Author Archives: Richard Asplund

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

Solar stocks recover in January with expectations for solid 2019 solar growth; Solar’s electricity cost falls 12% and becomes even more competitive vs fossil fuels and nuclear; IEA forecasts that solar will become second largest electricity source by late-2030’s
 

Read full report in PDF with graphs: MAC-Solar-Sector-Update-Jan-2019

Solar Index Performance

The MAC Solar Energy Stock Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN), rebounded sharply higher in January from the 1-3/4 year low posted in October 2018. The index is currently up +18% on the year, reversing part of 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 and the fact that solar has now reached grid parity in many places, (2) the stabilization of solar cell and module prices in late 2018 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 5 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 low valuation level of the solar sector.

Bearish factors for solar stocks include (1) the tail-end impact of China’s reduced subsidy support for solar that was announced in May 2018, which caused a big solar module inventory overhang and sharply lower solar module pricing during mid-2018, (2) the continued negative effect on U.S. solar from the Section 201 tariff of 30% 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 continue to trade at low valuation levels compared with the broad market. The forecasted 2019 P/E of 14.6 for the companies in the MAC Solar Index is below the comparable figure of 15.8 for the S&P 500 index. The price-to-book ratio of 1.11 for the companies in the MAC Solar Index is well below the 3.17 ratio for the S&P 500. The price-to-sales ratio of 0.86 for the MAC Solar Index is well below the 2.03 ratio for the S&P 500.

Solar stocks recover in January with expectations for solid 2019 solar growth

Solar stocks in January recovered due to (1) the partial recovery of global stock markets in January after the downside correction seen during October-December, (2) the recovery of the global solar industry after the blow from China’s subsidy cut in May 2018, and (3) expectations for solid global solar growth in 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 wind and natural gas.

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. A big pipeline of global solar projects has built up over the past year, which supports expectations for a strong year for solar 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 is expected to be strong over the next several years as developers seek to take advantage of the investment tax credit (ITC) before it 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 12% and becomes even more competitive vs fossil fuels and nuclear

The levelized cost of electricity (LCOE) for newly-built utility-scale solar PV plants in late 2018 fell by -13% yr/yr to a midpoint of $43 per MWh ($40-46 range) for crystalline PV on an unsubsidized basis, according to Lazard in the latest annual edition of its comprehensive “Levelized Cost of Energy Analysis-Version 12.0” released in November 2018. The LCOE for thin-film solar fell by a similar -12% yr/yr to a lower mid-point price of $40 per MWh ($36-44 range).

While the cost of residential and corporate solar PV systems remains substantially higher than the cost of utility-scale solar, it also fell from year-earlier levels. The Lazard report found that the unsubsidized mid-point LCOEs are as follows: Community Solar -4% yr/yr to $109/MWh ($73-145 range), Roof-Top Commercial and Industrial -10% yr/yr to $125.5/MWh ($81-170), and Rooftop Residential -16% yr/yr to $213.5/MWh ($160-267).

Lazard’s latest LCOE report shows that solar PV now easily beats the cost of newly-built coal plants ($60-143/MWh), nuclear plants ($112-189/MWh), and gas-peaking plants (($152-206/MWh). 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 cost range of $40-46/MWh is now at the lower end of the range of $41-74 for gas combined cycle plants, illustrating how solar either beats or at least matches natural gas, depending on the parameters of a specific project. The $43/MWh mid-point of solar crystalline PV is actually -25% below the mid-point of $57.5/MWh for natural gas for an average project.

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 $28/MWh for nuclear and $36/MWh for coal.

That comparison 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, wind and gas plants. However, as coal and nuclear plants reach the end of their useful life, 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.

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 life and must be retired. In addition, increased pollution and carbon constraints mean that the marginal cost of operating coal plants will be headed higher over the long run, thus encouraging utilities to phase out their aging coal plants sooner rather than later.

NextEra Energy is going big on Florida solar

Utility-giant NextEra Energy Inc. is planning $10 billion worth of utility-scale solar PV farms in Florida. The program would be the world’s largest-ever solar build-out by a regulated utility. The plan involves building about 130 solar farms through 2030 with a total of 30 million solar modules generating 10 GW of electricity.

