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Global solar growth slows; Solar accounts for 64% of U.S. electricty installs in Q1; Competitive auctions slowly push aside FITs and push solar pricing lower; CPP oral arguments pushed back to Sep 27 – June 2016
 

Global solar growth slows; Solar accounts for 64% of U.S. solar installs in Q1; Competitive auctions slowly push aside FITs and push solar pricing lower; CPP oral arguments pushed back to Sep 27 – June 2016

Read report in PDF with graphs: MAC-Solar-Sector-Update-Jun-2016

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), sold off sharply early this year and has since remained weak. The index is currently down -34% year-to-date. The MAC index in 2015 closed -15% lower after the -2% decline seen in 2014 and the +127% gain seen in 2013.

Solar stocks have recently seen weakness due to (1) the general risk-off equity trading mode with the upcoming Brexit vote and the ongoing concerns about the Chinese and global economies, (2) concern that a temporary drop-off in Chinese solar installs in the second half of 2016 could lead to supply overhang and downward pressure on solar pricing, (3) uncertainty about whether the EPA’s Clean Power Plan will ultimately survive the presidential election and its court challenge, (4) uncertainty for the U.S. residential solar market amidst a shift to loans from leases and cutbacks in net metering in some states, (5) investor uncertainty about the solar sector after SunEdison filed for Chapter 11 in April, and (6) ongoing trade disputes that have resulted in tariffs and various market dislocations.

Recent bullish factors for solar stocks include (1) the strong overall world demand for solar with the sector set to grow by 10%-20% this year, (2) the strong prospects for U.S. solar in coming years after Congress in December 2015 approved a 5-year extension of the U.S. solar investment tax credit (ITC), (3) strong demand for solar power as countries seek to meet their carbon-reduction targets under December’s Paris COP21 global climate agreement, (4) the sharp 89% rally in crude oil and 70% rally in natural gas prices from the recent lows, and (5) low valuation levels that indicate that solar stocks are very conservatively priced.

Solar stocks are currently trading at very low valuation levels compared with the broad market. The median forward P/E of companies in the MAC Solar Index is currently 9.4, which is well below the forward P/E of 17.7 for the companies in the S&P 500 index. The median price-to-book ratio of 0.98 for the companies in the MAC Solar Index is well below the 2.79 ratio for the S&P 500. The median price-to-sales ratio of 1.19 for the MAC Solar Index is well below the 1.86 ratio for the S&P 500.

Global solar growth slows

Despite the recent weakness in solar stock prices, the global solar industry itself continues to show strength. Global solar has grown at a very strong +25% compounded annual rate over the last five years. Meanwhile the long-term demand outlook for solar remains very strong since solar will account for 35% (3.439 GW) of all electricity capacity additions and a massive $3.7 trillion of solar spending through 2040, according to Bloomberg New Energy Finance (BNEF). Moreover, BNEF expects all-in project costs for solar to plunge by another 48% by 2040, thus making solar one of the cheapest sources of electricity.

Solar growth is currently expected to show slower growth in 2016 and 2017 but then regain a strong growth rate near 20% in 2018 and beyond. Weaker growth this year is tied in large part to the end of solar booms in Japan and the UK. However, these areas of weakness are outweighed by solar strength in the U.S. and India and emerging strength in Latin America and the Middle East.

China is expected to install up to 20 GW of solar in 2016, which would be up by 25% from 16 GW in 2015. However, developers accelerated most of their 2016 solar installs into the first half of 2016 in order to beat a step-down in China’s feed-in-tariff that takes effect on June 30. China installed some 13 GW of solar in the first half of 2016, which implies a sharp step-down in solar installs to 2-3 GW in Q3 and 3-4 GW in Q4, before growth resumes in 2017. There are market concerns that sharply lower solar Chinese installs in the second half of 2016 could result in a module oversupply situation (at least within China) that could also put downward pressure on solar panel pricing.

Meanwhile in Japan, solar surged after the Fukushima nuclear disaster in 2011 due to a generous government feed-in-tariff (FIT). Japan solar soared by 64% on an annual compounded basis in the five years through 2015. However, Japan is now set to bring nuclear capacity back on line and has cut its solar FIT, leading to expectations for substantially smaller Japanese solar installs over the next few years. GTM is forecasting that Japan’s solar installs in 2016 will fall by 12% to 10.2 GW from the peak of 11.644 GW in 2015 and in 2017 will fall by another 14% to 8.8 GW.

Despite the near-term weak spots for solar, there are strong spots that should still lead the industry to a healthy overall growth rate in 2016. U.S. solar is set to surge this year by 94%, according to GTM, due to the huge amount of utility solar that was brought forward into 2016 to take advantage of the previous ITC expiration at the end of this year. Meanwhile, solar in India this year is set to surge by +127%, according to GTM, as the country relies heavily on solar to expand its electricity capacity and modernize its infrastructure.

The solar industry in coming years will depend less on the big countries for growth. By 2020, GTM is forecasting that 21 GW of solar power growth will come from Latin America, 16 GW from the Middle East and Turkey, and 15 GW from Asia (apart from China, India, Japan and Australia).

Solar blows its competitors out of the water with 64% of new U.S. electricity capacity in Q1

The U.S. installed 1.665 GW of solar PV in Q1-2016, which accounted for 64% of new U.S. electricity generation capacity in Q1-2016, more than natural gas, coal, nuclear and wind combined, according to the U.S. Solar Market Insight Q2-2016 (link). Solar in Q1 sharply raised its market share from the 29.4% contribution to new electricity in 2015, which in any case edged out natural gas at 29.0%. The Q1 solar install rate represented a 24% year-on-year growth.

For all of 2016, GTM Research is forecasting that U.S. solar installs will surge by 94% y/y to 14.5 GW, mainly because of a surge in utility PV that will account for about two-thirds of all U.S. solar installs. Utility PV is seeing a big surge in 2016 because many solar projects were hurried into 2016 to take advantage of the Investment Tax Credit (ITC) that was previously scheduled to expire at the end of 2016. Congress in December 2015 extended the ITC by 5 years, but most of the projects that were already in planning will move ahead in 2016, thus causing the 2016 bulge. That also means, however, that utility PV will drop sharply in 2017 from the artificially high level seen in 2016.

The drop in utility PV growth to more normal levels starting in 2017 is expected to cause the overall U.S. solar growth rate to fall by about 17% in 2017 and by about 7% in 2018, according to GTM. However, GTM then expects the U.S. solar install rate to return to a strong annual growth rate averaging about 20% in the 2019-2021 period. Smoothing out the ITC effects results in an expected 6-year compounded annual growth rate of +19% from 7.5 GW of installs 2015 to 21.5 GW of installs in 2021, according to GTM.

Competitive auctions slowly push aside FITs and help push solar pricing to as low as 5-6 cents/kWh

Utility solar PV pricing worldwide has dropped in the past year to an average of 4.5 cents per kWh, according to GTM Research’s recent “Global Solar Demand Monitor” (link). GTM reports that solar PV won a whopping 72% of all electricity capacity awarded in 2015, beating wind, hydropower, cogeneration, combined-cycle natural gas, and geothermal. In the U.S., utility scale power purchase agreements fell to 6 cents/kWh in 2015 and could be headed for an average below 5 cents/kWh in 2016 (including the ITC), according to GTM Research.

A new record low for solar pricing was established in May when developers offered electricity prices at 2.99 cents per kWh for 800 MW of solar power projects for the Dubai Electricity & Water Authority. That was even lower than the 5.07 cents per kWh solar pricing that Mexico accepted at a clean energy auction in April for 1.9 GW of power for CFE, Mexico’s only utility.

The decline in solar PV pricing has been caused in part by the global move to competitive auctions whereby a government or utility just specifies the need for a certain-size electricity plant and then accepts bids from interested developers. The competitive nature of the auctions means that solar companies have a strong incentive to improve their technology and reduce installation and financing costs as a means to beat their competitors.

Competitive bidding is increasingly replacing the feed-in tariff (FIT) system whereby utilities are required to buy electricity from solar plants at specified fixed prices. The problem with the FIT system is that it is difficult for the government to set the FIT price correctly to achieve the desired amount of solar. There are many examples such as Spain where the government set the FIT price too high, thus causing a massive surge of solar that ended up costing too much in subsidies and leading to a subsequent cancellation of the entire program. Other key European markets also went through a boom-bust cycle by relying mainly on the FIT system. The FIT system has been complicit in causing boom-bust cycles in a number of geographical solar markets, which in turn causes chaos for the solar industry in trying to adjust investment and production to wildly fluctuating demand. The solar industry would be much better served over the long run by a smoother and more predictable demand curve.

For the long-term health of the industry, solar power in any case must become progressively cheaper over time so that it easily beats alternatives on price without subsidies. The competitive auction system aligns itself better with the needs of buyers as well as with the solar industry over the long-term as it seeks to reduce pricing while maintaining reasonable profit margins.

There has been some concern that competitive auctions might unduly hurt profit margins in the solar industry. Indeed, competitive pricing could force some high-cost producers out of the market unless they can find less competitive niches for their products. However, the competitive pricing system rewards the best solar companies with the best technology and the lowest-cost systems.

The issue of competitive auctions and profitability was recently addressed by Enel Green Power’s CEO Francesco Venturini whose company in April won a 992 MW project in Mexico with a bid of an extraordinarily low 3.5 cents per kWh. Mr. Venturini told Bloomberg News in a recent interview, “There is no value in winning without margin attached. I have two investment committees and two boards of directors I need to present my project to and they want to see the money attached to it. So trust me, there is margin.”

World renewable energy jobs soar to 8.1 million

Global renewable energy employment increased by 5% in 2015 to 8.1 million jobs, according to the annual review by the International Renewable Energy Agency (IRENA) (link). IRENA expects that renewable energy jobs will triple to 24 million by 2030, making renewable energy a key sector to help drive job growth as well as the world economy in the years ahead.

Solar PV was the largest renewable energy employer in the world in 2015 with an 11% increase in jobs to 2.8 million jobs, according to IRENA. Meanwhile, the number of U.S. solar jobs rose by 22% in 2015 to 209,000, according to the report, which means that there are now more people working in the solar industry than there are in either the U.S. coal or oil/gas extraction industries.

Clean Power Plan oral arguments are delayed until Sep 27

Oral arguments on the case about whether the EPA overstepped its authority with the Clean Power Plan (CPP) were delayed until September 27 from June 2. In addition, the case will now be heard by all the judges (en-banc) on the Court of Appeals for the District of Columbia Circuit Court rather than by the usual three-judge subset of the court. The court did not give a reason why the case will be heard by the entire court, but that will at least skip the step whereby a decision of a three-judge panel can first be appealed to the full en-banc court. Now, the decision of the Court of Appeals of the DC Circuit will go straight to the U.S. Supreme Court on appeal.

The Court of Appeals for the DC Circuit currently has eleven judges but two of those judges have recused themselves from the CPP case, i.e., judge Nina Pillard and Chief Judge Merrick Garland, who is awaiting Senate consideration for his nomination as a Supreme Court justice by President Obama. Of the nine judges who will hear the CPP case, five were appointed by Democratic presidents and four were appointed by Republican presidents, possibly giving the CPP the upper hand with a 5-4 decision if the case is decided along partisan lines.

Based on the current time line, a decision by the Court of Appeals for the DC Circuit could come by winter or early spring 2017. The case would then likely be heard by the U.S. Supreme Court by spring or fall 2017.

However, the fate of the CPP depends heavily on the outcome of the presidential election. If Donald Trump wins the White House in the November election and takes over as President in January, then the Court of Appeals of the DC Circuit and the U.S. Supreme Court might never even issue a decision on the CPP because the Trump administration would presumably retract the EPA’s CPP altogether, making a court ruling moot. Mr. Trump has not expressed a formal policy position on the CPP but it seems safe to assume that he would quickly retract the CPP based on his stated views that global warming is a hoax and that the entire EPA as an agency should be eliminated.

On the other hand, if Hillary Clinton or another Democrat wins the White House, then the ultimate fate of the CPP would likely depend on the makeup of the U.S. Supreme Court at the time of a CPP decision. The presumption is that the Supreme Court at present is tied 4-4 on CPP since opponents to the CPP lost their 5-4 advantage on the Court when Antonin Scalia died in February 2016. If Ms. Clinton can get a new Supreme Court justice through the Senate in time for a CPP ruling, then the chances would appear to be good for a 5-4 vote in favor of CPP. On the other hand, if Ms. Clinton wins the White House but cannot get a new justice on to the Supreme Court in time for a CPP ruling, then the Supreme Court could end up deadlocked 4-4 on the CPP. In the case of a Supreme Court deadlock, the decision of the Court of Appeals of the DC Circuit would become the final ruling on the CPP case, illustrating the importance of a Court of Appeals decision.

