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Proposed Carbon Regulations Bode Well For The Solar Industry

The Obama Administration recently announced plans to drastically reduce greenhouse gas emissions from existing power plants, marking one of the most significant steps by the U.S. government in curbing global warming. Under the planned regulation, existing power plants would be required to cut carbon dioxide (CO2) emissions by an average of around 30% below their 2005 levels by the year 2030. The benchmarks will be state-specific, depending on the present energy mix of a state, with individual states subject to different emission standards that may be higher or lower than the overall target. The regulations will give states the flexibility to meet their benchmarks, allowing them to formulate and implement their own plans.

Trefis has a $66 price estimate for First Solar , which is about 5% ahead of the current market price.

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Some of the methods that states could employ to cut emissions include power plant upgrades, improving energy efficiency, imposing state-level carbon taxes, switching from coal to natural gas or adopting more renewable energy resources. While the proposed regulation could be faced with significant political and legal challenges before it becomes final, it poses wide-ranging implications across the broader energy sector. Coal companies are likely to see demand for thermal coal fall further, while electric utilities would potentially need to retire or upgrade their coal-fired plants, potentially driving up costs. On the other hand, renewable energy companies could be big beneficiaries.

Renewables Will Benefit Significantly

Existing power plants contribute roughly 38% of the country's carbon dioxide emissions, with coal-fired power plants accounting for a bulk of the emissions. (( Everything you need to know about the EPA's proposed rule on coal plants , Washington Post, June 2014)) Utility companies may need to invest significantly in upgrading their coal facilities in order to comply with the new standards and may instead be incentivized to invest in carbon-free electricity sources such as solar or wind energy. Additionally, state governments could heavily subsidize renewable energy projects as a means of quickly adding clean generation capacity.

The plan should also make way for broader adoption of market-based mechanisms such as cap-and-trade schemes, which could bolster the role of renewables. Cap-and-trade schemes set an upper limit on the amount of emissions allowed by a power plant, but allow power plant operators to trade emission credits with one another to meet emission goals. For example, a utility company may continue to generate electricity from a coal-fired power plant that has CO2 emissions above stipulated norms by offsetting these higher emissions through carbon credits (which are essentially rights to pollute) that it buys from a solar farm. This could bode well for demand in the renewable energy sector. First Solar ( FSLR ) and SunPower ( SPWR ), two U.S.-based solar energy companies that we cover, could be major beneficiaries of the plan since they are among the largest manufacturers of solar panels in the United States, in addition to being major developers of utility-scale solar projects.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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