AC) that is used on the grid. Inverters were included in the Trump administration’s hike in the penalty tariff to 25% from 10% on $200 billion worth of Chinese goods.

However, the tariff hike on Chinese inverters is not likely to have much impact on the U.S. solar market since U.S. solar developers have already moved away from Chinese-built inverters due to the initial 10% tariff that was imposed in September 2018.

The higher tariff will make it nearly impossible for Huawei Technologies, the world’s largest inverter manufacturer, to build a larger market share for U.S. sales. That gives a boost to smaller U.S.-listed inverter manufacturers such as SolarEdge Technologies (SEDG US), Enphase Energy (ENPH US), and European-listed SMA Solar Technology (S92 GR).

Separately, the Trump administration is threatening to slap a 25% penalty tariff on another $300 billion of Chinese goods as soon as June if there is no US/Chinese trade agreement. Batteries are on the list of goods that would be subject to that 25% tariff. If batteries get hit with a tariff, that could slow the rapid pace of solar-plus-battery installations in the U.S. due to a higher cost of the batteries. The U.S. currently imports about 40% of its lithium-ion batteries from China, although most of those batteries are for end-markets other than grid-storage. The good news is that China currently supplies less than 5% of the batteries used in large-scale energy storage products, according to BNEF.

The Trump administration in early 2018 already slapped tariffs on most imported solar modules and cells, which means there isn’t much more damage that can result for solar cells and modules from the US/Chinese trade war.

See full PDF report for more commentary and graphs