The CPP is currently in a state of suspended animation since the U.S. Supreme Court on February 9, 2016, granted a stay for the states on complying with the EPA’s CPP until the merits of the plan are litigated in court. The Supreme Court’s stay means that states, if they wish, can stop the planning process on how they would comply with the CPP. That stay was granted by the Supreme Court by a 5-4 vote when Antonin Scalia was still on the bench.

The CPP is not scheduled to come into full effect until 2022. Before the Supreme Court issued its stay, the states were required to submit their plans by 2018 on how they would comply with the CPP. If the EPA ultimately wins the CPP case, it not clear whether the EPA will give the states additional time to submit their plans since states that oppose CPP have stopped work on their plans. However, states that favor the plan have continued their work on adopting their plan to meet the requirements of the CPP.

The goal of the EPA’s CPP is to reduce national greenhouse gas emissions by 32% from 2005 through 2030 and for the U.S. to get 28% of its electricity from renewable energy sources by 2030, more than double the 2014 level of 13%. The CPP is the centerpiece of the Obama administration’s plan on how to comply with the Paris COP21 global climate agreement. If the CPP ultimately does come into effect, it would provide a big boost for solar power after the current solar Investment Tax Credit (ITC) drops to 10% in 2022 from 30% at present.

SunEdison files bankruptcy due to debt and corporate hubris but not solar industry conditions

SunEdison (SUNEQ) on April 21 filed for Chapter 11 bankruptcy protection. SunEdison was dropped from the MAC Solar Index about a month earlier on March 22 when DebtWire carried the first report that SunEdison was in discussions for bankruptcy financing.

SunEdison’s descent into bankruptcy was caused by the company’s overly aggressive expansion plans and its willingness to quickly run its debt up to as high as $16 billion. SunEdison’s attempted $2.2 billion acquisition of U.S. residential-solar-installer Vivent (VSLR) finally pushed the company over the edge as investors lost faith in the company’s strategic direction and as the company then faced a liquidity crunch. The company also ran into internal financial control problems that resulted in a delay in filing its annual report, which resulted in a breach of some loan covenants.

SunEdison has so far been moving smoothly through the Chapter 11 bankruptcy process and secured a $1.3 billion loan to continue its operations in an effort to eventually move out of bankruptcy and reestablish itself as a going concern. SunEdison at this point does not plan to liquidate although it will be selling off some of its solar and wind projects to raise cash and pay off creditors, which could put some temporary downward pressure on project prices.

SunEdison’s two affiliated yieldcos, Terraform Power (TERP) and TerraForm Global (GLBL) have stated that they have sufficient liquidity and that they have no intention of filing bankruptcy. The TerraForm yieldcos are standalone business entities with their own stock listings and boards. The TerraForm yieldcos, however, do face a period of uncertainty because their financial statements have been delayed by SunEdison’s delay in filing its financial statements and because there are a host of legal issues that need to be worked through. Nevertheless, the yieldcos have so far been able to successfully navigate SunEdison’s bankruptcy.

The process by which a yieldco can fully separate itself from an insolvent sponsor has already been charted by Abengoa YIeld (ABY). Abengoa Yield’s original sponsor, the Spanish engineering and construction company Abengoa S.A. (ABG SM), is currently working through preliminary insolvency proceedings in Spain. However, Abengoa Yield has so far successfully established itself as a standalone yieldco business and recently changed its name to Atlantica Yield to reflect its independence.

Yieldco model navigates current difficulties

The SunEdison saga exposed some weaknesses of the yieldco model but did not kill the concept as a whole. The SunEdison saga contained several key lessons: (1) a yieldco needs to have an independent board and management and must deal at arm’s length with a sponsor, (2) the yieldco’s cost of capital must remain low enough to ensure that it can profitably buy solar projects, and (3) the yieldco must set realistic dividend expectations for investors and cannot overpromise on dividend growth.

A yieldco is just one way in which a renewable energy company can monetize projects that it builds, aside from just selling the project outright when it is completed. In the yieldco model, the sponsor company first builds a solar plant and then sells that plant to the yieldco, retaining an ongoing financial interest through partial ownership and/or incentive distribution rights (IDRs). By getting the project off its balance sheet, the renewable energy developer keeps a leaner balance sheet and can recycle its project capital while still capturing the profits from building projects and retaining some financial incentive rights in the projects.

Meanwhile, the separately-listed yieldco company can become an attractive investment for investors because it typically pays little or no taxes (due to high non-cash expenses from amortizing the project purchase price) and pays a high dividend to investors from its high cash flow. The investor is getting a high-yield investment that is typically very safe because the yieldco’s electricity sales revenues are fixed in long-term power purchase agreements that are guaranteed by a highly-rated utility or large corporation. The yieldco structure is essentially just a modified version of the Master Limited Partnership (MLP) structure that has proved to be so successful in the fossil fuel industry. The yieldco name is new, but the concept is only a twist on the long-standing MLP model.

The SunEdison saga has caused most of the large solar companies to freeze their plans for their own yieldcos as they reevaluate the best ways to monetize the value of solar projects. However, the yieldco model is by no means dead. Indeed, 8point3 Energy Partners (CAFD), a yieldco formed by First Solar and SunPower, avoided the key problems seen at SunEdison’s yieldcos because it was more cautious on its dividend guidance and the yieldco was set up in the first place with more independence since it had two different sponsors.

Financial analyst Tom Konrad in a recent article entitled “The YieldCo Boom and Bust: The Consequences of Greed and a Return to Normalcy” (link) provides a good overview of recent yieldco developments. He notes that some normalcy has been returning to the yieldco market and that some yieldcos have returned to the market to sell equity. He concludes that the yieldco model “is not broken” but that “investor expectations have changed.”

In any case, the lessons of SunEdison will help the rest of the solar industry evolve on being more careful with debt and on choosing the best business models for maximizing value for shareholders.

U.S. installs more solar than natural gas in 2015; U.S. utility solar seeing strength outside mandates; CPP stayed by Supreme Court – April 2016
 

Read report in PDF with graphs:  MAC-Solar-Sector-Update-Apr-2016
Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), has rebounded somewhat since mid-February after the sharp sell-off seen in the first six weeks of 2016. The index is currently down -28% year-to-date. The MAC index in 2015 closed -15% lower after the -2% decline seen in 2014 and the +127% gain seen in 2013.

Solar stocks have recently seen weakness due to (1) the downward U.S. stock market correction seen in early 2016 and the general risk-off trading environment, (2) the U.S. Supreme Court’s decision in February to stay the EPA’s Clean Power Plan until challenges to the program can be heard in court, (3) concern that slower economic growth in China may translate into reduced solar power growth in China, (4) weakness in crude oil and natural gas prices that have had a negative effect on solar stocks as well the U.S. stock market in general, and (5) continued solar trade disputes.

Recent bullish factors for solar stocks include (1) the 5-year extension of the U.S. solar investment tax credit (ITC) approved by Congress in December, (2) the Paris COP21 global climate agreement in December, which established a long-term framework for the world to reduce carbon emissions, and (3) a favorable extension of California’s net metering program where nearly half of U.S. residential solar is installed.

Solar stocks are currently trading at bargain-basement prices compared with the broad market. The median trailing P/E of companies in the MAC Solar Index is currently 11.6, which is well below the P/E of 18.8 for the companies in the S&P 500 index. The median price-to-book ratio of 1.04 for the companies in the MAC Solar Index is well below the 2.81 ratio for the S&P 500. The median price-to-sales ratio of 0.96 for the MAC Solar Index is well below the 1.84 ratio for the S&P 500.

Despite the recent weakness in solar stock prices, the global solar industry itself continues to show strength. Global solar has grown at a very strong +25% compounded annual rate over the last five years. Meanwhile the long-term demand outlook for solar remains very strong since solar will account for 35% (3.439 GW) of all electricity capacity additions and a massive $3.7 trillion of solar spending through 2040, according to Bloomberg New Energy Finance (BNEF). Moreover, BNEF expects all-in project costs for solar to plunge by another 48% by 2040, thus making solar one of the cheapest sources of electricity.

U.S. installed more solar than natural gas in 2015

The U.S. installed more new solar electricity generation capacity than natural gas capacity in 2015, meaning that solar flat out beat fossil fuels in 2015. Natural gas has an advantage over solar power as far as solar’s intermittency, but solar wins on avoiding the environmental damage of natural gas and also having a known and fixed up-front cost as opposed to exposure to the volatility of natural gas prices down the road.

Specifically, solar installations in 2015 accounted for 29.4% of all new U.S. electricity generation capacity, edging out natural gas at 29.0%, according to SEIA/GTM Research’s “U.S. Solar Market Insight report for 2015” (link). Wind actually beat both solar and natural gas with 39.0% of new generation. New nuclear and coal capacity was negligible. Solar and wind together accounted for more than two-thirds of new U.S. electricity generation capacity, together beating natural gas by a factor of 2-to-1.

U.S. solar growth is expected to soar by 120% in 2016

U.S. solar installs will see a banner year in 2016 with 120% growth to 16 GW, according to the SEIA/GTM report mentioned earlier. In 2015, U.S. solar installs grew by +15% to 7.3 GW from 6.3 GW in 2014, according to Bloomberg New Energy Finance. U.S. solar has grown by a compounded annual rate of +51% over the last five years.

U.S. solar growth will be temporarily boosted in 2016 by a large number of solar projects that were started early to beat what would have been the step-down of the investment tax credit (ITC) at the end of 2016, if Congress in late 2015 had not extended the ITC by another five years. GTM expects U.S. solar growth in 2017 to dip after the ITC-surge in 2016 but then resume strong growth again in 2018-19.

From a segment perspective, U.S. solar in 2015 received a big boost from +66% growth in residential PV to more than 2 GW, according to the SEIA/GTM report. Utility solar grew more slowly in 2015 by +6% to 4 GW but was still twice the size of residential solar installs. Utility solar will grow sharply in 2016 due to the huge 19.8 GW contracted project pipeline and will account for about three-quarters of U.S. solar installs in 2016, according to GTM . Non-residential solar (i.e., commercial and industrial) was little changed at 1.0 GW in 2015 but is expected to start growing again in 2016.

Geographically, solar installs were more broadly spread across the U.S. in 2015 with 13 states installing more than 100 MW of solar, up from 9 states in 2014, according to the SEIA/GTM report. There are now six states that have surpassed 1 GW in installed solar capacity, including California, North Carolina, Nevada, Arizona, New York, and New Jersey.

California installed the most solar in 2015 at 3.266 GW, accounting for 45% of all U.S. solar installs, according to the SEIA/GTM report. North Carolina installed the second most solar in 2015 at 1.134 GW (+186% yr/yr), accounting for 16% of all U.S. solar installs. The next largest amounts of solar installs in 2015 were Nevada (-12% yr/yr to 307 MW), Massachusetts (-10% to 286 MW), New York (+64% to 241 GW), and Arizona (-5% to 234 MW).

The SEIA/GTM report found that the average price of a solar system in the U.S. fell by -17% in 2015. The largest price declines were seen in the utility-scale solar. A steady decline in solar pricing is being caused by reduced hardware costs, installation costs, and financing costs.

World solar growth in 2016 is expected to slow somewhat from 2015’s strong +24% pace

Solar PV installs across the world in 2015 grew by +24% to 56 GW from 45 GW in 2014, according to Bloomberg New Energy Finance. World solar has now shown a compounded annual growth rate of +25% over the last five years and has risen by three-fold from 18.2 GW in 2010.

As for 2016, GTM Research is forecasting solar growth of +8.5% to 64 GW from GTM’s estimate of 59 GW of 2015 solar. However, IHS is forecasting much higher 2016 growth of +17% to 69 GW from IHS’s 2015 install figure of 59 GW. IHS expects 2016 growth to mainly come from the U.S., China, and India. The overall world solar growth rate in 2016 is expected to be somewhat slower than 2015 due to reduced subsidy support in Europe and Japan.

China was the top country for world solar installs in 2015 at 16.0 GW, up +23% from 2015. Japan was in second place with 11.6 W of installs (+13% yr/yr), the U.S. was third with 7.3 GW of installs (+15% yr/yr), and the UK was fourth with 3.7 GW of installs (+69% yr/yr). Solar in India holds great promise but has a long way to go with only 2.1 GW of installs in 2015 (+158% yr/yr). Due to reduced subsidy support, Germany solar installs fell by a double-digit rate for the third straight year to 1.0 GW, down from the peak of 7.6 GW in 2012. Further information on 2015 solar installs is available on pages 5-6 of this report.

