Alternative energy is now an important component in the power
generation mix in many developed and developing nations. Although
some better-established sources of alternative energy, like 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. Specifically, 2013 was an excellent
year for the U.S. solar market.
Other upcoming alternative sources include the prospect of
harnessing sea power. Numerous new ocean power technologies are on
the verge of commercial development. Although this form of
renewable energy is one of the most notable, it involves
technologies with high research and development and startup costs.
This has inhibited its all-out adoption so far.
A major growth area in the renewable space is solar energy. With
the increasing need for developing renewable energy in response to
stringent environmental regulations, countries worldwide are
relying on solar energy for electricity generation.
The solar industry rallied in 2013 following a tough spell since
2011. The U.S. Energy Information Administration (EIA) estimates
that U.S solar demand increased more than 32% in 2013. For 2014,
the EIA projects that U.S. solar energy consumption will boom by
roughly 35%. The expected increase in demand is likely to fuel
top-line growth at the solar manufacturers.
President Obama's new environmental plan, unveiled in Jun 2013,
putting further limits on existing coal-fired plants, gave a shot
in the arm to the U.S. solar sector. The results were well
reflected in the 2013 performance. The president issued directives
asking environmental regulators to set up carbon pollution
standards for active plants. Coal generates about 40% of U.S.
electricity and coal plants are the largest source of carbon
emissions in the country.
As a result, the U.S. Environmental Protection Agency is issuing
directives to lower carbon emission from newer coal-based power
plants while strengthening the existing policies on green-house gas
emissions. This development has emerged as a major headwind for
coal-fired utility stocks and has proved to be beneficial for
renewable energy stocks like
First Solar Inc.
That said, the U.S. still has a lot of catching up to do, despite
enormous potential, to get anywhere close to the global leaders.
And the country is working towards that goal. Per the Solar Energy
Industries Association (SEIA), the U.S. trade association of
approximately 1,000 companies in the solar energy industry, the
U.S. solar energy industry grew 41% year over year to reach 4,751
megawatt (MW) in 2013, the largest year on record. In 2013, 29% of
all new electricity generation came from solar energy, up from a
trivial 10% in 2012. This made solar the second largest source of
new electricity generating capacity after natural gas.
2013 was one of the most happening years in the renewable space
driven by a robust level of residential installations and a strong
year in the utility segment with 2,847 MW of PV and 410 MW of CSP
installed in 2013.
Looking at the cost side, the average cost of a completed PV system
dropped by 15% during the fourth quarter 2013 on a year-over-year
basis. Again, the average price of a solar panel has dropped by 60%
since the beginning of 2011. These price drops will encourage more
solar uptake by consumers.
After over 40 years of government investment in renewable energy
(the U.S. alone spent $154.7 billion from 1973 to the end of 2013),
it appears that solar energy is finally getting a strong foothold
in the worldwide energy segment.
Indeed the PV market is gradually becoming global. According to the
European Photovoltaic Industry Association (EPIA), a worldwide
industry association for the solar photovoltaic electricity market,
the cumulative global installed PV capacity stood at almost 136.7
gigawatt (GW) at the end of 2013, up 35% from the prior year.
Europe is gradually losing its leading position in the PV market
with Asia taking the lead.
As per media reports, China installed a record 12 GW of solar
panels in 2013, making it the world's largest solar market in 2013,
overtaking longtime leader Germany.
Last September, China's Ministry of Finance announced that local
solar manufacturers will receive immediate refunds of 50% of the
value-added tax (VAT) for sales taking place from Oct 2013 through
Dec 2015. The Chinese government has set a solar installation
target of 35 GW by 2015.
While the U.S. and China have been playing a big role in recent
years in driving the industry, other nations are also pushing hard
to have a home-grown solar generation capacity as a remedial
measure to solve their electricity crisis. The latest to join this
list is Asia's third largest economy, India. The country recently
planned for a $4.4 billion solar plant which could perhaps be the
Again, in Japan, companies like First Solar are investing
substantially to install emission-free renewable set-ups. The
country is expected to become the second largest market for solar
products after China. First Solar -- the largest U.S. solar company
-- is thus teaming up with Japanese counterparts to develop, build
and operate solar power plants.