The utility is asking regulators to approve the plan based on its estimate that the solar plants will substantially reduce electricity costs for Florida’s electricity users. The utility says that each of the 130 solar farms could save electricity rate-payers some $40 million in fuel costs over its life.

Solar beats wind in head-to-head auctions in Europe

Solar has consistently beat wind on cost in recent head-to-head contests in European power auctions. In Germany, for example, solar parks took all of the 201 MW of renewable power tendered in October. The only wind proposal that was submitted in that German tender was dropped because of its high price. The average winning solar bid was an impressively low 52.7 euros ($60.1) per MWh.

In France, solar was awarded all of the 200 MW of capacity in a renewable power auction that was held in November. A total of 16 solar projects were chosen. No wind projects were chosen because of higher wind pricing. The average price of the accepted solar projects in the auction was 54.9 euros ($62.6) per MWh.

Separately, Germany in 2018 received more of its electricity from renewables than it did from coal for the first time ever. Renewables (wind, solar, hydro and biomass) generated just over 40% of Germany’s electricity in 2018, beating coal’s 39% share, according to the Fraunhofer Institute. Solar’s electricity-generation share grew by 20% in 2018. Coal lost ground as old plants were mothballed. Germany is working on a plan to eventually phase out its nuclear plants.

U.S. National Climate Assessment sees grim future

The U.S. “Fourth National Climate Assessment” offered a grim warning for the U.S. if action is not taken on global warming. The report found that global warming is already negatively affecting the U.S. with a 1.8 degree Fahrenheit rise in temperatures in the last 100 years, a 9-inch rise in ocean levels on the coasts, and far worse heat waves than have been experienced as recently as 50 years ago. The report said that damage from climate change is “intensifying across the country.”

The report warns that millions of people may have to be relocated away from the coasts. The report says, “The potential need for millions of people and billions of dollars of coastal infrastructure to be relocated in the future creates challenging legal, financial, and equity issues that have not yet been addressed.”

The report estimates the dollar costs related to global warming. The report says that in the worst-case climate-change scenario, labor-related losses as a result of extreme heat could rise to $155 billion annually by 2090, deaths from temperature extremes could represent an economic toll of $141 billion, and coastal property damage could total $118 billion annually.

The report notes that other effects of climate change include reduced snow and water supplies in the western U.S. mountain ranges, bleached coral reefs, increased wildfire damage, and disruption to Alaska’s ecosystems such as ice-clogged coastlines and thawing permafrost.

The report is the U.S. government’s fourth comprehensive assessment of U.S. climate-change impact issued since 2000. The report is mandated by Congress and is issued every four years. The November report was compiled by 13 federal departments and agencies and by the U.S. Global Change Research program. The report was compiled independently of the White House and a NOAA spokeswoman said the report was not “altered or revised in any way because of political considerations.”

IEA forecasts that solar will become second largest electricity source by late-2030’s

The International Energy Agency (IEA) in its latest annual “World Energy Outlook” published in November predicted that solar by the late-2030s will become the world’s second largest electricity source behind natural gas, as seen in the above graph. The IEA predicted annual growth for solar of +8% through 2040, reaching 2,500 GW in 2040 from about 400 GW in 2017.

The IEA in the past has woefully under-estimated solar’s actual growth rates. Indeed, the IEA in its latest report was forced to raise its solar forecasts by 20% from the year-earlier report. Even after that hike, the IEA is still lagging far behind solar forecasts by Bloomberg New Energy Finance (BNEF). BNEF is forecasting that solar will beat even natural gas to become the largest source of electricity by 2032 and that solar will show an annual growth rate of +12% through 2040.

The IEA report also warned that “unprecedented” investment action is needed to avert a climate crisis. The IEA says that global CO2 emissions rose by +1.6% in 2017 and will continue to rise slowly through 2040.

Solar-plus-storage takes off in Hawaii

The Hawaiian utility company Hawaiian Electric in early January sent seven solar-plus-storage contracts to state regulators for approval with a record-low average price of 9 cents per kWh ($90/MWh). Two of the projects came in at 8 cents/kWh. The combined size of the seven solar-plus-storage systems is 262 MW of solar and 1.048 GWh of storage. The projects will be built 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. Hawaii is heavily dependent on burning oil for its electricity since oil accounts for 74% of Hawaii’s total electricity generation, according to the U.S. Energy Information Administration (EIA). Hawaii has adopted a goal of going 100% renewable by 2045. Hawaii currently generates about 14% of its power from renewable sources with the rest being oil (74%) and coal (12%), according to the EIA.

