For Immediate Release
Chicago, IL – September 23, 2015 – Today, Zacks Equity Research discusses the Alternative Energy, part 2, including NRG Energy Inc. (NRG), Sempra Energy (SRE), Duke Energy Corp. (DUK), First Solar Inc. (FSLR) and SunEdison Inc. (SUNE).
Industry: Alternative Energy, part 2
Link: https://www.zacks.com/commentary/57065/green-energy-investment-opportunity
Despite a multitude of macro challenges like deflationary worries in Europe, slowdown in China and Japan, along with the oil price carnage in the market, the long-term outlook for the alternative energy space has held up pretty well. The latest report from the U.S. Energy Information Administration (“EIA”) shows that renewable energy will be the fastest growing power source through 2040.
Solar and wind are gradually transforming the way we produce and consume energy, driving the ongoing global energy transition. Although some better-established sources of alternative energy -- hydro, wind, biomass and waste, not to mention solar photovoltaics (“PV”) -- are supported extensively, niche renewable energy sources such as geothermal and concentrated solar power (“CSP”) are also on the rise, natural conditions permitting.
Here we take a look at the alternative energy space and attempt to identify this nascent industry's strengths.
U.S. Administration’s Green Energy Drive: "Clean energy" has long been the focus of the current administration. President Obama’s "Climate Change Action Plan" and the favorable green energy trends have already done a lot in pushing the sector northward. Now, the budget proposal seeks an approximate 7.2% rise in funding for a clean energy space.
The proposal asks Congress for a permanent extension of tax credits for the solar and wind industry. The fiscal 2016 budget request includes a $7.4 billion fund for clean energy technologies, up 7.2% from the $6.9 billion proposal for fiscal 2015 and above the $6.5 billion enacted by Congress for fiscal 2015.
In addition, the U.S. administration’s efforts to restrict carbon emissions are a net positive for renewable energy stocks. On Aug 3, 2015, the White House revealed the final version of the ambitious climate policy. This Environmental Protection Agency (EPA) program seeks to cut CO2 emissions from the nation's power plants. The Obama administration has vowed for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels. This version turns out to be a little stronger than the draft proposal released last summer, wherein the EPA had proposed total CO2 reduction of 29% by 2025 and 30% by 2030.
The plan sets carbon pollution reduction goals for power plants and requires states to implement plans to meet these goals. States have until Sep 2016 to submit plans, but all must comply by 2022. Coal generates about 40% of U.S. electricity and coal plants are the largest source of carbon emissions in the country. Increasing regulatory mandates to safeguard the environment will be a catalyst for renewable stocks.
The proposed rule has influenced utility providers like NRG Energy Inc. (NRG), Sempra Energy (SRE) and Duke Energy Corp. (DUK) to gradually shift their mode of power generation to solar, wind and water.
The EIA projects that utility-scale solar capacity will expand by more than 100% between year-end 2014 and 2016 in the U.S., in tandem with considerable consumption growth in renewables for electricity and heat generation purpose. California, along with North Carolina and Nevada, will account for almost 70% of the projected utility-scale capacity additions for 2015 and 2016.
New Tariffs and Solar Trade War: Washington imposed import duties on solar panels and other related products from China and Taiwan. The new duties would further escalate trade tensions between the two countries at a time when they were planning to work together in the common fight against global warming and carbon emissions. The U.S. believes that Chinese manufacturers have benefited from unfair subsidies offered by their government.
The U.S. Department of Commerce (“DOC”), in Dec 2014, set anti-dumping duties at about 52% on most module imports from China and at 19.5% on most imports of Taiwanese cells. It has also slapped 39% anti-subsidy tariffs on most China-made panels.
The continued invasion of low-priced Chinese solar products had pushed many American manufacturers out of business. In retaliation, the DoC implemented anti-dumping duties in 2012. Tariffs were only applied on Chinese-made cells that were used to make panels. Many Chinese solar manufacturers were able to dodge the hefty levies by assembling panels from cells produced elsewhere, especially in Taiwan. Yet those cells were derived from components -- ingots and wafers -- from China.
Hence the move is intended to close a gap in which Chinese companies could use solar cells made in Taiwan to avoid paying higher tariffs.
Some U.S. solar stocks like First Solar Inc. (FSLR) and SunEdison Inc. (SUNE) are expected to make the most of the conflict.
Forming a YieldCo: A YieldCo can be defined as a dividend growth-oriented public company formed to hold operational assets, which produces an expected cash flow based on long-term power purchase contracts. The impact of YieldCo financing on solar developers and plant operators has been huge. It is basically the adaptation of the REIT program to renewable energy, by forming an independent power producing corporation to operate primarily renewable energy assets comprising water, wind and solar. The company is publicly traded, yields a predictable cash flow, and distributes its income to the shareholders.
"YieldCos raised $1.6 billion from the public markets worldwide in the second quarter of 2015, with about $800 million in debt, and accounted for almost a third of all large-scale project acquisitions," said Raj Prabhu, CEO of Mercom Capital Group, in the company’s weekly funding report on Sep 7, 2015.
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NRG ENERGY INC (NRG): Free Stock Analysis Report
SEMPRA ENERGY (SRE): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis Report
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
SUNEDISON INC (SUNE): Free Stock Analysis Report
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