The American Wind Energy Association (AWEA) reported that the wind
industry grew radically during the first quarter 2014. The U.S.
industry installed 214 MW during the first quarter, up
significantly from the year-ago installed capacity of 1.6 MW. The
reported figure was also more than what the industry installed in
the first three quarters of 2013. This brought the total installed
capacity to 61,327 MW.
There were more than 8,000 MW of long-term power purchase
agreements announced in 2013. EIA expects wind capacity to expand
9.0% in 2014 and 15.5% at the end of 2015. Electricity generation
from wind is expected to contribute 4.5% to the total electricity
generation basket by the end of 2015.
Hydropower is considered the leading renewable energy source in the
U.S. With the emergence of new technologies, like marine and
hydrokinetics, this industry is likely to continue to generate vast
amounts of sustainable energy throughout the country.
Hydropower is the cheapest source of electricity as it has the
lowest cost per kilowatt hour compared to all other sources and is
independent of the volatile movement in fuel costs. EIA projects
that both hydropower and non-hydropower renewables used for
electricity and heat generation will grow by approximately 3.3% in
In 2015, growth in renewables consumption for electric power and
heat generation is projected to continue at a rate of 3.2%, as a
0.3% decrease in hydropower is combined with a 5.1% increase in
On Aug 9, 2013, President Obama signed into law two bills aimed at
boosting the development of the nation's largest renewable
electricity resource, hydropower. Enactment of laws is a prudent
step to uphold hydropower development.
Zacks Industry Rank - Positive Outlook
We rank all the 260-plus industries in the 16 Zacks sectors based
on the earnings outlook and fundamental strength of the constituent
companies in each industry. To learn more visit:
About Zacks Industry Rank
The way to look at the complete list of 260+ industries is that the
outlook for the top one-third of the list (Zacks Industry Rank of
#88 and lower) is positive, the middle 1/3rd or industries with
Zacks Industry Rank between #89 and #176 is neutral while the
outlook for the bottom one-third (Zacks Industry Rank #177 and
higher) is negative.
Within the Zacks Industry classification, the Zacks Industry Rank
for Solar is #92 out of 260. This corresponds to the middle
one-third of the list, implying a neutral outlook.
The Zacks Industry Rank for the Other Alternative industry is #87
out of 260. This puts the industry in the top one-third of all
Among the 15 companies in the solar industry under our coverage,
JA Solar Holdings Co., Ltd.
) holds a Zacks Rank #1 (Strong Buy) while
Yingli Green Energy Holding Co. Ltd.
) carries a Zacks Rank #2 (Buy). For 11 companies under other
alternative energy industry, Zacks Ranked #1 (Strong Buy) stock
Ormat Technologies Inc.
) and Zacks Ranked #2 (Buy) stocks
Covanta Holding Corp.
U.S. Geothermal Inc.
) are making the most of the favorable market dynamics.
Please note that the Zacks Rank for stocks, which is at the core of
our Industry Outlook, has an impressive track record going back
years, verified by outside auditors, to foretell stock prices,
particularly over the short term (1 to 3 months).
Here we take a look at the alternative energy space and attempt to
identify this nascent industry's strengths and weaknesses.
As far as overall results of the alternative energy industry are
concerned, first quarter 2014 was good on the whole. Most of the
solar companies came up with first quarter earnings beats. High
also aided solar stocks to reach new highs. Moreover, strong
macroeconomic factors have helped this sector to rise above others
in the energy space.
For 2014, we expect the solar companies to witness an impressive
year with most returning to profit, building on last year's
For more information about earnings for this sector and others,
please read our latest
Solar power is the most benign electricity resource. Solar cells
generate electricity without air or water emissions, noise,
vibration, habitat impact or waste generation. Over time, rapid
population growth, depletion of non-renewable conventional sources
and escalating pollution levels will help shape a much more
pronounced global focus on renewable projects.
