Alternative energy is making strong headway in the power generation
fuel mix in many developed and developing nations. Although some
better established sources of alternative energy, like hydro, wind,
biomass and waste, not mentioning 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, the third quarter of 2013 was an excellent one for
the U.S. solar market. It is likely that for the first time in more
than 15 years the
U.S. installed more solar capacity than the world leader Germany.
Other upcoming 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 to develop renewable energy in response to
stringent environmental regulations, countries worldwide are
relying on solar energy for generating electricity.
The solar industry rallied in 2013 following a tough period 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 third quarter 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.
Per the Solar Energy Industries Association (SEIA), the U.S. trade
association of approximately 1,000 companies in the solar energy
industry, as much as 930 MW of solar energy came on stream during
the quarter, representing 35% growth over the prior-year quarter
and 20% sequentially thanks to unmatched installation levels in the
utility market and residential installations.
The third quarter of 2013 was one of the most happening quarters in
the renewable space driven by a record level of residential
installations and a strong quarter in the utility segment. It was
the second largest quarter in the history of the U.S. solar market
and the largest quarter ever for residential PV installations.
Looking at the cost side, the average cost of a completed PV system
dropped by 16% during the third 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.
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 102.2
gigawatt (GW) at the end of 2012, compared to only 71.1 GW at the
end of 2011. Europe took the lead with over 70.0 GW of installed PV
capacity during the year.
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 slowed radically during the first half of 2013 following a
record fourth quarter 2012 installations. U.S. wind growth
stagnated in the first half of 2013, with no new installations
completed in the second quarter compared with 1.6 MW in the
preceding quarter. However, the third quarter 2013 saw
industry-wide installations of 69 MW, thereby bringing the total
installed capacity to 60,078 MW.
There are more than 6,000 MW of long-term power purchase agreements
signed since Jan 2013. As of Sep 2013, 2,327 MW of projects were
under construction across 13 states: Texas, Michigan, Nebraska,
Washington, Kansas, California and North Dakota. Other states
having wind projects under construction comprise New York,
Minnesota, Iowa, Colorado, Massachusetts and Indiana.
EIA expects wind capacity to expand 8.8% in 2014 to about 66 GW and
14.6% to over 75 GW at the end of 2015. Electricity generation from
wind is projected to increase by 2.2% this year and 11.4% in 2015,
contributing over 5% of total electricity generation by the end of
Hydropower is considered as 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 3.0% in
In 2015, the growth in renewables consumption for electric power
and heat generation is projected to continue at a rate of 4.7%, as
a 2.2% increase in hydropower is combined with a 6.1% 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 259-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 Industry Rank
The way to look at the complete list of 259+ 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 #16 out of 259. This corresponds to the top one-third
of the list, implying a positive outlook.
However, the Zacks Industry Rank for the Other Alternative industry
is #190 out of 259. This puts the industry in the bottom one-third
of all industries.
Among the 14 companies in the solar industry under our coverage,
) and First Solar sport a Zacks Rank #1 (Strong Buy), while
Trina Solar Ltd.
Ascent Solar Technologies, Inc.
JinkoSolar Holding Co. Ltd.
) carry a Zacks Rank #2 (Buy). For 12 companies under other
alternative energy industry,
), is making the most of the favorable market dynamics and holds a
Zacks Rank #2 (Buy).
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, 2013 was a good year overall. Most of the solar
companies came up with third quarter earnings beats. High oil
prices 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 overall
impressive year with most returning to profit following a year of
For more information about earnings for this sector and others,
please read our
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
SunPower is one of the most forward-integrated solar companies,
focused on moving up the value chain. The company delivered strong
third quarter 2013 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
JinkoSolar Holding also seems to be in a strong position with
multiple contracts and agreements. It reported impressive third
quarter 2013 results. Following six money-losing quarters, the
third quarter witnessed the second straight quarter of profit for
JinkoSolar buoyed by rapidly rising demand from new solar markets.
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 Zacks
Ranked #2 (Buy) SolarCity 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.
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.
Japan's need for electricity is rising, 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.
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, Congress has extended the 30% federal
investment tax credit (ITC) to both residential and commercial
solar installations until Dec 31, 2016. 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
investment tax credit for renewable energy projects.
The wind sector has 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 has received life extension of half a dozen times. In the
first decade of a renewable energy facility's lifespan, the PTC
provides a $0.022/kilowatt-hour investment tax credit benefit.
In early 2013, the renewable electricity PTC was extended for one
year. This extension would ensure significant wind capacity
additions over the next three years, thereby leading to higher
generation from wind.
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
Duke Energy Corp.
), to gradually shift their mode of power generation to solar, wind
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
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.
DTE Energy Company
), received approval from the Michigan Public Service Commission to
purchase 20 megawatt (MW) of wind power from a subsidiary of
Heritage Sustainable Energy, a Michigan wind energy producer.
Also, Florida-based utility service provider
NextEra Energy Inc.
) has plans to add about 500-1,500 MW of U.S. wind assets in the
period 2013 to 2014. NextEra is a premier utility service provider
that has been aggressively expanding its renewable assets across
North America. The company recently expanded its operations to
Hawaii to develop underground cable infrastructure connecting the
grids between the islands of Oahu, Maui and the Big Island.
The EIA projects that utility-scale solar capacity will expand by
about 40% 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.
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. The feed-in tariffs (FiTs) agency informed
that solar feed-in tariffs for the rest of the year are subject to
a 1.8% monthly decrease.
These FiT changes particularly impacted 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
consistent 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.
Since the pulse of the alternative energy industry is closely tied
to the swings in the macro-economy, until the picture becomes
rosier we do not expect to witness many stand-alone alternative
The continuing financial strains in the Eurozone, slow recovery in
the labor market, and ongoing fiscal contraction continue to weigh
on the economic picture. This otherwise dull picture is partly
offset by the steadily improving outlook for the U.S. housing
sector and a stronger dollar.
Overall, the outlook for the U.S. economy appears to be gradually
improving, with a host of variables showing positive trends over
the last few months.
Globally, however, 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. Again, the core
European markets of Germany, Italy and Spain -- historically
accounting for the lion's share of solar products -- are fast
To counter tepid growth in mature markets, the companies are
increasingly focusing on the Chinese, Japanese, Indian and U.S.
markets. However, as things stand now, firms without deep pockets
may not be able to sustain over the longer run.
As per the EIA, renewable generating capacity will account for
nearly one-fifth of total capacity in 2040. Of this, solar
generation will be the primary contributor to renewable capacity
growth, with wind capacity occupying the second spot.
ASCENT SOLAR TE (ASTI): Get Free Report
DTE ENERGY CO (DTE): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis
FIRSTENERGY CP (FE): Free Stock Analysis Report
FIRST SOLAR INC (FSLR): Free Stock Analysis
GEVO INC (GEVO): Free Stock Analysis Report
JINKOSOLAR HLDG (JKS): Free Stock Analysis
NEXTERA ENERGY (NEE): Free Stock Analysis
SOLARCITY CORP (SCTY): Free Stock Analysis
SUNPOWER CORP-A (SPWR): Free Stock Analysis
SEMPRA ENERGY (SRE): Free Stock Analysis Report
TRINA SOLAR LTD (TSL): Free Stock Analysis
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