Meanwhile, a solar-plus-storage project on the island of Kauai that is owned and operated by AES Corp is ready to go on line with power-purchase-agreement (PPA) pricing of 11 cents/kWh. The size of the plant is 28 MW of solar PV and 100 MWh of lithium-ion battery capacity.

The 8-11 cent/kWh pricing of these various Hawaiian solar-plus-storage projects is at or 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 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.

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Subsidy-free solar is spreading quickly as solar reaches grid parity; Chinese solar shake-out results from government’s “China-531” subsidy cut; UN IPCC says renewables growth must greatly accelerate to curb climate change.
 

Read full report in PDF with graphs: MAC-Solar-Sector-Update-Oct-2018

Solar Index Performance

The MAC Solar Index, the tracking index for the Invesco Solar ETF (NYSE ARCA: TAN), has fallen sharply from May’s 1-3/4 year low to post a new 14-month low. The index is currently down -24.2% on the year, reversing part of the annual +52% gain seen in 2017.

Bearish factors for solar stocks include (1) China’s sharply reduced subsidy support for solar that was announced on May 31, 2018, which caused an inventory overhang and sharply lower solar panel pricing, (2) the Trump administration’s 4-year 30% tariff on imported cells and tariffs that took effect in February, which dampened U.S. solar install growth, and (3) ongoing solar trade disputes that have resulted in tariffs and various market dislocations.

Bullish factors for solar stocks include (1) the improved solar project economics that have resulted from the sharp drop in solar panel prices, (2) Europe’s decision to end its duties and minimum price scheme on Chinese solar panels, which will improve European solar growth, (3) broadening solar growth from India, Turkey, Latin America, the Middle East, and Southeast Asia (see page 5 for the world solar growth outlook), (5) strong demand for solar power as solar reaches grid parity and as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement, and (6) low valuation levels that indicate that solar stocks are very cheaply priced.

Solar stocks are trading at very low valuation levels compared with the broad market. The median trailing P/E for the companies in the MAC Solar Index is currently 14.6, which is far below the comparable figure of 20.0 for the S&P 500 index. Meanwhile, the median forecasted 2018 P/E of 15.5 for the companies in the MAC Solar Index is well below the comparable figure of 17.0 for the S&P 500 index. The median price-to-book ratio of 1.21 for the companies in the MAC Solar Index is well below the 3.34 ratio for the S&P 500. The median price-to-sales ratio of 1.12 for the MAC Solar Index is well below the 2.16 ratio for the S&P 500.

Solar stocks are undercut by reduced Chinese subsidies

Solar stocks have fallen sharply since the Chinese government on May 31, 2018, surprised the industry with a sharp cut in its subsidy support for solar. That resulted in a sharp overhang of excess panel supplies and a sharp decline in solar cell and panel pricing, which in turn put downward pressure on the profits of solar manufacturers.

However, the lower pricing is bullish for the solar industry as a whole on a longer-term basis since it means that solar is becoming even more competitive against alternatives and can increasingly stand on its own without government support. The lower pricing is supportive for solar developers and installers who can boost their profit margins and who will see increased demand due to more attractive project economics.

Solar stocks also saw weakness in early October as the broad market fell into a sharp downward correction and as Chinese stocks fell to a 3-3/4 year low. On the bullish side, solar stocks are now priced at very cheap levels that should attract value buyers. Solar stocks should be able to recover in coming months as the industry works down the excess inventories and as demand strengthens.

UN IPCC says renewables growth must greatly accelerate to curb climate change

The UN Intergovernmental Panel on Climate Change (IPCC) in early October released a report saying that the annual growth of renewables needs to accelerate by seven-fold from current levels if the world wants to come close to halting the worst effects of climate change.

The IPCC report was written by 91 scientists from 40 countries drawing upon more than 6,000 scientific studies. Commenting on the IPCC report, former Norwegian Prime Minister Gro Harlem said, “This report is not a wakeup call. It is a ticking time bomb. Climate activists have been calling for decades for leaders to show responsibility and take urgent action, but we have barely scratched the surface of what needs to be done.”