Fuel risk advantage:
Unlike fossil and nuclear fuels, alternative energy has no risk of
fuel price volatility or delivery risk. Although there is
variability in the amount and timing of sunlight in the day, season
and year, a properly sized and configured system can be designed to
ensure high reliability while providing a long-term, fixed-price
) is one of the most forward-integrated solar companies, focused on
moving up the value chain. The company once again registered
encouraging first-quarter 2014 results, backed by brisk demand for
its solar panels in utility, commercial and residential projects.
It has also raised its outlook given the strength across regions
and end markets.
JinkoSolar Holding Co., Ltd.
) also seems to be in a strong position with multiple contracts and
agreements. The company signed an agreement with PROINSO India for
distributing its solar PV modules across India. This agreement
comes after the announcement of JinkoSolar signing a $39 million
loan agreement with China Development Bank. The deal was to finance
two PV solar projects in Xinjiang and Gansu Provinces in China.
Solar power is generally located at a customer's site due to the
universal availability of sunlight. As a result, solar power limits
the expense and losses associated with transmission and
distribution from large-scale electric plants to the end users. For
most residential consumers seeking an environment-friendly power
alternative, solar power is currently the only viable choice.
Among the renewable energy pack, we would advise investors to look
for companies like rooftop solar energy systems provider
) with an innovative game plan. The downstream solar company plays
on its strength providing renewable power lower than the grid price
to residential and commercial markets in the U.S.
The company is now set to grasp the largely untapped abundant
solar power resources in one of the sunniest U.S. states: Nevada.
This pioneer in residential solar is making a big expansion in Las
In Apr 2014, San Jose, CA-based solar manufacturer SunPower and
) have teamed up to form a $250 million fund to help homeowners
across the U.S. to install solar panels at home. This pact is
essentially aimed at financing residential solar system
installations that SunPower will then lease out to homeowners.
Residential solar in the U.S. is now a sizzling story. This market
even outpaced the commercial and utility segments last year and has
already started to attract more conventional electric power
companies that produce power mostly from coal and natural gas.
Japan looks bright:
We note that Japan has recently been a happy hunting ground for
solar companies in search for new markets. The country is going to
be a key energy market and the government has set a target to
install 28 GW of solar energy power by 2020. With around 6.9 GW,
Japan was the second biggest global market in 2013.
Japan's need for electricity is on the rise, particularly after the
Fukushima nuclear power plant accident triggered a complete phase
out of all nuclear reactors in the country. Presently, the Japanese
government is looking for alternate resources to meet the growing
need for power in this very industrialized nation.
Canadian Solar Inc.
) received a contract to supply 43 MW of PV modules for Japan's
second-largest solar project.
Alternative energy companies are increasingly benefiting from new
legislation in the U.S. stipulating installation of renewable
sources of electricity generation as mandated by Renewable Energy
Standards (RES). As of now there are 29 states, the District of
Columbia in the U.S. and 2 territories that have RES legislation in
place. Another 8 states and 2 territories also have goals for
adoption of renewable energy sources.
At the federal level, investment tax credit (ITC) is currently at
30%, which is set to expire in 2015, and then go to 10% in 2016.
The industry will likely see many companies taking advantage of the
30% ITC, and build more panels, storage capacity, and other
production items up to the end of 2015. Once the ITC drops to 10%,
these companies can also utilize a higher rate of depreciation to
protect their profits. So the cut in ITC for 2016 will not
likely dent these companies' profitability.
Also, under the American Reinvestment and Recovery Act (ARRA), the
U.S. Treasury Department had earlier implemented a program to issue
cash grants in lieu of ITC for renewable energy projects.
The wind sector also benefited significantly from the production
tax credit (PTC) over the last few years. It was started in 1992 as
a part of the Energy Policy Act of 1992. Subsequent to that it
received life extension of half a dozen times. In the first decade
of a renewable energy facility's lifespan, the PTC provided 2.3
cents/kilowatt-hour ITC benefit for wind turbines and 1.1 cents for
some other renewable energy sources. In early 2013, the renewable
electricity PTC was extended for one more year. However, it expired
on January 1, 2014 due to Congressional gridlock.
Need for a pollution-free environment: Globally, utilization of
renewable energy is rising primarily due to its clean nature and a
growing awareness among the masses regarding its benefits. This has
influenced utility providers like
NRG Energy Inc.