U.S. utility scale solar is seeing strength outside mandated growth

The fact that solar is coming of age can be seen in a new report by GTM Research forecasting that more than half of U.S. utility-scale solar growth in 2016 will be outside state-mandated renewable portfolio standards (RPS) (see “The Next Wave of U.S. Utility Solar: Procurement beyond the RPS”). State RPS regulations require utilities to obtain a certain minimum proportion of their electricity from renewable sources. GTM reports that through 2015, RPS requirements in 36 states and Washington DC accounted for 61% of utility-scale solar installs. However, GTM now predicts that a majority of utility solar (52%) will be outside RPS requirements in 2016 with more than 6 GW of non-RPS utility solar. The report says that the two main drivers of utility solar are falling costs and the fact that utilities can lock in stable electricity generation prices on a multi-year basis as opposed to having exposure to the volatile costs of natural gas.

Clean Power Plan is stayed by Supreme Court while litigation on the merits progresses

The U.S. Supreme Court on February 9 surprised many observers by granting a stay for the states on complying with the EPA’s Clean Power Plan (CPP) until the merits of the plan are litigated in court. The Supreme Court’s stay means that states, if they wish, can stop the planning process on how they will comply with the CPP, which in any case does not require plans to be submitted until 2018 and does not come into full effect until 2022.

The goal of EPA’s CPP is to reduce national greenhouse gas emissions by -32% from 2005 through 2030 and for the U.S. to get 28% of its power from renewable energy sources by 2030, more than double the 2014 level of 13%. The CPP is the centerpiece of the Obama administration’s plan on how to comply with the Paris COP21 global climate agreement. The CPP encourages states to get more of their electricity from clean energy sources. If the CPP ultimately survives its legal challenges, it will provide a big boost for solar and wind power.

Attention on the CPP now shifts to the CPP court case on the merits that is currently being heard in the federal D.C. Circuit Court. Oral arguments on the case could be heard as early as June. Once the case is decided either way, it will undoubtedly be appealed all the way up to the Supreme Court.

The recent death of Supreme Court Justice Antonin Scalia potentially complicates the CPP situation. The Supreme Court issued the stay for the CPP when Mr. Scalia was still alive and the decision was 5-4 in favor of the stay. The fact that the Supreme Court granted the stay was a hint that the Court might be inclined to strike down the CPP altogether if the Court had been ruling on the merits of the CPP. However, conservatives have currently lost their 5-4 advantage on the court and much now depends on how a new Supreme Court justice would rule on the case, whenever a new justice might be approved by the Senate. In any case, it will likely be at least 2017 or 2018 before the legal status of the CPP receives a final determination in the Supreme Court if the CPP is not killed earlier in the event that a Republican president is elected in November.

Solar industry gets a final win on net metering in California

The U.S. solar industry received a big win when the California Public Utilities Commission on Jan 28 formally approved its earlier proposal for a “net metering 2.0 program” to take effect when the current program expires in 2017. The decision preserves net metering payments made to solar households at retail rates, rather than at a lower rate such as a wholesale rate. However, there were some negatives in the decision such as an initial interconnection fee of $75-100 for new solar customers, a 2-3 cent per kWh fee on net metering customers that is paid by other utility customers, and a move to make net metering tariff payments in the future tied to the variable “time-of-use” cost of electricity at various times during the day. On the whole, the solar industry was pleased with the proposal since the California PUC preserved net metering at retail rates. The industry hopes that the California proposal will provide a regulatory model for other states.

Oregon phases out coal and adopts a 50% renewable energy target by 2040

Oregon’s governor on March 11 signed into law a measure that requires the state’s utilities to stop purchasing coal power by 2035. Oregon thereby became the first state to begin to phase out coal power by legislative action. The bill also requires Oregon’s utilities to get at least 50% of their electricity generation from clean sources by 2040. Other states with aggressive renewable energy targets include a 50% target by 2030 for California and New York, a 75% target by 2032 for Vermont, and a 100% target by 2045 for Hawaii.

Exxon gets hits by both climate change resolution and Rockefeller Foundation divestment

The SEC in March ruled that Exxon Mobil Corp (XOM) will have to include a climate change resolution in its annual shareholder proxy ballot. The proposal was submitted by New York state’s comptroller. If approved by shareholders, the climate change resolution would require Exxon to detail the impact that climate change, or legislation on climate change, could have on the company’s profitability. Exxon shareholders typically have not approved climate change resolutions, but the resolution nevertheless spotlights the profitability risks for fossil fuel companies from climate change and the shift to a lower carbon future. Chevron (CVS) was also required to put a climate change resolution on its annual proxy ballot.

Meanwhile, the Rockefeller Family Fund said in March that it will divest from fossil fuels. The Rockefeller Fund also said that it will eliminate its holdings of Exxon Mobil because it believes the company has misled the public about climate change risks. The fact that the Rockefeller Family Fund is divesting from Exxon Mobil is particularly notable since Exxon Mobil is the descendent of Standard Oil, the company that made John D. Rockefeller the richest man in the world at the time. It is a sign of the times when some hundred years later, Mr. Rockefeller’s descendants have rejected their fossil fuel heritage due to the deleterious impact of fossil fuels on the environment.

SunEdison may be close to bankruptcy filing due to liquidity crunch

SunEdison (SUNE) is reportedly planning a bankruptcy filing according to reports by Debtwire and the Wall Street Journal. SunEdison was dropped from the MAC Solar Index on March 22 due to the bankruptcy planning reports.

If SunEdison does in fact file a bankruptcy petition, it will not be because of conditions in the solar industry but rather because the company got caught in a liquidity crunch after trying to grow too fast and taking on too much debt with a highly complex financing structure. The company also ran into internal financial control problems that resulted in a delay in filing its annual report, which resulted in a breach of some loan covenants.

Solar sector receives strong boost from Paris COP21 climate agreement, 5-year U.S. ITC extension, and California net metering decision; American solar jobs now exceed oil/gas jobs – Jan 2016
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Jan-2016

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), rallied in mid-December but then showed a sharp decline in early January and is currently down -22% year-to-date in 2016. The MAC index in 2015 closed -15% lower after the -2% decline seen in 2014 and the +127% gain seen in 2013.

Solar stocks fell in early January due to (1) the renewed sell-off in the Chinese stock market and the downward correction in the U.S. stock market, which resulted in a “risk off” trading environment, (2) concern that slower economic growth in China may translate into reduced solar power growth in China, (3) weakness in crude oil and natural gas prices, and (4) continued solar trade disputes.

January’s sell-off in solar stocks was mainly due to factors external to the solar sector since the solar industry itself is performing very well with strong demand and improving margins. Global solar demand continues to be very strong with both increasing unit sales and decreasing costs due to technology advances and economies of scale. Global solar growth in 2015 is estimated at +36% y/y by GTM Research, with about 37% growth in China and 29% growth in the U.S. Meanwhile the long-term demand outlook for solar remains very strong since solar will account for 35% (3.439 GW) of all electricity capacity additions and a massive $3.7 trillion of solar spending through 2040, according to Bloomberg New Energy Finance (BNEF). BNEF also expects all-in project costs for solar to plunge by another 48% by 2040, thus making solar a cheap electricity capacity source and beating most other sources of electricity generation.

The solar sector received very positive news in December that included (1) the surprise 5-year extension of the U.S. investment tax credit (ITC) and the elimination of the so-called “ITC cliff” at the end of 2016, (2) the Paris COP21 global climate agreement, which provides a long-term framework for the world to reduce carbon emissions, and (3) a favorable new net metering program in California.

Solar stocks are currently trading at bargain-basement prices compared with the broad market. The median trailing P/E of companies in the MAC Solar Index is currently 8.5, which is far below the P/E of 16.8 for the S&P 500 index. The median price-to-book ratio of 1.03 for the MAC Solar Index is well below the 2.53 ratio for the S&P 500. The median price-to-sales ratio of 0.77 for the MAC Solar Index is well below the 1.66 ratio for the S&P 500.

December’s Paris climate agreement provides a long-term framework for carbon reduction with the need for $13.5 trillion of investment

An historic global climate agreement to reduce carbon emissions was reached in December among 195 countries at the UN COP21 conference in Paris. The agreement will require massive spending of $13.5 trillion through 2030 to meet the carbon reduction targets, according to the International Energy Agency. This will involve the annual expenditure of $840 billion on various low-carbon solutions such as solar, wind, nuclear, carbon capture/storage, and energy efficiency.

The Paris climate agreement was criticized by some because the carbon reduction targets were not binding. The targets had to be voluntary because binding targets would not get through the U.S. Congress and would pose ratification problems in other countries as well.

Nevertheless, the agreement provides a permanent framework by which the world can now measure its intended progress towards reducing carbon emissions. The agreement also puts strong peer pressure on all nations to meet their stated goals. Moreover, the monitoring and reporting requirements in the agreement are actually binding, which means the world will at least be able to agree on which countries are, or are not, reducing carbon emissions in line with their stated targets. The agreement in short provides a critical monitoring and transparency framework for reducing carbon emissions.

Prior to December’s Paris agreement, there effectively was no global climate agreement in place. The old 1997 Kyoto Protocol agreement was limited mainly to Europe, was never ratified by the U.S. Congress, and didn’t apply to developing nations. The last major climate conference in Copenhagen in 2009 failed to produce a global climate agreement due in part to foot-dragging by the developing world.

The Paris climate agreement will come into force after it is ratified by at least 55 countries representing at least 55% of global emissions. The Obama administration can sign off on the agreement without the approval of Congress because the climate agreement is specifically structured so that it is not a treaty under U.S. law, meaning there is no way that the U.S. Congress at this point can block U.S. participation in the agreement. President Obama plans to meet the U.S. targets for carbon reduction by promoting renewable energy, boosting vehicle efficiency, and implementing the Clean Power Plan to reduce emissions from the all-important utility industry.

Under the Paris climate agreement, there will be a review every five years starting in 2018 to determine whether the pledges are strong enough to meet the climate change goals. Moreover, countries will be required every five years starting in 2020 to update their pledges and prepare tougher pledges if necessary. The targets of the Paris climate agreement do not take effect until 2020. In the meantime, countries will complete any required national ratification processes and will discuss a variety of implementation rules.

As part of the Paris agreement, the U.S. pledged to reduce emissions by 26-28% by 2025 from 2005 levels, The European Union pledged a 40% cut in greenhouse gases by 2030 from 1990. China pledged to cut carbon emissions per unit of economic output by 60-65% by 2030 from 2005 and increase the share of energy from renewables and nuclear to 20% by 2030. India set a goal of cutting carbon emissions per unit of economic output by 33-35% by 2030 from 2005 and to get 40% of its electricity capacity from non-fossil fuels by 2030. Russia committed to a 25-30% reduction in greenhouse gas emissions by 2030 from 1990.

While some members of the U.S. Congress objected to U.S. participation in the Paris climate agreement, the fact remains that the U.S. public generally supports efforts to reduce carbon emissions. In fact, two-thirds of Americans support the idea of the U.S. joining a binding international agreement to curb the growth of carbon emissions, according to the latest NY Times/CBS News poll. Moreover, Republican voters are increasingly convinced that global warming is real, which means that climate change is gaining more grass-roots political support. A Yale poll found that 74% of self-identified Republicans now believe that climate change is real, up sharply from only 52% in 2013. Unfortunately, some representatives in Congress continue to lag behind the public on climate change issues.

Paris climate agreement will not meet its goal of capping global warming and will likely require sharper carbon cuts down the road

While the Paris agreement was certainly a step in the right direction, researchers generally believe that the targets in the agreement will not be enough to stop global warming.

The Paris agreement seeks to cap global warming at 2 degrees Celsius (3.6 degrees Fahrenheit) from pre-industrial levels and calls on the parties to implement further carbon cuts to limit warming to 1.5 degrees Celsius. However, Climate Action Tracker is forecasting a 2.7 degree (Celsius) increase in global warning even if the pledges are met. Another group, Climate Interaction, is forecasting an even larger 3.5 degree (Celsius) increase in global temperatures.

As an indication of the scale of the global warming problem, NASA and the National Oceanic and Atmospheric Administration in January announced that 2015 was the earth’s hottest year since record-keeping began in 1880. NASA said that 2015 was 1.8 degrees Fahrenheit warmer than the late 19th century. In a separate analysis, NOAA said that 2015 was 1.62 degrees Fahrenheit warmer than the 20th century average.

The Paris climate agreement allows for carbon reduction targets to be “ratcheted up” in the future if global warming is not halted. However, the longer the world waits to cut carbon emissions, the sharper the cuts will need to be down the road. Moreover, there is the issue of whether it may soon become too late to stop global warming due to feedback loops such as increased methane emissions from thawing Arctic permafrost, the release of methane-trapped-ice, reduced sunlight reflection as polar and glacial ice melts, and the reduced ability of the oceans to absorb carbon dioxide as they become more acidified by CO2 absorption.