The world has already warmed by 1 degree Celsius (1.8 degrees Fahrenheit) since pre-industrial times and the effects of climate change are already being felt. The Paris Climate agreement seeks to limit global warming to “well below” 2 degrees Celsius (3.6 F). However, the fact that the world is not living up to its Paris commitments suggests that the world is on its way to a temperature rise of at least 4 degrees (7.2 F) by 2100.

A temperature rise of just 2 degrees Celsius (3.6 F) would be bad enough with IPCC forecasting that: (1) coral reefs would mostly disappear, (2) the sea level would rise by nearly three feet and subject 32-80 million people to flooding, (3) about 37% of the world’s population would be exposed to severe heat waves, (4) 411 million more people would be exposed to the effects of severe drought, and (5) the need would arise for a “disproportionately rapid evacuation” of people from the tropics. CarbonBrief.org has an informative factsheet on the impact of climate change at various temperature increases.

In order to avoid the worst effects of climate change, the IPCC concludes that the world must limit warming to 1.5 degrees Celsius (2.7 F). The IPCC says that this would require CO2 emissions to be cut by 45% by 2030 from 2010 levels and to zero by 2050.

The IPCC’s middle-range recommendation to meet that 1.5 degree Celsius goal is that (1) renewables should supply 70-85% of power generation by 2050, (2) coal should be cut to 2% of power generation capacity or less, and (3) natural gas should be cut to 8% of total capacity if sufficient carbon capture technologies can be deployed to offset the emissions from burning natural gas.

To get to that goal, the world would need to boost annual investment in clean energy to $2.4 trillion per year through 2035, representing a seven-fold increase from current levels.

If the global temperature continues to rise unchecked, the IPCC estimates the damage at $54 trillion from 1.5 degrees Celsius (2.7 F) of warming and $69 trillion from 2 degrees Celsius (3.6 F) of warming.

Subsidy-free solar is spreading quickly as solar reaches grid parity

With its subsidy cut in May, China became the latest country to realize that it is no longer necessary to provide big subsidies to the solar industry since solar pricing has reached grid parity in many areas.

Recent competitive auctions, for example, have produced extremely low subsidy-free solar pricing of under 2.5 cents/kWh in Jordan and under 3 cents/kWh in Egypt for projects financed by the European Bank for Reconstruction and Development.

Indeed, subsidy-free solar is spreading quickly throughout the world in Europe, Latin America, Middle East, and southeast Asia. The U.S. and Japan are now the only major countries that are still providing strong subsidy support to solar, although both of those countries are progressively stepping down that support. The U.S. solar investment tax credit (ITC), for example, is already scheduled to largely phase out by 2022.

The move to subsidy-free solar is being seen in Europe where governments have largely dropped their previous solar support via generous feed-in tariff (FIT) programs. Europe is moving quickly towards competitive auctions and private development without subsidies. SolarPlaza reports that 2.5 GW of subsidy-free solar has been announced in the last six months just in Portugal, Spain, Italy and France.

In Spain, there is a pipeline of 29 GW of subsidy-free solar projects in the planning or construction stage, including 3.9 GW tendered by the government, according to Spain’s national solar trade group, UNEF.

UNEF chief Jose Donoso said, “The market has realized that they can expect very little from the government and they aren’t going to wait around for a new support scheme. With the degree of competitiveness that solar has, we can go straight to the market on a merchant basis or we can look for PPAs, without any need for input from the government.”

Spain’s Energy Minister Jose Dominguez Abascal said at a recent London conference, “We are not thinking of subsidies at all. At this moment the cheapest way of producing electricity in Spain is the sun. It’s much cheaper than any other form of energy. At this moment in Spain there are gigawatts that are under construction without any knowledge of the government.”

The growing use of power-purchase agreements (PPAs) is accelerating the ability of solar developers to build and finance subsidy-free solar projects. When a large corporation or utility signs a long-term contract to buy electricity from a solar facility with a PPA, the solar developer can then use that PPA to help guarantee the bank financing. Subsidy-free solar projects are also being built on a merchant power basis where the owner of the solar facility takes on the risk of electricity price fluctuations and sells electricity directly to the wholesale electricity market.

Chinese solar shake-out results from government’s “China-531” subsidy cut

The Chinese government on May 31, 2018 surprised the industry by announcing a dramatic cut in its subsidy support for solar. The Chinese government’s policy action has become known as “China-531” since it was announced on May 31.

