Alternative energy is making a strong headway in the power
generation fuel mix in many developed and developing nations,
albeit from a very low base. 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
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 energy is among the
most notable list of renewable energy resources that are being
developed in the U.S., 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.
In June, President Obama unveiled a fresh environmental plan
that puts further limits existing coal-fired power plants. He
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 U.S.
As a result, the U.S. Environmental Protection Agency is getting
ready 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 beneficial for renewable energy
First Solar Inc.
The U.S. in fact has a lot of catching up to do, despite enormous
potential, to get anywhere close to the global leaders. The Solar
Energy Industries Association (SEIA), the U.S. trade association of
approximately 1,000 companies in the solar energy industry, said
that in 2012 the U.S. solar energy industry grew 76% year over year
to reach 3,313 megawatt (MW), which represents 11% of all PV
globally, up from 1,887 MW in 2011.
The second quarter of 2013 was one of the most happening quarters
on record in the renewable space. As much as 832 MW of solar energy
came on stream during the quarter, representing 15% growth over the
last quarter thanks to unmatched installation levels in the utility
market. Going forward, SEIA forecasts that 4,400 MW of PV (30%
growth over 2012 level) and over 900 MW of CSP will be installed
Looking at the cost side, the average cost of a completed PV system
dropped by 11% during the second 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.
In 2012, the next three big markets were China, U.S. and Japan.
Besides the three countries, Australia and India will be a part of
the major solar industry powerhouse in the near future.
In 2012, though Europe led the list in terms of total installed PV
capacity, it accounted for 70% of the world's new PV installations,
down from 75% in 2011. This can be attributed to a tepid European
economy and a distinct downswing in the PV market, particularly in
new connected capacity, seen for the first time in 12 years.
It is believed that in 2013 the majority of new PV capacity in the
world will come from outside the Europe. China and India are
expected to be the forerunners, followed by countries in Southeast
Asia, Latin America and MENA.
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 has
stagnated this year, with no new installations completed in the
second quarter of 2013 compared to 1.6 MW in the preceding quarter.
Hence, the total installed capacity currently stands at 60,009 MW.
The recent stalemate notwithstanding, the U.S. wind industry is now
gradually picking up. There are more than 3,950 MW of long-term
power purchase agreements signed. As of Jun 30, over 1,280 MW of
projects were under construction spreading across eight states:
Alaska, California, Colorado, Kansas, Michigan, Nebraska, New York
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.
In 2012, hydropower provided 100,000 MW of installed capacity --
the highest from a renewable source. Hydropower is the cheapest
source of electricity as it has the lowest cost per kilowatt hour
compared to all other sources and it remains independent of the
volatile movement in fuel costs.
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 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 #42 out of 260. This corresponds to the top one-third
of the list, corresponding to a positive outlook.
However, the Zacks Industry Rank for the Other Alternative industry
is #218 out of 260. This puts the industry in the bottom one-third
of all industries.
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 has been a good year so far. Specially, most of the
solar companies have come up with second quarter earnings beat.
High oil prices have also aided solar stocks to make new highs.
Moreover, strong macroeconomic factors have helped this sector rise
above others in the energy space.
For 2013, 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 'Earnings Trends' report.
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
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.
Again, Zacks Ranked #1 (Strong Buy) company
) is one of the most forward-integrated solar companies, focused on
moving up the value chain. The company delivered strong second
quarter results, swinging to profit from the loss incurred in the
year-ago quarter. Its stellar results were backed by strong demand
for its solar panels in utility, commercial and residential
projects. During the quarter, the company's total production
improved 42.3% sequentially while utilization reached 100%.
Unlike other renewable resources such as hydroelectricity and wind
power, 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.
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.
Earlier this year, 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 Corporation
), 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 Project.
In August, 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
) recently 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
Also, Florida-based utility service provider
NextEra Energy Inc.
) also 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.
In the near term, the solar industry is faced with the problem of
excess solar cell and module capacity. The solar industry continues
to witness a difficult business scenario, categorized by intense
pricing competition, both at the module and system level. Most of
the solar companies are now incurring operating losses or modest to
no operating income. The earlier rush in vertical integration by
individual players for self-reliance in their solar wafer/cell
needs has created a lot of unutilized capacity for the industry.
We believe this supply glut situation between supply and demand
will likely continue to put pressure on pricing through the
remainder of 2013 and at least into 2014. Specifically, this
structural imbalance will prove unfavorable primarily for module
manufacturers. However, companies with well-known proficiency and
meaningful PV generation solutions in different regions of the
solar value chain (like project development, EPC capabilities and
O&M services) are more likely to sustain their business in this
Hence, the near-term solar module industry outlook is clouded by
unnecessary inventory that has led to industry-wide sharply falling
Average Selling Prices. Industry-wide module average selling prices
have continued to experience downward pressure, although the rate
of declines in some markets over the last two years has begun to
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 in
Germany of large-scale free field PV systems and modules to be
installed in such systems. 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.