Paris climate agreement means $100 trillion of stranded fossil fuel reserves

The fossil fuel industry was clearly the big loser in the Paris climate agreement since the world committed itself to curb the use of fossil fuels and move towards low-carbon energy solutions. In order to meet the Paris climate targets, Citigroup analysts estimate that the world has to stick to a “carbon budget” and must leave in the ground one-third of the world’s oil reserves, one-half of global natural gas reserves, and 80% of global coal reserves. This amounts to a massive $100 trillion of stranded fossil fuel reserves that cannot be exploited, according to Citigroup analysts.

In addition to reserves left in the ground, the fossil fuel industry is expected to be forced to mothball a large number of extraction facilities as demand for fossil fuel ebbs. Carbon Tracker Initiative says that oil, natural gas, and coal producers are risking $2.2 trillion on projects for which there will be no demand as countries move towards meeting the Paris COP21 climate targets.

Investors are clearly getting the message about the risks of the fossil fuel industry. A recent survey of 200 global institutional investors by Ernst & Young found that 62% of respondents expressed concern about stranded-fossil-fuel asset risk and 36% said that their funds had already divested some stock investments because of concern about stranded assets. The risks in the fossil fuel industry are clearly rising as the world shifts toward renewables and are making the renewable energy industry look less risky by comparison.

Gates, Zuckerberg and others found the “Breakthrough Energy Coalition” with a $2 billion commitment for climate investment

To kick off December’s UN COP21 conference, a group of tech leaders and philanthropists announced their commitment to a new $2 billion fund to promote research for climate solutions. Bill Gates himself committed up to $1 billion to the effort. There are 26 members of the group that included Microsoft Founder Bill Gates, Facebook founder Mark Zuckerberg, Amazon founder Jeff Bezos, Alibaba founder Jack Ma, Khosla Ventures founder Vinod Khosla, fund manager George Soros, HP CEO Meg Whitman, billionaire entrepreneur Richard Branson, Ratan Tata of India’s Tata heavy industry group, and Saudi Prince Alwaleed bin Talal.

Bill Gates said in a July blog post, “If we create the right environment for innovation, we can accelerate the pace of progress, develop and deploy new solutions, and eventually provide everyone with reliable, affordable energy that is carbon free. We can avoid the worst climate-change scenarios while also lifting people out of poverty, growing food more efficiently and saving lives by reducing pollution.”

Also at the beginning of the COP21 conference, 20 major countries announced their participation in a new program called “Mission Innovation” in which they agreed to double their respective clean energy R&D over five years. These investments amount to $10 billion annually, with $5 billion coming from the U.S., according the New York Times. The public “Mission Innovation” and the private “Breakthrough Energy Coalition” agreed to work together in a public-private partnership to help solve energy problems.

5-year U.S. solar ITC extension provides huge boost for U.S. solar industry

Congress in mid-December approved a surprise 5-year extension of the solar investment tax credit (ITC) as part of an “energy grand bargain” in which the renewable tax credit extensions were traded for dropping the 40-year ban on exporting U.S. crude oil. In reality, the extension of the solar ITC was more bipartisan than it might appear since there were undoubtedly many Republicans in Congress who favored the extension of the solar ITC extension, even if they were not forced to say so, due to the importance of solar jobs in many states and due to the increasing acceptance among Republican voters that global warming is real.

Specifically, Congress extended the solar 30% ITC until 2019 when it will be phased down to 26% in 2020 and 22% in 2021, thereafter remaining permanently at 10%. If it were not for the extension, the solar ITC would have dropped to 10% at the end of 2016. In another big win for the solar industry, solar projects now only need to commence construction by the year-end ITC deadlines, rather than the previous rule of being completed and connected to the grid by the year-end ITC deadlines, which gives solar companies more time and certainty about using the ITC credit.

The extension of the solar ITC will keep solar electricity costs low and will help solar to better compete against other sources of new electricity generation over the next five years. In addition, the increased level of unit sales from the ITC extension should help the solar industry reduce solar costs more quickly by taking advantage of larger economies of scale and a steeper experience curve.

The 5-year solar ITC extension will attract $40 billion in new solar investment over the next four years and will double the number of jobs in the U.S. solar industry to 420,000, according to the Solar Energy Industries Association. The SEIA also said that the ITC extension will boost total U.S. solar electricity capacity to 100 GW by 2020, which would nearly match U.S. nuclear capacity and would be 25 GW higher than if the ITC had not been extended.

The ITC extension also means that power purchase agreements (PPAs) for utility-scale solar will now be regularly signed for 4 cents/kWh and below, according to GTM’s vice president of research Shayle Kann.

The 5-year ITC extension to 2021 also provides a favorable runway for the solar industry leading up to the EPA’s Clean Power Plan (CPP), which does not come into full effect until 2022. The Clean Power Plan will push utilities to get more of their electricity generation capacity from clean technologies such as solar and wind. The EPA’s CPP targets a 32% reduction in national greenhouse gas emissions from 2005 through 2030 and a goal for the U.S. to get 28% of its power from renewable energy sources by 2030, more than double the 2014 level of 13%. As a side note, the CPP received a big boost in January when a U.S. federal court said that the requirements of the Clean Power Plan can move ahead while a suit against the plan by 27 states is being considered in the courts. Opponents to the CPP have therefore failed thus far to block the CPP.

The so-called “ITC cliff,” which would have occurred if the ITC had expired at the end of 2016, had previously given investors a reason to be cautious about the solar sector as they waited to see how much new solar installations in the U.S. would dip without the ITC. However, the 5-year ITC extension now gives the U.S. solar industry better visibility and a much stronger longer-term demand picture. Cowen and Company in an ITC research note written in December noted that their solar research analysts were receiving calls from a much broader range of investors after the ITC was extended since the U.S. solar industry is now on much more certain ground.

Solar industry gets big win on net metering in California but sees setbacks in Nevada and Hawaii

The U.S. solar industry received a big win when the California Public Utilities Commission in December issued a proposal for a “net metering 2.0 program” to take effect when the current program expires in 2017. The proposal preserves net metering payments made to solar households at retail rates, rather than at something below retail rates such as wholesale rates. However, there were some negatives in the proposal such as an initial interconnection fee of $75-100 for new solar customers, imposing a 2-3 cent per kWh fee on net metering customers that is paid by other utility customers, and a move to make net metering tariff payments in the future tied to the variable “time-of-use” cost of electricity at various times during the day. A final decision is scheduled to be issued on January 28.

On the whole, the solar industry was pleased with the proposal since the California PUC preserved net metering at retail rates. The industry hopes that the California proposal will provide a regulatory model for other states. The California decision is also very important because roughly half of the residential solar installed in the U.S. is in California.

The solar industry also had a win in Wisconsin where a circuit court threw out a decision by the Wisconsin Public Service Commission to allow the “We Energies” utility to charge a monthly “grid fee” to its customers that have solar. The judge ruled that the utility was not able to show sufficient proof that the extra fee was justified.

However, the solar industry faced set-backs in Nevada and Hawaii. In Nevada, the state’s Public Utility Commission not only cut net metering payments from retail to wholesale electricity rates, but applied the new rules retroactively to existing customers, which will have a significant negative impact on the economics of existing solar systems. The ruling does not require solar customers to give back higher net metering fees that they received in the past, but the ruling is “retroactive” in the sense that existing solar customers were not grandfathered into the payments that were previously promised by the state and upon which solar customers relied when they bought their solar system. Solar customers argue that they should receive the full retail price of electricity for feeding their excess electricity into the grid because otherwise the utility is capturing a profit on that electricity that solar customers generate with their own equipment.

The PUC also allowed Nevada utilities to boost a fixed charge to all customers and reduce the per-kWh rate, meaning solar users will now have to pay a 40% higher minimum fixed charge.

There were vociferous protests against the Nevada PUC decision, particularly because it retroactively cut net metering payments. SolarCity responded by announcing that it was pulling out of Nevada and would relocate 550 jobs out of the state. SunRun, another major residential installer, announced that it was pulling out of Nevada as well. Sunrun also sued Nevada’s governor in attempt to get the governor to comply with a previous public records request that called for the release of all communications between the governor’s staff and employees and lobbyists for Nevada monopoly utility NV Energy. SunRun is looking for evidence about whether the governor and his advisors coordinated net metering policy with NV Energy in order to slow down solar adoption and protect the utility’s profits. A class action lawsuit by existing solar customers was also filed against NV Energy over the PUC decision. In response to the backlash, the Nevada PUC said it will reconsider its decision not to grandfather existing customers.

Meanwhile, Hawaii cut net metering rates from retail electricity prices to fixed prices of 15-28 cents/kWh depending on which island the customer is on. If a solar customer is not providing electricity to the grid and is not in a net metering program, then the solar customer will have a minimum monthly bill from the utility of $25 for residential customers and $50 for small business customers. The Hawaii decision avoided significant backlash from the solar industry since the decision did not apply retroactively to existing customers and since the net metering rates remained high. Regardless of the revision of its net metering program, Hawaii is still heavily promoting solar as a solution to meeting its goal of going 100% renewable by 2045. Hawaii already has the highest solar adoption rate in the country with about 12% of all homes having solar.

The bottom line in the net metering battle is that solar is economical regardless of lower net metering rates, just with longer payback periods. There will be a long battle between the solar industry and the utility industry as the utility industry tries to slow solar adoption and preserve its profit models by eliminating net metering and imposing fixed charges on solar. But the reality is that the utility industry is fighting a losing battle over the long run as electricity customers gain the power to generate their own electricity at progressively lower costs and thus sidestep the monopoly utility industry.

American solar jobs now exceed oil/gas jobs

There are now 209,000 people who work in the U.S. solar industry, according to the non-profit Solar Foundation, with 20% growth in solar jobs in the year through Nov 2015. The number of solar jobs is now more than the 185,000 people working in the U.S. oil and gas industry, representing a dramatic shift in energy technology jobs and potentially political clout. Moreover, the U.S. solar industry is just getting started and could add more than 1 million jobs by 2030 and nearly 2 million jobs by 2050, according to a report by NextGen Climate America.

COP21 Paris meeting approaches; White House announces more support for solar; California boosts RPS to 50%; North Carolina becomes fourth state to reach 1 GW of solar — Oct 2015
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Oct-2015

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), posted a 1-1/3 year high in April but then fell sharply through late-September, showing some recovery in early October. The index is currently down -14.0% year-to-date. The MAC solar index in 2014 fell by -2% after soaring by +127% in 2013.

Solar stocks fell sharply in the May-September period due to (1) the sharp downward correction in the Chinese stock market, which caused some carry-over weakness in Chinese-headquartered solar stocks, (2) concern that slower economic growth in China may translate into reduced solar power growth in China, (3) the downward correction in the U.S. stock market which featured particular weakness in tech stocks and high-beta stocks, (4) continued weakness in crude oil prices, (5) a downward correction in the stock prices of solar yieldcos in order to produce more attractive dividend yields, and (6) continued solar trade disputes.

Solar stocks have seen a recovery rally so far in October on (1) ideas that the sector was severely undervalued at recent levels, (2) an upward rebound in SunEdison (SUNE), a solar bellwether, after the company announced cost-cutting, streamlined operations, and more financial details about its margins and projects, and (3) the overall strength of the solar sector with strong revenue growth and improving margins.

Global solar demand continues to be very strong with both increasing unit sales and decreasing costs due to technology advances and economies of scale. Global solar installations in 2015 will grow by +36% y/y, the strongest growth rate in three years, according to GTM Research. At a country level, China this year should be able to easily hit its 2015 annual target of 17.8 GW, representing +37% y/y growth from 2014’s install amount of 13.0 GW. U.S. solar in 2015 will grow by +29% y/y, according to GTM Research.

Meanwhile, the medium to long term outlook for solar remains very strong. Solar will boom over the next 25 years and will account for 35% (3.429 GW) of all electricity capacity additions through 2040, according to Bloomberg New Energy Finance’s “New Energy Outlook 2015.” Spending on new solar installs will be a massive $3.7 trillion through 2040, according to the BNEF report. Moreover, BNEF says that all-in project costs for solar will plunge by another 48% by 2040 due to steep experience curves and improved financing.

Even after the October recovery, the solar sector remains undervalued compared with the broad market. The median trailing P/E of companies in the MAC Solar Index is currently 9.2, which is well below the P/E of 17.8 for the S&P 500 index. The median price-to-book ratio of 1.85 for the MAC Solar Index is well below the 2.72 ratio for the S&P 500. The median price-to-sales ratio of 1.12 for the MAC Solar Index is well below the 1.77 ratio for the S&P 500.

December’s COP21 climate talks approach and more corporations commit to renewable energy

The Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21) meeting in Paris in early December is quickly approaching. There are hopes that the meeting will result in a new international climate change agreement aimed at capping global warming at a 2 degree (Celsius) increase from pre-industrial levels.

So far, 147 countries, accounting for 85% of world carbon emissions, have submitted pledges on reducing fossil-fuel emissions. However, even these pledges will probably not be enough to meet the 2-degree goal. The Climate Action Tracker group forecasts a 2.7 degree (Celsius) increase in global warning even if the pledges are met and Climate Interaction is forecasting a 3.5 degree (Celsius) increase.