Before May, the Chinese government had been providing generous subsidy support to the industry, thus causing runaway solar production and demand. In addition, the Chinese government’s subsidy backlog reached an unsustainable $17 billion. The government in May therefore bowed to reality by cutting subsidy support and forcing the industry to downsize to more sustainable long-term levels.

The Chinese government’s 531 order was contained in the “2018 Solar PV Power Generation Notice” issued jointly by the China’s state planner The National Development and Reform Commission (NDRC), the Ministry of Finance, and the National Energy Administration. The order removed subsidy support for utility-scale solar until further notice. For roof-top distributed generation (DG), the order capped support at 10 GW for 2018 (which was already reached by mid-2018), and also shifted responsibility for the feed-in tariff (FIT) to the local level from the central government level.

The government also cut the tariff for ordinary solar farms by -9% and cut the subsidy for DG projects by -14% or 0.3 yuan/kWh. The government instructed utility-scale solar projects to use competitive bidding to choose developers. The government left its solar Poverty Alleviation and Top Runner programs unchanged. The government also left residential solar policies unchanged.

The Chinese government clearly intends to move over time to subsidy-free auctions for providing solar resources, which is a strategy that is working well in many other countries. While the Chinese solar industry is currently experiencing a serious dislocation from this policy switch, the industry will come out on the other side as a much more sustainable and competitive industry.

The China-531 action caused a sharp drop in forecasts for China’s 2018 solar installs to about 30-40 GW from previous forecasts near the 2017 install rate of 53 GW, indicating an expected year-on-year decline of 25%-40%. China already installed 24 GW of solar in the first half of 2018, according to the China Photovoltaic Industry Association, which indicates that Chinese installs will be very low in the second half of 2018.

The cut in forecasts for Chinese solar installs caused a cut in forecasts for global installs as well since China in 2017 accounted for 54% of global market share. Indeed, BNEF, as a result of China-531, cut its 2018 global install forecast by 12 GW to 95 GW from its January forecast of 107 GW, implying a -3% year-on-year drop in 2018 installs.

The sharp slow-down in Chinese installs in the second half of 2018 means that the industry must work off a big overhang of excess inventories, which is driving down solar prices. In addition, there is no doubt that a significant number of smaller solar companies with me-too technology and a lack of scale will be forced to shut down. Over the medium-term, that will force the inefficient players out of the market and allow the Tier 1 solar companies to stabilize their pricing and profitability.

China-531 has caused silicon module prices to plunge by -20% since May to a record low of 23.3 cents/watt, according to PV Insights. Meanwhile, multicrystalline silicon solar cell prices have plunged by -52% since May to the current record low of 11 cents/watt, according to BNEF. Polysilicon prices have plunged by -30% since May to a record low of $10.87/kg.

The main impact of the Chinese government’s cut in solar subsidies is being felt by domestic producers in mainland China. However, China-531 is having a major impact on the world solar markets as well due to the sharp drop in solar pricing and the attempt by Chinese solar companies to off-load excess panels overseas.

The current solar shake-out is somewhat similar to the last major solar shake-out in 2012/2013, which was also driven by excess subsidies and temporary overcapacity. However, the current shake-out should be substantially less severe since the solar industry is now spread out across the whole world and there are now many countries that can absorb solar inventories, particularly at such low and economically attractive prices.

California mandates 100% carbon-free electricity by 2045

California in September passed a law that requires 100% carbon-free power for the state by 2045. That made California the second state after Hawaii to adopt a 100% carbon-free mandate.

The mandate is expected to allow large-hydro and nuclear to qualify for the carbon-free goal, which is important since large-hydro currently accounts for 15% of California’s electricity and nuclear accounts for 9% of California’s electricity. The main goal of the legislation is to phase out fossil fuels, which currently account for 47% of California’s electricity (natural gas 34%, coal and other 13%).

The need for California to meet its carbon-free goals means that California will significantly step up its efforts to build solar and wind facilities. In addition, California will step up its focus on using batteries to compensate for the intermittent nature of solar and wind resources, thus allowing solar and wind plus storage to provide 24/7 base-load electricity to the grid.

U.S. solar industry adjusts to import tariffs

The U.S. solar industry since the beginning of this year has been buffeted by import tariff challenges but is adapting and moving forward.