Fortunes tied to crude:
Alternative energy stock prices generally rise and fall in direct
proportion to the price of crude oil. While in times of high oil
prices this may present an opportunity, it also increases
volatility in the sector.
As per Energy Information Administration (EIA), world crude
consumption grew by an estimated 0.7 million barrels per day
(MMBPD) in 2012 to a record high of 89.0 MMBPD. The agency, in its
most recent Short-Term Energy Outlook, said that it expects global
oil demand to grow by another 1.1 million barrels per day in 2013
and by a further 1.2 million barrels per day in 2014. Importantly,
EIA's latest report assumes that world supply is likely to go up by
0.8 million barrels per day this year and by 1.2 million barrels
per day in 2014.
The immediate outlook for oil remains positive given the
commodity's constrained supply picture. In particular, while the
western economies exhibit sluggish growth prospects, global oil
consumption is expected to get a boost from sustained strength in
China, the Middle East, Central and South America that continue to
expand at a healthy rate.
Chinese Companies' Response to U.S. Import Duties:
In 2012, the U.S. Department of Commerce (DoC) implemented
anti-dumping duties of effectively 25.96% and countervailing duties
of 15.24%. The U.S. DoC rolled out these tariffs to tighten supply
of Chinese solar products in the U.S. and simultaneously encourage
local players to tap the growing renewable domestic market. These
steps have made the North American solar power market increasingly
competitive for the Chinese solar power product manufacturers.
However, in response to the U.S. DoC's decision, China's Ministry
of Commerce is now set to impose anti-subsidy duties of an
additional 6.5% on polysilicon imports from the U.S. In July, China
imposed anti-dumping duties of 53.3% to 57% on U.S. polysilicon and
claimed that the imports were being sold below market value. Hence,
the U.S. polysilicon suppliers will now face at least 60.2%
tariffs, depending on the company.
This move is expected to intensify trade tensions between the
world's two largest economies. On the other hand, South Korean
imports will face rates ranging from 2.4% to 48.7%.
The European Union has settled its solar panel antidumping dispute
with China as tariffs were set to rise in two steps: initially by
11.8% starting Jun 6 and then 47.6% on average from Aug 6, 2013.
This will make international expansion for Chinese solar
manufacturers difficult. Indeed, increasing order flows will not
sufficiently offset the headwind from anti-dumping duties in Europe
as well as the U.S.
However, China's Ministry of Finance has recently 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 subsidy offered by the Chinese government,
which has already set a solar installation target of 35 GW by 2015,
lifted Chinese solar stocks across the board.
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 bleak picture is only
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. The no-taper policy of the Fed continues to
support a favorable and expansive monetary stance.
According to EIA, the U.S. generated about 12% of its electricity
from renewable energy sources in 2012. Most of this generation
comprised hydroelectric power (56%), followed by: wind (28%),
biomass wood (8%), biomass waste (4%), geothermal (3%) and solar
(1%). 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.
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.
The fortunes of the gradually emerging solar PV industry are
currently uncertain. The core European markets of Germany, Italy
and Spain -- historically accounting for the lion's share of solar
products -- are fast nearing maturity. To counter this tepid
growth, the companies are increasingly focusing on the Chinese,
Indian and U.S. markets. However, as things stand now, firms
without deep pockets may not be able to sustain over the longer
With most of its solar peers in trouble due to an oversupply of
) seems to be in a better position with multiple contracts and
JinkoSolar Holding Co. Ltd.
) reported impressive second quarter 2013 results, returning to
profit following seven quarters of losses buoyed by higher demand
from new solar markets. This makes JinkoSolar the first Chinese
module manufacturer to return to net profitability since the
Solar companies like SunPower and
Trina Solar Limited
) with a Zacks Rank #1 (Strong Buy) and Zacks Ranked #2 (Buy)
Quantum Fuel Systems Technologies Worldwide Inc.
JA Solar Holdings Co., Ltd.
LDK Solar Co. Ltd.
), ReneSola and
Yingli Green Energy Holding Co. Ltd.
) are making the most of the favorable market dynamics.
DTE ENERGY CO (DTE): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis
FIRST SOLAR INC (FSLR): Free Stock Analysis
JA SOLAR HOLDGS (JASO): Free Stock Analysis
JINKOSOLAR HLDG (JKS): Free Stock Analysis
LDK SOLAR CO (LDK): Free Stock Analysis Report
NEXTERA ENERGY (NEE): Free Stock Analysis
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SOLARCITY CORP (SCTY): Free Stock Analysis
RENESOLA LT-ADR (SOL): Free Stock Analysis
SUNPOWER CORP-A (SPWR): Free Stock Analysis
SEMPRA ENERGY (SRE): Free Stock Analysis Report
TRINA SOLAR LTD (TSL): Free Stock Analysis
YINGLI GREEN EN (YGE): Free Stock Analysis
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