As part of the COP21 agreement, the U.S. has pledged to reduce emissions by 26-28% by 2025 from 2005 levels, The European Union has pledged a 40% cut in greenhouse gases by 2030 from 1990. China has pledged to cut carbon emissions per unit of economic output by 60-65% by 2030 from 2005 and increase the share of energy from renewables and nuclear to 20% by 2030. India has set a goal of cutting carbon emissions per unit of economic output by 33-35% by 2030 from 2005 and to get 40% of its electricity capacity from non-fossil fuels by 2030. Russia has committed to a 25-30% reduction in greenhouse gas emissions by 2030 from 1990.

Ahead of the COP21 conference, the U.S. government is encouraging large U.S. corporations to demonstrate to world climate negotiators that there is broad-based business support in the U.S. for reducing carbon emissions and going off fossil fuels. As part of a White House initiative for sustainability investment announced in July, 13 major U.S. corporations including Apple, Berkshire Hathaway and Goldman Sachs, agreed to provide at least $140 billion in new investment to reduce their carbon footprints.

In addition, nine more major U.S. companies in September took the pledge to go 100% renewable as part of the RE100 Initiative (www.there100.org). There are now nearly 40 major global corporations that have committed to going 100% renewable including IKEA, Swiss Re, Goldman Sachs, Johnson & Johnson, Nestle, Nike, Phillips, Procter & Gamble, Salesforce, SAP, Starbucks, Steelcase, UBS, Unilever, Walmart, and others.

VP Biden highlights how “special interests” are standing in the way of solar

Vice President Joe Biden, speaking at the Solar Power International conference on Sep 17, said that more Americans need to “understand the possibilities of solar… just imagine what we can do. Folks, we are on the cusp for something huge here but a lot of folks don’t realize it.”

Mr. Biden lamented about how the U.S. has provided more than $5 billion of annual tax credits for the oil industry for many years and yet there is difficulty in extending smaller alternative energy credits. Mr. Biden said, “Deep-pocketed special interests that have lobbied for fossil fuels for years are now saying ‘Let’s take away consumer choice. Let’s stifle the market. Isn’t it amazing?” He added, “The Koch brothers–fine guys as I understand it–and groups like ALEC, have successfully argued for limits on the amount of net metered systems, like in Wisconsin. They are pushing back against change at every level, trying to alter how the market functions.”

Mr. Biden noted that solar has provided 40% of all new U.S. electricity generation capacity so far in 2015 and the solar industry now employs more people than Google, Apple, Twitter and Facebook combined. Mr. Biden noted that solar deployment in the U.S. has grown by 20-fold since the Obama administration took office in 2008. Mr. Biden also confirmed a White House announcement earlier in the day of another $120 million in solar funding for making PV cheaper through advanced solar technology research.

Meanwhile, President Obama in August sounded similar themes when he spoke at a clean energy summit in Nevada. Mr. Obama said that there are “massive lobbying efforts backed by fossil fuel interests or conservative think tanks” that are opposing renewables and that are trying to protect an “outdated status quo.” He said that “pushing for new laws to roll back renewable energy standards or prevent new clean energy businesses from succeeding” was “not the American way.” But on a more optimistic note, Mr. Obama noted how some Tea Party groups are coming together with green and pro-solar groups to support solar so that consumers can exercise their freedom of choice to select “cleaner, cheaper, and more efficient energy.” Mr. Obama spoke shortly after the White House announced a $1 billion increase in loan guarantees for renewable energy projects and a batch of other alternative energy support measures.

Pope Francis pleads for support in addressing climate change

Pope Francis on his visit to the U.S. in September raised public awareness of climate change issues and perhaps even modestly changed the terms of the climate change debate. The Pope said that citizens need to recognize that they have a responsibility to be stewards of the earth, saying “Humanity has the ability to work together in building our common home.” In remarks to Congress, the Pope called on the U.S. government to take “courageous actions” to address climate change and “avert the most serious effects of the environmental deterioration caused by human activity.”

“We’ve reached the limit of what’s possible with diesel and gasoline”

Elon Musk, CEO of Tesla (TSLA) and Chairman of Solar City (SCTY), recently said in response to a question about Dieselgate, “What the Volkswagen [scandal] is really showing is that we’ve reached the limit of what is possible with diesel and gasoline.” Mr. Musk said Volkswagen’s need to cheat on its emission testing shows that diesel cars simply cannot meet both government emissions tests and consumers’ performance standards. Mr. Musk said the scandal should lead automakers and consumers to the faster adoption of clean and high-performing electric vehicles. The Volkswagen scandal should make clear to consumers that there is no such thing as Volkswagen’s highly-touted claim of “clean diesel,” just as there is no such thing as “clean coal.”

California boosts renewable energy mandate to 50% with at least $8 billion in solar sales potential

California’s legislature and governor approved an increase in the state’s Renewable Portfolio Standard (RPS) to require that at least 50% of California’s utility electricity is produced by renewable sources by 2030, up from California’s previous RPS of 33% by 2020. California’s higher RPS means that there will be an extra $8.6 billion of potential revenue for building new utility-scale solar projects, according to GTM Research. The California Solar Energy Industries Association estimates that the solar sales potential will be even higher at $10 billion.

North Carolina becomes the fourth state to reach the 1 GW solar mark

North Carolina as of September had 1.04 GW of installed solar capacity, according to the NC Sustainable Energy Association (NCSEA) (link). North Carolina became the fourth state to reach that mark behind California, Arizona and New Jersey. The solar industry in North Carolina accounts for $1.8 billion in revenue and over 4,000 full-time equivalent jobs, according to the NCSEA’s 2014 Clean Energy Industry Census.

Solar ITC extension has a chance of becoming part of grand energy bargain

Congressional committees have so far failed to approve an extension of the solar Investment tax credit (ITC). The solar ITC under current law will drop to 10% from 30% for commercial projects installed after Jan 1, 2017, and the ITC will be eliminated for residential solar on that same date. Based on the Congressional track record, Congress is not likely to even consider a solar ITC extension until late 2016, just before the ITC step-down is set to occur. However, there is some hope for an earlier consideration of the solar ITC extension since some Democrats are talking about a grand energy bargain involving dropping the U.S. crude oil export ban in return for an extension of alternative energy support measures such as the solar ITC extension.

There is no doubt that solar growth in the U.S. will see a sharp drop in 2017 if the 30% ITC isn’t extended. Solar developers are racing to get solar projects installed before the Jan 1, 2017 ITC step-down, which means there is sure to be a hang-over in 2017 after the 2015-16 front-loading. However, that would only be a bump in the road for the global solar industry since the U.S. accounted for only 14% of world solar installs in 2014. Even if the U.S. solar industry temporarily stumbles in 2017-18, the rest of the world will still be going full speed ahead with solar and U.S. solar will then recover at a slower non-ITC growth rate.

In addition, even if there is a 2017 ITC step-down, U.S. solar will still have significant government support from various state support measures such as state tax credits, net metering, and Renewal Portfolio Standards (RPS). Solar will still see continued support at the federal level from (1) the Property Assessed Clean Energy (PACE) financing program, (2) the Department of Energy’s SunShot initiative along with technical and policy support from national laboratories, and (3) the EPA’s Clean Power Plan (CPP), which involves a 32% reduction in national greenhouse gas emissions from 2005 through 2030 and a goal for the U.S. to get 28% of its power from renewable energy sources by 2030, more than double last year’s 13% level.

$3.7 trillion in solar investment through 2040; Clean Power Plan sets stage for long-term U.S. solar growth; Two yieldcos launch IPOs; Community solar is breaking out – Aug 2015
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Aug-2015

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), posted a 1-1/3 year high in April but then fell sharply in the last three months and is currently down -7.1% year-to-date. The MAC solar index in 2014 fell by -2% after soaring by +127% in 2013.

Solar stocks fell in the past three months due to (1) the sharp downward correction in the Chinese stock market, which caused some carry-over weakness in Chinese-headquartered solar stocks, (2) concern that slower economic growth in China may translate into reduced solar power growth in China, (3) increased talk about a Fed rate hike in 2015 as higher interest rates could cause some downward pressure on yieldcos, (4) renewed weakness in crude oil prices after world powers reached a nuclear agreement with Iran that could pave the way for a sharp increase in Iranian oil exports late this year when sanctions are due to be dropped, and (5) continued solar trade disputes.

Despite these negative factors, the global solar industry as a whole remains healthy with strong demand and improving margins. GTM Research is forecasting that annual solar installations in 2015 will grow by +36% y/y, the strongest growth rate in three years. Meanwhile, solar installs in China in Q1-2015 were very strong at 5 GW, double the previous year and higher than expectations of 2-3 GW. China should be able to easily hit its 2015 annual target of 17.8 GW, which would be up by 37% from 2014’s install amount of 13.0 GW. U.S. solar in 2015 will grow by +29%, according to GTM Research.

Solar will see a massive $3.7 trillion of investment through 2040

Solar will boom over the next 25 years and will account for 35% (3.429 GW) of all electricity capacity additions through 2040, according to Bloomberg New Energy Finance’s “New Energy Outlook 2015.” Spending on new solar installs will be a massive $3.7 trillion through 2040, according to the BNEF report.

Meanwhile, all-in project costs for solar will plunge by 48% by 2040 due to steep experience curves and improving financing, according to the report. BNEF believes that solar will reach retail-price parity in all major economies by 2040 and that utility-scale PV will be the least-cost power generation option for utilities without subsidies by 2030.

BNEF sees a renewable revolution over the next several decades with zero-emission energy sources accounting for 56% of the world’s power-generating capacity mix by 2040, causing fossil fuels to drop to 40% from the current two-thirds. BNEF says the developing world will account for the largest proportion of solar installs since the developing world will build three times as much new electricity generation capacity as the developed world. That highlights the fact that the bulk of new solar installs will move to the developing world in coming years from the current concentration in the developed world.

U.S. Clean Power Plan (CPP) sets stage for long-term solar growth

The Obama administration on August 3 announced finalized rules for the EPA’s Clean Power Plan (CPP), which envisions a 32% reduction in national greenhouse gas emissions from 2005 through 2030. The plan is part of the Obama administration’s goal for the U.S. to get 28% of its power from renewable energy sources by 2030, more than double last year’s 13%. In announcing the plan, President Obama said “We only get one home. We only get one planet. There is no Plan B.”

The CPP plan targets carbon reductions in the electricity-generation sector, which accounts for about one-third of all U.S. carbon emissions. The plan expresses explicit support for renewables and nuclear but comes down hard on coal in particular and has less reliance on natural gas than the preliminary plan. Coal produces about 80% of the U.S. power sector’s carbon emissions, making it a prime target as a means to reduce emissions. The U.S. Energy Information Administration says that nearly 400 GW of renewable energy will be possible by 2040 under CPP, giving the solar and wind industries a big opportunity.

Despite the long-term opportunity, the plan will take time to have an impact since (1) there will be legal challenges to the plan as well as compliance resistance by some states, (2) states under the CPP plan do not need to have their carbon-reduction plans in place until 2018 and have until 2022 to meet their first carbon reduction targets, and (3) a future president and/or veto-proof Congress could halt the plan altogether. Hillary Clinton expressed support for CPP but all the Republican presidential candidates have said they oppose the plan.

The EPA has launched the CPP plan under the regulatory authority that the U.S. Supreme Court approved for the EPA to regulate carbon emissions under the Clean Air Act in the case of Massachusetts vs. EPA in 2007. The fact that the Supreme Court has already approved the EPA’s authority to regulate carbon emissions means that legal challenges to CPP may have an uphill battle.

The Obama administration is relying heavily on the CPP plan to demonstrate its world leadership on climate issues. President Obama in September will meet with Pope Francis on his trip to the U.S. The Pope has already boldly called for government action to address the problem of climate change. The U.S. also wants to show leadership ahead of this December’s climate talks in Paris, where a new global climate agreement could be reached.

Two yieldcos launch IPOs

First Solar (FSLR) and SunPower (SPWR) in June launched a $420 million IPO for their joint yieldco named “8point3 Energy Partners” (CAFD). The company is named for the number of minutes it takes for light to reach earth from the sun. 8Point3’s current market cap is about $1.0 billion. Separately, TerraForm Global (GLBL) in late-July raised $675 million in its IPO and currently carries a market cap of $4.1 billion. TerraForm Global is the yieldco that will have first rights on SunEdison’s global renewable energy projects. Several other large solar companies intend to launch yieldcos over the next year.

MAC Solar Index already has two yieldcos as index constituents: TerraForm Power (TERP) with a market cap of $3.7 billion and Abengoa Yield (ABY) with a market cap of $2.3 billion. Both of those stocks trade on the Nasdaq Exchange. These yieldcos provide an attractive dividend component to the MAC Solar Index.