The biggest challenge came from the Section 201 safeguard 30% tariff on imported solar cells and modules that took effect on February 7, 2018. That tariff started at 30% in 2018 and then steps down by 5 percentage points per year to 25% in 2019, 20% in 2020, and 15% in 2021, expiring in 2022. The first 2.5 GW of solar imports are exempt from the tariff. Thin-film solar panels, such as those produced by First Solar, are exempt from the tariff even if those panels are imported from overseas factories.

The tariff applies to imports from all major countries in which solar cells and panels are produced, including U.S. free-trade partners Canada and Mexico. There are a number of countries that are exempt from the tariffs, including India, Turkey, Brazil, and South Africa. However, imports from those exempted nations are capped at 300 MW each and at 900 MW as a group.

The tariff has been a negative factor for the U.S. solar industry, which is dominated by installation companies and has very few American-based solar factories. In fact, the U.S. has so few manufacturers that it needs to import more than 80% of the solar panels that are installed in the U.S. The tariff is putting upward pressure on the cost of solar installs, thus making solar project economics less attractive. However, the good news is that the sharp drop in solar panel pricing seen from the China-531 policy move has partially offset the upward price effects from the U.S. 201 tariff.

The U.S. solar installation industry is adjusting to the tariff by using stockpiled or non-tariffed panels, such as those produced by First Solar (FSLR) and those imported from countries not covered by the tariff. SunPower (SPWR) can now also supply non-tariffed panels since it received an exemption from the tariff for its IBC panels.

In addition, several Chinese companies have announced plans to build manufacturing facilities in the U.S. so that they can sell panels not subject to the tariff. Unfortunately, those new factories will take time to build and will be highly automated, which means they will not produce a large number of new jobs.

In some good news related to the Section 201 safeguard tariff, the IRS in June announced that solar developers will be able to qualify for the Investment Tax Credit (ITC) in the year in which “construction” begins, which is defined as either the beginning of physical work or upon the expenditure of at least 5% of the total project cost. That means that developers of big utility solar plants that take multiple years to complete will be able to qualify for a 2018-2021 ITC credit while delaying the actual purchase of their panels until later years when the 201 safeguard tariff will be lower or phased out.

Aside from the 201 safeguard tariff, the U.S. solar industry was also hurt by the Trump administration’s tariffs on imported steel and aluminum implemented on May 31. Those tariffs sparked higher prices for the steel and aluminum that is used in the ground and roof racking systems that are used to support solar panels.

Another challenge emerged when the Trump administration placed a 10% tariff on Chinese inverters as part of its move to place tariffs on $200 billion of Chinese goods effective September 24. That tariff will rise to 25% on January 1, 2019. The inverter tariff will make it difficult for the big Chinese inverter companies such as Huawei and Sungrow to achieve market penetration into the U.S, with inverters they manufacture in China.

The good news for U.S. solar industry is that there are already plenty of inverter sources for U.S. installers other than China. Major inverter companies such as Enphase (ENPH) and SolarEdge (SEDG) are expected to see little impact from the tariffs on Chinese-built inverters since they can shift what production they have out of China to other countries in order to avoid the tariffs.

Europe ends its failed anti-dumping program

The EU ended its anti-dumping duties against solar panels imported from China and the associated minimum import price (MIP) scheme effective September 3. That MIP scheme had been in place since 2013 when the EU tried to protect local European solar manufacturers from Chinese competition.

The EU was forced to finally end the MIP scheme as its failure became clear. The scheme did not lead to a flourishing European solar manufacturing base. The MIP instead only caused higher solar panel prices for European solar projects, thus curbing the growth of solar power installs in Europe. The failure of Europe’s MIP is a lesson to other countries that protectionist measures are unlikely to meet their intended goals.

Commenting on the end of the EU’s MIP scheme, the president of SolarPower Europe, Dr. Christian Westermeier, said, “This is a watershed moment for the European solar industry. By removing the trade duties, the European Commission has today lifted the single biggest barrier to solar growth in Europe. The Commission’s move to end the trade measures is unquestionably the right one for Europe. We expect to see a significant increase in solar jobs and deployment — which will only propel the energy transition in Europe.”

The end of the European MIP scheme is a bright spot for the global solar industry since European solar installs should now see a significant increase due to more attractive project economics.