Duke Energy Corp.
) to gradually shift their mode of power generation to solar, wind
NRG Energy, a Zacks Rank #1 (Strong Buy) stock, is diversifying its
generation mix through the expansion of renewable assets. The
company's recent acquisition of the assets of Edison Mission
Energy, a subsidiary of
), and Roof Diagnostics Solar will support its renewable asset
Duke Energy's business unit, Duke Energy Renewables, is a leader in
developing innovative wind and solar energy solutions. Since 2007,
Duke Energy has invested more than $3 billion to expand its
portfolio of wind and solar power projects.
Currently, the company owns and operates approximately 1,700 MW of
renewable energy, which includes 1,600 MW of wind power and 100 MW
of solar power. In order to expand the use of renewable energy, the
company is also developing an expertise in advanced technologies
like the groundbreaking Notrees Battery Storage Project.
In Aug 2013, Duke Energy took over the largest solar generation
facility in San Francisco -- the Sunset Reservoir Solar Power
Project -- from Recurrent Energy. With a capacity of 4.5 megawatt
alternating current (MWAC) this solar power system consists of
almost 24,000 solar panels mounted on top of the Sunset Reservoir.
Also, Florida-based utility service provider NextEra Energy Inc. (
), the major U.S. producer of electricity from wind and sunshine,
now plans for an initial public offering of a unit -- NextEra
Energy Partners LP -- that will own and operate renewable power
plants. This unit will own interests in 10 wind and solar projects
in North America with a total output of about 990 MW.
The EIA projects that utility-scale solar capacity will expand by
about 56% between year-end 2013 and year-end 2015 in the U.S., in
tandem with considerable consumption growth in renewables for
electricity and heat generation purpose. California is expected to
grab most of the growth with approximately 70% of the new capacity
being built in the state.
Budgetary constraints have caused prime global solar markets like
Germany, U.S., Italy, Australia, U.K. and Taiwan to roll back a
portion of their grants. Earlier, sales of solar players from the
above countries witnessed a sharp rise mainly fueled by the rush to
complete projects ahead of subsidy roll-backs.
The alternative energy players may receive another jolt from one of
the prime solar markets. Germany is expected to cap subsidy
payments after generation capacity reaches a certain target.
Germany is consistently evaluating changes to the German Renewable
Energy Law, or the EEG. In April 2012 an amendment of the EEG
entered into force that introduced a monthly reduction in feed-in
tariffs (FiTs) by 1%, which can rise or fall depending on solar
These FiT changes particularly affected the competitiveness of
large-scale free field PV systems and modules. Any further policy
changes wrought by the German Environment and Economy Ministers and
approved by the German Parliament will negatively affect the
long-term demand and price levels for PV products in Germany.
New emerging technologies:
The alternative energy industry remains an emerging sector with a
steady focus on the lowest-cost technology and cost-competitiveness
from traditional means of electricity generation. This may prove
disastrous for existing companies ruling the solar roost should a
cheaper alternative emerge.
Globally, China leads the world in total electricity generation
from renewable sources, helped by its increased allegiance in
recent times to the alternative path. The dragon is followed
closely by the U.S., Brazil and Canada. On the other hand, European
PV markets experienced a slowdown in 2013 due to the declining
political support for PV. Notably, Italy witnessed a 70% market
decline year over year. Germany also experienced a steep PV market
decline of 57%.
So, the solar companies are increasingly focusing on the Chinese,
Japanese, Indian and U.S. markets to counter the tepid growth in
mature markets. Indeed, the long-term outlook seems bright. This is
especially true as global warming and high fuel emission issues are
leading to rising popularity of clean energy sources.
The demand for renewable energy, in particular solar and wind, is
rapidly growing for electricity generation in the U.S. As per EIA,
renewable electricity generation in the U.S. would grow by an
average of 1.9% per year until 2040 and 69% over 28 years (from
This boom in the alternative energy sector is also likely to
outpace the mounting shale oil and gas business in the years to
come. The depletion of fossil fuel reserves, higher oil and gas
prices, new and advanced technologies, accompanied with more
competent alternative energy applications have made green power
more feasible, injecting optimism into the sector.
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