In a “yieldco,” a solar company spins off a independent company that owns and operates large-scale solar plants under long-term power purchase agreements, usually with investment-grade utilities or corporations. Yieldcos pay an attractive and predictable dividend flow to investors. A yieldco typically has a low cost of capital to finance solar projects and pays little or no taxes due to large project depreciation costs. Meanwhile, the yieldco model allows the parent company to free up its balance sheet to focus on manufacturing, services, installation, and project development, but the parent still receives long-term cash flow from the solar projects through its partial ownership of the publicly-traded yieldco.

Renewable energy MLP bill re-introduced in Congress

A bill that would allow for renewable energy companies to utilize the Master LImited Partnership (MLP) structure was re-introduced in Congress in June. MLPs have traditionally been used in the gas and oil industry for infrastructure assets such as pipelines. The renewable energy MLP bill was introduced in last year’s Congress but there was no progress last year towards approval by the full Congress. Bloomberg estimates that extending MLPs to renewables would cost taxpayers about $1.3 billion in tax breaks over 10 years. The problem in Congress is to decide how to “pay for” that cost. Still, there is a chance that the renewable energy MLP cost could be wrapped up in larger energy or infrastructure legislation.

Having access to MLP and REIT structures would provide another project financing avenue for the solar industry. However, the solar industry has already made the MLP avenue moot to some extent by using the yieldco structure, which has been referred to as a synthetic MLP since it has many of the same benefits as a MLP. Bloomberg estimates that $16 billion has been raised by oil and gas companies in MLP public offerings since 2010, while about $3 billion has been raised by North American yieldco offerings over the same period.

Solar ITC extension doesn’t make it into Senate Finance Committee’s tax extenders bill

The Senate Finance Committee on July 21 approved a tax extenders bill that included a number of extensions of renewable energy production tax credits through the end of 2016. However, the bill did not include any extension of the solar Investment tax credit (ITC) or a proposed amendment that would have the current ITC apply to projects that start before the end of 2016 versus the current situation of projects that are completed before the end of 2016. The fact that the solar ITC did not make it into the tax extenders bill was not surprising considering that the bill dealt mainly with tax credits that already expired or that expire in 2015. Congress has not yet turned its attention to tax credits that expire in 2016.

The good news is that there was fairly strong Republican support in the extenders bill for extending renewable energy credits for wind, geothermal, biomass, landfill gas, incremental hydroelectric, and ocean energy, suggesting that the Republican Congress next year may yet be convinced to extend the solar ITC. The Senate Finance Committee, which is run by the Republicans, approved the tax extenders bill by the wide margin of 23 to 3.

Moreover, the American public continues to express strong support for renewable energy. In fact, 75% of Americans favor extending federal tax incentives that promote renewable energy, according to a poll by Zogby Analytics released in April. The breakdown in that poll showed that renewable energy tax incentives are supported by 82% of Democrats, 67% of Republicans, and 72% of independents.

The solar 30% ITC expires for residential and utility projects and falls to 10% from 30% for commercial projects at the end of 2016. There is no doubt that solar growth in the U.S. will see a serious dent starting in 2017 if the 30% ITC isn’t extended. However, that would only be a bump in the road for the global solar industry as a whole since the U.S. accounted for only 14% of world solar installs in 2014. Even if the U.S. solar industry temporarily stumbles in 2017-18, the rest of the world will still be going full speed ahead with solar and U.S. solar will recover to a slower non-ITC growth rate.

Community solar is expected to be high-growth segment in coming years

The U.S. rooftop solar segment has been growing very quickly over the past few years, but 49% of U.S. households and 48% of businesses are unable to host solar PV panels, according to the National Renewable Energy Laboratory (NREL). One of the solutions to that problem is “community solar” or “shared renewables” in which customers share the electricity produced by a large solar PV array. There are a variety of possible ownership structures, but the most popular community solar projects currently involve utilities and third-party solar companies as owners and developers.

The U.S. community solar segment is still in its infancy but there are already 50 community solar programs that are planned or operating, according to the Solar Electric Power Association. The U.S. community solar market will show a compound annual growth rate of 59% from 2014 through 2020, topping 500 MW by 2020, according to a new report by GTM Research entitled “U.S. Community Solar Outlook 2015-2020.” The report says that community solar over the next five years will add 1.8 GW of solar, meaning it will become a key segment of the U.S. solar market. The report identifies four states that will account for the majority of the community solar market over the next two years because of their supportive regulatory structures: California, Colorado, Massachusetts, and Minnesota.

Meanwhile, the U.S. National Renewable Energy Laboratory (NREL) recently released a major report on community solar, laying out forecasts, policy prescriptions, and analysis of ownership structures. The report is entitled, “Shared Solar: Current Landscape, Market Potential, and the Impact of Federal Securities Regulation.”

NREL is highly bullish on community solar, saying that “shared solar” could add 5.5-11 GW to the U.S. rooftop market by 2020, representing $8.2-$16.3 billion of solar sales. NREL says that community solar could account for 32-49% of the U.S. distributed solar PV market by 2020.

There are already some 29 developers in the U.S. that are working on community solar projects. In one example, SolarCity recently announced a program in which customers of Minnesota-based Excel Energy will be able to save about 11.5% on their electricity bill by participating in “community solar gardens.” Participants can include home owners, apartment dwellers, businesses, schools, and municipal facilities. SolarCity plans to invest some $200 million in up to 100 solar power plants, each with up to 1 MW of generation capacity.

Shared solar is a way for established utilities to break into distributed solar and compete with third-party solar developers such as SolarCity. For example, Tuscon Electric Power has a project in progress where it will build and own a 3.5 MW solar plant and provide the electricity to 600 customers. The list of interested customers is heavily oversubscribed. The future looks very bright for utility-owned community solar projects as state regulatory structures become more supportive.

U.S soars 30% in 2014; FSLR-SPWR yieldco surprises the markets; solar gains popularity among institutional investors; solar jobs now exceed coal jobs; China raises solar target to 17.8 GW; Middle East is shocked at low 5.85 cent solar project cost – Apr 2015
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Apr-2015

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), has rallied sharply by +32% so far this year, regaining strength after falling by -2% in 2014. The MAC solar index in 2013 soared by 127%.

Solar stocks surged during the first quarter of 2015 on bullish factors including (1) broadly positive Q4 earnings news across the solar sector and positive guidance for 2015, (2) announcements by more solar companies that plan to form yieldcos, (3) indications of strong world solar demand that has solar companies running at high utilization rates and planning more capacity, (4) news that China boosted its 2015 PV installation target by 19% to 17.8 GW from the preliminary figure of 15 GW, (5) the stabilization of crude oil prices and the broader realization that crude oil prices and solar stocks have little connection, and (6) heavy short-covering.

Negative factors for solar stocks included (1) continued solar trade disputes, (2) the need for solar profit margins to improve further, and (3) a shaky overall U.S. stock market picture due to high valuations and weaker earnings tied to the strong dollar.

The fundamentals of the solar industry remain favorable with strong end-user demand, stable polysilicon and solar panel pricing (see charts on p. 3), right-sized industry capacity, and improving profitability among solar manufacturers.

U.S. solar grew 30% in 2014 and more than 500 MW of residential solar was without state support

The U.S. installed 6.2 GW of solar PV in 2014, up 30% yr/yr, according to a report by GTM Research and SEIA (link). Notably, residential solar reached a record annual install level of 1.2 GW in 2014 and more than 500 MW of that was installed without any state-level support. That indicates how U.S. residential solar is spreading beyond states that provide strong solar support such as California due to falling solar costs. Solar accounted for 32% of new U.S. electricity generation capacity in 2014, coming in second behind natural gas but ahead of coal and wind. For 2015, GTM Research is forecasting a further 31% increase in solar installs to 8.1 GW.

Meanwhile, California became the first state to obtain more than 5% of its utility-scale electricity from solar. The total solar-generation figure is even higher after taking into account California’s 2.3 GW of roof-top solar. California has aggressively promoted solar with its 33% renewable portfolio standard and other rebate incentives and net-metering policies to support smaller-scale solar.

First Solar and SunPower surprise the markets with a joint yieldco

First Solar (FSLR) and SunPower (SPWR) surprised the markets in February by announcing a joint yieldco named “8point3 Energy Partners” for the number of minutes it takes for light to reach earth from the sun. The firms filed an IPO prospectus for the yieldco. The stock prices of both First Solar and SunPower rallied on the news. The two companies apparently went into a joint-venture yieldco in order to boost the number of the projects available for the yieldco and create some economies of scale.

In a yieldco model, a solar company spins off a self-contained development subsidiary that owns and operates large-scale solar farms under long-term power purchase agreements with investment-grade utilities or corporations. Yieldcos pay an attractive and predictable dividend flow to investors. The low-risk yieldco typically has a low cost of capital to finance the project purchases. The yieldco model allows the parent company to free up its balance sheet to focus on manufacturing, services, installation, and project development, but the solar parent still receives long-term cash flow from those projects via its partial ownership of the publicly-traded yieldco.

The yieldco model has quickly proven itself in the solar energy industry. SunEdison in July 2014 launched its TerraForm Power (TERP) yieldco and has filed a prospectus for a second yieldco for overseas projects. Abengoa in June 2014 spun off its yieldco Abengoa Yield (ABY). Many of the other major solar companies have indicated an interest in spinning off their own yieldcos.

Apple’s $848 million solar purchase is largest ever for U.S. corporation

Apple in early February announced a deal to purchase $848 million worth of electricity from a First Solar solar plant in Monterey County, California on a 25-year power purchase agreement (PPA). Apple’s purchase of 130 MW of electricity is enough to power its headquarter offices, its California retail stores, and one of its data centers. This is the largest solar power purchase yet by any U.S. corporation, other than utilities. Apple CEO Tim Cook said, “We’re doing this because it’s the right thing to do, but you may also be interested to know that it’s good financially to do it. We expect to have a very significant savings because we have a fixed price for the renewable energy.”

Solar gains popularity among institutional investors

Google announced a $300 million investment in a $750 million SolarCity (SCTY) fund that will finance roof-top solar projects. Google expects to earn a return as high as 8% on its investment. SolarCity is currently the only sponsor for solar asset-backed securities (ABS) based on roof-top solar, but Moody’s in January released a report saying that “Solar ABS” is emerging as a distinct asset class. Meanwhile, some institutional investors are investing in solar by owning the actual solar farms. For example, two Canadian pension funds, the Ontario Teachers’ Pension Plan and the Public Sector Pension Investment Board, are teaming up with Santander in a joint venture to own $2 billion worth of solar, wind and water infrastructure assets. The renewable infrastructure assets are attractive to institutional investors due to low risk, attractive long-term cash flows, and portfolio diversification.

Solar homes fetch $15,000 premium

U.S. homes outfitted with rooftop solar PV fetched an average premium of $15,000 upon the home’s resale, according to an in-depth study by the U.S. Department of Energy’s Berkeley Lab in partnership with Sandia National Labs (link). The study bolstered the case for homeowners to install solar since the solar system boosts the value of their home as well as reduces their electricity costs and insulates them from rising utility electricity prices.

Residential solar is going mass market

SolarCity (SCTY) in March announced a partnership deal with DirecTV that allows DirecTV service reps to sell SolarCity solar power systems. This gives SolarCity access to DirecTV’s 37 million customers in the U.S. and Latin America. SolarCity already has sales partnership deals with Home Depot and Honda. The DirecTV deal is another example of how residential solar is going mass market.

U.S. solar jobs grow at 20 times the national average and now outstrip coal industry

U.S. solar jobs in 2014 grew at nearly 20 times the national average rate and accounted for 1.3% of all new jobs in the U.S., according to the Solar Foundation’s National Solar Jobs Census 2014 (link). U.S. solar jobs have grown by roughly 20% in each of the last two years and the forecast is for further 21% job growth in 2015. The solar sector now employs 173,807 workers, which is nearly double the 93,185 jobs in the coal mining industry and not far behind 215,700 jobs in the oil & gas extraction industry.

Americans support solar more than any other energy source

Americans support solar development more than any other energy source, according to a Gallup poll released in March (Gallup link) (SEIA article). The poll found that 91% of Americans favor the same or more emphasis on solar, higher than 87% for natural gas, 84% for wind, 68% for oil, 63% for nuclear, and 55% for coal. The poll suggests strong grass-roots political support for solar among American voters even if some Congressional representatives aren’t reflecting that grass-roots support.

China raises its 2015 solar target to 17.8 GW to achieve world’s largest installed solar base

China’s energy regulator, the National Energy Administration, in mid-March raised its national 2015 solar installation target to 17.8 GW, which was 19% higher than its preliminary target of 15 GW announced in January. The announcement gave a boost to Chinese solar stocks in March. The 2015 target of 17.8 GW represents 27% growth from the 2014 target of 14 GW. If the target is reached, China by the end of 2014 will have about 45 GW of installed solar capacity, leapfrogging Germany as the world’s largest installed-solar country. Germany had about 38 GW of solar capacity at the end of 2014.

China’s “Under the Dome” film goes viral and increases pressure on Chinese government to address pollution

The online documentary film “Under the Dome,” made by well-known China Central Television newscaster Chai Jing, was seen online by more than 150 million people in just its first days, which certainly qualifies as “going viral” (link). The impact of the film in China has been likened to America’s “Inconvenient Truth” film and the 1962 book on pesticides named “Silent Spring” by Rachel Carson that led to the ban on DDT and was instrumental in the creation of the U.S. Environmental Protection Agency.

The film highlights Chai Jing’s investigation into China’s major pollution problems as a means of understanding the risks from pollution to her young child, whom had a benign tumor at birth and whom she had to keep inside “like a prisoner” on extremely bad air days that amounted to nearly half of the days in 2014.

“Under the Dome” provided some support for Chinese solar stocks in March with the theme that China’s horrendous air pollution means the Chinese government has no choice but to reduce the country’s dependence on coal and increase its reliance on clean sources of electricity such as solar. Some Wall Street analysts went so far as to say that the film represents a watershed moment for China’s environmental policy and the awakening of the Chinese public to the need for solutions to China’s pollution problems.

Middle East is shocked at solar potential after 5.85 cent/kWh Dubai project

The Middle East was shocked to learn that the Dubai Electricity & Water Authority in Nov 2014 accepted a bid for a 200 MW solar power plant with a price of 5.85 U.S. cents/kWh (without subsidies) under a 25-year power purchase agreement. Various Middle East countries are in the midst of a big push to install solar to meet the strong growth in electricity demand. Middle East and North African countries will announce $2.7 billion worth of solar projects this year, according to the Middle East Solar Industry Association. Saudi Arabia has pushed back its solar plans due to reduced government revenue after the plunge in oil prices, but Saudi Arabia still plans to install 41 GW of solar capacity by 2040.

Middle East countries can now install large-scale solar power for the equivalent of only $25-30 per barrel of oil in a new oil-burning electricity plant, according to a report for the National Bank of Abu Dhabi written by the University of Cambridge and PwC (link). That means that it makes much more economic sense for oil producers to install solar and then sell their oil on the world markets at current prices near $56/bbl, or retain oil reserves in the ground for future sale, rather than burn that oil to generate electricity. Saudi Arabia currently obtains about 65% of its electricity from burning oil.

U.S.-Chinese solar duties are finalized while EU enforces previous trade agreement

The U.S. International Trade Commission (ITC) on Jan 21 finalized the duties levied by the U.S. Commerce Commission against Chinese solar companies that evaded the previous ruling by sourcing solar cells from Taiwanese suppliers. The ITC ruling finalized the latest round of the long-running U.S.-Chinese solar trade spat. Meanwhile, the EU announced that it planned to apply tariffs to three Chinese PV firms (Canadian Solar, ReneSolar, and ET Solar) that the EU says violated the 2013 EU-China trade agreement. ReneSolar responded by saying it will withdraw from the agreement while Canadian Solar and ET Solar pleaded innocent and said they plan to fight the proposed order. Canadian Solar said it does not see the EU order having a “significant impact” in its 2015 guidance.

SolarCity sues Arizona utility that is trying to slow solar by imposing surcharges

Many utilities have grown comfortable with their monopoly power and co-opted regulatory commissions. However, utilities are now becoming very concerned about the inroads that solar is making into their customer base and reducing demand for their product.

One utility in Arizona, Salt River Project (SRP), thinks it found a solution for battling solar by imposing surcharges on customers who install solar, thus replacing their lost revenue and making solar less economically attractive. The regulatory commission in SRP’s service area approved the utility’s surcharge plan despite the fact that about 500 solar users showed up at a commission hearing to protest the plan. However, SolarCity then sued the utility, charging that the surcharges are discriminatory and anti-competitive.

This is only the beginning of what will be a long war as the utility industry tries to fend off the disruptive technology offered by solar. As seen with other disruptive technologies, legacy companies can sometimes use their money and political clout to slow the new technology, but better customer solutions nearly always win in the end.

Meanwhile, the residential solar industry had a big win in red-state Georgia where the Georgia Senate passed a bill allowing third-party solar leasing for homes and businesses. Georgia’s governor is expected to sign the legislation. House Bill 57, “Solar Power Free-Market Financing Act of 2015,” allows third-party lessors to sell electricity to homeowners and businesses which was previously the privilege of only monopoly electric utilities. Florida is one of the few other states that does not allow third-party leasing, which is a key reason why Florida has been a laggard in installing solar.
Solar plane is nearly half-way through its around-the-world flight

Solar Impulse 2 has successfully completed 5 of the 12 legs on its around-the-world trip (see www.solarimpulse.com). The plane is flying solely on power generated by solar panels on its wings and fuselage. The plane is not using any fuel or emitting any pollution. The founders of the project do not expect commercial airliners to convert to solar panels, but they are seeking to “demonstrate that the actual alternative energy sources and new technologies can achieve what some consider impossible.” The project illustrates how solar power can be suitable for even a mission-critical operation such as plane flight.

Solar stocks hurt by oil and natural gas price weakness and Republican Senate victory but solar industry fundamentals remain strong; final US-China trade ruling approaches; India’s PM Modi launches solar boom – Jan 2015
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Jan-2015

Solar Index Performance

The MAC Solar Index, the tracking index for the Guggenheim Solar ETF (NYSE ARCA: TAN), fell -2% in 2014, giving back a small part of the +127% surge seen in 2013. So far in 2015, the Index is down -2%. Solar stocks have showed weakness since September due to falling oil and natural gas prices, the Republican victory in the Senate, solar bottlenecks and reduced subsidy support in Japan, and concern about slower economic growth in China. Nevertheless, the fundamentals of the solar industry remain favorable with strong end-user demand, stable polysilicon and solar panel pricing (see charts on p. 3), right-sized industry capacity, and improving profitability among solar manufacturers.

Plunge in oil prices hurts solar stocks even though there is little direct connection

The recent plunge in Brent crude oil prices to $46/barrel has had a negative impact on solar stocks since some market participants worry that the plunge in oil prices will reduce government policy pressure to support alternative energy. However, there is little direct connection between solar and crude oil prices. Petroleum is mostly used as fuel for the transportation sector and has little to do with solar power’s role in generating electricity. Petroleum accounts for less than 1% of U.S. electricity generation and less than 5% of worldwide electricity generation. Solar City’s CEO recently noted that oil prices could go to $50 or $150 per barrel and it would have almost zero effect on electricity prices.

Natural gas prices fall in December but New York bans fracking due to public health concerns

Solar stocks were also hurt by the drop in natural gas prices in December to the $3 area from the average of about $3.80 seen during summer and autumn. Lower natural gas prices reduce variable costs for some electric utilities and natural gas presents more direct competition with solar power than oil. However, lower natural gas prices seldom actually reduce utility electricity prices for customers since utilities still have much larger costs for transmission, distribution, grid infrastructure, and operations. In fact, America’s greater reliance on natural gas has failed to reduce electricity prices thus far considering that the average price of residential electricity in the U.S. rose to a record seasonal high of 12.9 cents/kWh in the latest reporting month of Sep 2014. While natural gas can be used by utilities to produce base-load electricity, natural gas cannot compete with solar when it comes to the environment or allowing customers to generate electricity on-site. Moreover, the drop in natural gas prices in December was attributed in part to mild early-winter weather across the U.S. and the weather has since turned much colder.

Natural gas is also running into stiffer regulatory headwinds as public awareness grows about the negative environmental effects from fracking involving water usage and pollution, and even earthquakes in some areas, as detailed, for example, in the Oscar®-nominated film “Gasland.” In fact, the state of New York in December joined Vermont in banning oil and gas fracking in the state due to public health and environmental concerns. The public is learning that natural gas is not the panacea that some industry boosters have claimed.

Republican control of Congress causes concern about alternative energy support

Solar stocks have also recently been hurt by concern that the Republican’s takeover of Congress in the November election will hurt the solar industry, even though the solar industry is a global industry that is only partially dependent on solar’s success in America. The U.S. solar industry in any case does not currently need any help from Congress since the 30% solar investment tax credit is already in place until the end of 2016, then dropping to 10%. President Obama would undoubtedly veto any attempt by Congress to repeal the current solar ITC, which in any case hasn’t even been suggested by Republicans. The Solar Energy Industries Association (SEIA) has already launched a campaign to get the 30% ITC extended after 2016 involving educating members of Congress about the benefits of solar. An SEIA official noted that solar fits with key parts of Republican doctrine in that both political parties want to create jobs, stimulate economic development, improve America’s energy security, and reduce pollution.

Solar power, in short, is not a Republican-Democrat issue. There are many Republicans who already have solar panels on the roofs of their homes. The benefits of solar energy are recognized across most of the political spectrum and the only real disagreement is about whether the government should provide any subsidy support. Subsidy support in any case is becoming less of an issue every day as solar costs fall and solar becomes more broadly competitive with the grid even without subsidies.

U.S. solar pricing fell by 3-12% in 2014

U.S. solar pricing dropped by 12-19% in 2013, according to a recently-released report entitled “PV Pricing Trends: Historical, Recent and Near-term Projections from the U.S. Department of Energy. The report projected a further drop of 3-12% in 2014. The report said that solar pricing is expected to continue to decline in coming years and reach widespread grid parity in the U.S. without federal or state subsidies within 5 years.

Final U.S.-Chinese solar trade ruling is expected within the next few weeks

The U.S. Department of Commerce on Dec 16 announced anti-dumping tariffs and countervailing duties on Chinese solar companies when components are sourced from Taiwanese and other non-Chinese companies. The decision came in response to charges that Chinese solar module producers were using Taiwanese solar cells to evade the previous U.S. tariff determinations. The next step will come later in January when the U.S. International Trade Commission will determine whether the U.S. solar manufacturing industry suffered any injury from Chinese solar companies. If so, then a final order is expected by early February.

In the big picture, the U.S. tariffs on Chinese solar companies have boosted the competitiveness of non-Chinese solar producers, impeded the sales and profits of Chinese solar companies, and raised the price of solar for U.S. customers. However, Chinese companies are taking aggressive action to open factories in the U.S. and elsewhere, and enter joint ventures with other companies, in order to avoid the tariffs. In the long-run, the trade spat will have little net effect. In the meantime, U.S. solar installations have soared despite the trade spat and were up +41% y/y in Q3-2014 at 1.354 GW, according to the SEIA and GTM Research, supporting the group’s estimate for total U.S. PV installs of 6.5 GW in 2014 (+37% y/y).

India’s PM Modi launches solar boom

Indian Prime Minister Modi recently announced plans to boost India’s installed solar capacity by 33 times to 100 GW by 2022, quintupling the government’s previous target of 20 GW. The government also wants global private companies to build large solar factories in India that are capable of churning out solar panels to meet the government’s ambitious goals. India in 2013 was the sixth largest country for solar PV installs at 1.2 GW, according to Bloomberg New Energy Finance. India, as of the end of 2013, had only 2.7 GW of installed solar generating capacity, meaning the country has a long way to go to install another 97 GW of solar in just 8 years. The Indian government aims to boost solar’s share of India’s electricity generation capacity to 10% from the current level of less than 1% as part of its electric modernization program.

Global solar companies are quickly jumping on the new solar opportunities in India. SunEdison (SUNE) on Jan 12, for example, announced an agreement to partner with Indian port owner/electricity provider Adani Enterprises to spend up to $4 billion to build a massive, fully-integrated solar manufacturing plant in India. SunEdison also announced agreements with two different Indian states to install 5 GW of utility-scale solar farms. First Solar already has a substantial footprint in India and other solar companies such as Canadian Solar, JA Solar, and JinkoSolar have expressed interest in producing and/or selling solar panels in India.

Germany’s largest utility goes after renewables with an entirely new business model

Germany’s largest utility E.ON in December announced plans to split into two, spinning off its conventional electricity generation activities into a new entity and switching the focus of the existing company to a dedicated renewable energy business including solar and wind, as well as distribution networks and customer businesses. E.ON’s CEO said that the move was being made to “tap the growth potential created by the transformation of the energy world.” Meawhile in the U.S., NextEra Energy acquired Hawaii’s main utility company and intends to use Hawaii as a test bed for a transition to a heavy reliance on renewables. Accenture in December published a report saying that U.S. and European utilities could take a $130 billion hit from disruptive technologies within 10 years.

PV+Storage, the holy grail, is set to surge

U.S. sales of combined solar rooftop and battery storage systems will reach $1 billion within four years (318 MW of capacity), according to a recent report by GTM Research. Meanwhile, PV+Storage worldwide will grow tenfold by 2018, according to IHS. PV+Storage can provide 24-hour electricity, which compensates for solar’s inability to produce electricity at night.

Strong solar demand is creating a module shortage; Successful Yieldco IPOs pave the way for more; Solar should see minimal impact from plunge in crude oil prices – Oct 2014
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Oct-2014

Solar Index Performance

The MAC Solar Index, which is the tracking index for the Guggenheim Solar Energy ETF (NYSE ARCA: TAN), is down -5% year-to-date (through Oct 14) giving back a little of the +127% rally seen in 2013. The MAC Solar Index posted a new 7-month high in early September but has since fallen sharply. The fundamentals of the solar industry remain strong but solar stocks have been caught by the downside correction in the overall U.S. stock market that has hit smaller-cap and higher-beta stocks particularly hard.

Nevertheless, solar stocks are still up sharply from the lows posted in late 2012 due to the surge in end-market demand, the stabilization of polysilicon and solar panel pricing (see charts on p. 3), reduced capacity via the exit of weaker solar players, and the improved profitability of solar manufacturers. The surge in demand has been driven by the sharply lower cost for solar and by the spread of solar growth across the world rather than just the initial concentration in Europe.

Strong solar demand is creating a module shortage

Global demand for solar panels has strengthened substantially in the past year and demand has now caught up with capacity, thus leading to some solar panel shortages. SunPower CEO Tom Werner recently said, “It would be fair to say that our panels are in short supply.” SunPower in July announced plans for a new 700 MW plant that will come on line in 2017. Meanwhile, Trina’s CEO Jifan Gao said in September that, “Right now Trina is producing at 100% of capacity and selling at all rates, and we still can’t meet all customer demand.”

The increase in demand is coming from a variety of geographical sectors and is being driven by the drop in solar pricing that has made many more solar projects economical. China, by far the world’s number one country for new solar installs, had a very weak first half with installations of only 3.3 GW. However, some market observers now believe that a breakneck pace of China installs in the second half may allow China to still reach its 2014 goal of 13 GW. The Chinese government is particularly trying to boost the installation of distributed solar at government, commercial and residential locations.

Meanwhile, solar demand in Japan remains strong as the government continues its efforts to promote solar as a means to reduce the country’s dependence on nuclear energy. Japan will install 10-12 GW of solar in 2014, easily making Japan the second largest solar market behind China, according to Bloomberg New Energy Finance. However, solar growth in Japan is currently seeing some bottlenecks as five of the nation’s utilities temporarily halted grid connection approval for solar farms to provide some time to study the capacity of their grids to integrate solar.

Successful Yieldco IPOs pave the way for more

Clean-energy YieldCos have quickly found acceptance among investors, thus providing solar companies with a valuable way to reduce capital costs and unlock shareholder value by spinning off their project subsidiaries.

In the solar industry, a “YieldCo” is a company that owns solar electricity generation facilities and collects stable electricity revenue from investment-grade utilities or companies through long-term power-purchase agreements. A YieldCo typically has low operating costs and distributes its excess cash to shareholders through relatively high dividends. A YieldCo can minimize or even eliminate its corporate tax liability by taking advantage of clean energy tax credits and accelerated depreciation. A YieldCo can be attractive to an investor who is looking for low risk and strong dividend yield.

The MAC Solar Index in September added two YieldCos as constituents: TerraForm Power (TERP), a spin-off from SunEdison (SUNE), and Abengoa Yield (ABY). YieldCos add a lower beta yield component to a stock index, thus damping the volatility of the index while boosting its overall dividend yield.

There are sure to be more solar YieldCos down the road. SunEdison (SUNE) has already filed an IPO prospectus for a second YieldCo that would own solar projects in Asia and Africa. Companies such as Trina (TSL), Jinko Solar (JKS), SunPower (SPWR), and others are also reportedly considering spinning off YieldCo subsidiaries.

IEA offers roadmap for solar to become the world’s largest power source by 2050

The International Energy Agency in September released a roadmap for solar to become the world’s largest power source by 2050. The IEA report (link) anticipates that solar PV could account for 16%, and concentrated solar power plants could account for 11%, of the world’s energy by 2050. The report anticipates that the levelized cost of solar electricity could drop to 5.4 cents per kWh by 2050 and that rooftop PV could drop to 7.8 cents/kWh.

Chinese and U.S. officials may be working to settle solar trade disputes

The U.S. Department of Commerce on July 25 issued a preliminary ruling for anti-dumping duties on Chinese solar companies, adding to the anti-subsidy duties that the DOC imposed earlier in the year. China then retaliated by clamping down on loopholes to its previous duties on polysilicon imports from the U.S. and Korea. On a brighter note, China’s Ministry of Commerce on Aug 8 sent a letter to the U.S. Commerce Secretary suggesting that China may be open to a possible settlement that would eliminate the tit-for-tat duties. Meanwhile, there was good solar trade news from India as India’s Ministry of Commerce & Industry in early September announced that the government dropped its May proposal to impose anti-dumping duties on solar imports.

Massachusetts posts third year of double-digit clean energy job growth

Clean energy jobs in Massachusetts have grown by nearly 50% since 2010. The clean energy sector in Massachusetts now includes 88,273 employees and 5,985 businesses, according to the 2014 Massachusetts Clean Energy Industry Report. The report said that the Massachusetts clean energy industry has grown to $10 billion, accounting for 2.5% of the state’s GDP. The report highlights the important contributions that clean energy is making to job creation and GDP growth in the United States as a whole, in addition to the benefits of reducing consumer electricity costs and reducing pollution and carbon emissions.

GT Technology’s bankruptcy not caused by solar

GT Technology (GTAT) on Oct 6 surprised the markets by announcing a Chapter 11 bankruptcy filing. GTAT was originally focused only on solar production equipment but then aggressively branched out into sapphire crystal technology. GTAT’s bankruptcy was caused by a cash crunch tied in part to Apple’s decision not to use GTAT’s sapphire glass for its new iPhone 6. GTAT’s bankruptcy was not related to its solar business. Indeed, the solar industry has begun to add new capacity, which is supportive for solar production equipment manufacturers.

Solar industry should see minimal impact from plunge in crude oil prices

The recent plunge in Brent crude oil prices to $85/barrel has had some negative impact on solar stock prices, but only because of a misperception among some investors that solar and crude oil are closely connected. The plunge in crude oil prices could possibly reduce political pressure for alternative energy policy support, but otherwise there is no direct connection between crude oil prices and solar. Solar power is part of the electricity-generation sector of the U.S. economy, whereas crude oil fuel products are mainly used to drive engines in the transportation sector. A sharp drop in oil prices has no significant impact on electricity prices because U.S. utilities derive only about 1% of their electricity from burning petroleum fuel. Lower crude oil prices therefore do not present a competitive threat to solar.

Solar at scale by Elon Musk; EPA supports solar with power-plant emission cut plan; Solar’s threat to utility industry gains recognition
 

Read report in PDF with graphs: MAC-Solar-Sector-Update-Jul-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 19% so far in 2014 (through July 14), adding to the 127% rally seen in 2013.

The sharp rally in solar stocks over the past 1-1/2 years 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 has been driven by the sharply lower cost for solar and by the spread of solar growth across the world rather than the initial concentration in Europe. After posting a 2-3/4 year high in May, the MAC Solar index has since settled back on some profit-taking pressure, seasonal solar sales softness in Q1, and some concern about various solar trade spats.

“Solar at Scale” according to Elon Musk

Residential solar-installer SolarCity in June surprised the markets by announcing the purchase of panel-manufacturer Silevo and plans to build a massive solar panel plant with capacity of more than 1 gigawatt. Elon Musk, legendary co-founder of SolarCity, Tesla, and SpaceX, and early investor in PayPal, said that the decision to become a panel manufacturer might seem counter-intuitive with today’s excess supplier capacity. However, Mr. Musk said his team is laying the groundwork for the future when there will be the need for a “massive volume of affordable, high efficiency panels” for unsubsidized solar power to out-compete fossil-fuel grid power.

EPA’s emission plan for power plants will have a major long-term impact

The EPA on June 2 released its long-awaited draft rule called the “Clean Power Plan” for U.S. power plants to cut their U.S. greenhouse gas (GHG) emissions by 17% by 2030. The plan actually requires a 30% reduction from 2005 base levels, but the U.S. has already reduced emissions by 13% since 2005. Power plants account for more than one-third of U.S. GHG emissions.

The plan’s emission-cut goals are less dramatic than some environmentalists wanted to see, but will nevertheless result in an enormous reduction of GHG emissions by the equivalent of two-thirds of U.S. passenger cars or more than half of U.S. homes. The plan has a very favorable cost-benefit ratio with the EPA estimating the annual benefits at $55-93 billion per year by 2030 versus annual costs of $7.3-8.8 billion.

The plan requires different GHG emission cuts from each state, taking into account how much the particular state has already cut emissions and how much potential it has for further reductions. A big feature of the plan is that exactly how to meet the emission reduction is up to each particular state, giving states the flexibility to meet the standard by relying on more carbon-friendly power sources or even by relying more on energy efficiency. Yet there is no doubt that coal plants will take the brunt of the hit from the emission reductions since they account for about 75% of all U.S. power plant emissions.

The plan will take years to take effect since a final draft of the rule is not due for a year and states have two years to draft their emission reduction plans. Nevertheless, the EPA’s proposal should provide a long-term boost for solar, which is one of the very few electricity-generation sources that has zero GHG emissions.

Meanwhile, the coal industry is not only seeing regulatory threats from tighter U.S. emission standards, but is also seeing protests from some institutional investors. Stanford University in May said that it will divest from publicly-traded coal mining companies as a means to encourage “broadly viable sustainable energy solutions for the future.”

Solar’s threat to the utility industry gains recognition

Barclays in late May downgraded the entire U.S. electric utility high-grade bond sector to “underweight” due to the challenge to electric utilities from solar energy. Barclay’s credit strategy teams said that over the next few years, “we believe that a confluence of declining cost trends in distributed solar PV power generation and residential-scale power storage is likely to disrupt the status quo. Based on our analysis, the cost of “solar+storage” for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii. Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.”

Commenting on the threat to the utility model, Barclays added, “In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar+storage could reconfigure the organization and regulation of the electric power business over the coming decade.”

U.S. closes loophole on Chinese duties but then WTO rules against U.S. solar duties

The U.S. Department of Commerce on June 3 announced a preliminary decision that Chinese solar panels with components sourced in third-party countries will be subject to an anti-subsidy duty of 18-35%. A final ruling is due by about August 18, 2014. A separate anti-dumping duty decision is expected by late July. The U.S. tariff decision attempts to plug a loophole whereby Chinese solar companies were able to avoid the original tariff by sourcing solar cells in Taiwan.

However, all the U.S. duties on Chinese panels may end up being eliminated or modified after the World Trade Organization on July 14 ruled that the U.S. violated international trade rules with its duties on Chinese solar panels, among other products. The WTO said that the U.S. must bring its duties into compliance with WTO trade rules. Chinese solar stocks rallied fairly sharply after the WTO ruling.

Elsewhere on the solar trade front, India’s Ministry of Commerce & Industry on May 13 said that its 1-1/2 year investigation resulted in a determination that various solar companies dumped solar panels in India. The Indian government announced a preliminary decision to impose duties of 11-81 U.S. cents per watt on solar panels imported from the U.S., China, Taiwan, and Malaysia. The Indian Solar Manufacturers’ Association said that the decision will likely boost the price of solar in India by 6-8%.

China may have difficulty reaching 14 GW target

Solar stocks showed some weakness in early June after OTR Global reported that the Chinese government is thinking about cutting its 2014 solar installation target of 14 gigawatts (8 GW distributed, 6 GW utility) due to the lack of sufficient credit availability. Q1 installations in China were weak and some Wall Street firms reduced their overall Chinese 2014 installation forecast. On the other hand, Chinese government support for solar remains strong as the South China Morning Post reported that a plan is in the works for the Chinese government to boost its subsidy by up to 55% for rooftop solar developers selling power to state-owned power companies.

Climate change is a big risk for U.S. business

A new report called “Risky Business” (www.riskybusiness.org) details the threat to business from climate change. The bipartisan group, led by former N.Y. Mayor Michael Bloomberg, Republican former Treasury Secretary Hank Paulson, and hedge-fund billionaire Tom Steyer, seeks to depoliticize climate change and encourage businesses to recognize the business risks from climate change. As one negative impact, the report forecasts that $238-$507 billion worth of existing U.S. coastal property will be under sea level by 2100. Mr. Paulson believes that the SEC should start requiring companies to disclose the risks they face from climate change.

2014 starts with record-breaking solar demand; Grid parity reached in more markets; Utility-based solar PV falls below 5 cents/kWh – Apr 9, 2014
 

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.