If you Hate Money, Don’t Invest in Solar!
It took the solar industry forty years to reach a cumulative
global capacity of 100 gigawatts …
By 2020, more than 100 gigawatts will be installed in a single
According to a new report from the good folks over at Greentech
Media, the solar industry will install a mind-blowing 135
gigawatts of solar PV projects all across the globe in less than
five years. This will push the cumulative market to nearly 700
gigawatts – or about the size of all the electrical generating
capacity in Europe today.
And consider the following estimates:
This is why, as I’ve explained before, I’m trying to limit our
exposure to China solar stocks.
On the flip side, however, U.S. solar manufacturers and
developers can only continue to get stronger. If you want exposure
to the solar space, Sunpower (NASDAQ: SPWR),
First Solar (NASDAQ: FSLR),
or SunEdison (NYSE: SUNE)
should definitely be a part of your portfolio.
All three, by the way, should also get a very nice bump if a
select group of lawmakers in California get their way.
No Subsidies Needed
The California Senate recently passed a new bill that, if signed
into law, would require the Golden State to get 50 percent of its
electricity from renewables by 2030.
It wasn’t long ago when California upped its renewable energy
mandate from 20 percent by 2020 to 33% by 2020. Now here we are
today looking at the possibility of a 50% renewable energy
On the surface, it seems quite aggressive. And in all fairness,
right now, it is. But in another few years, costs will fall so
low, solar will actually be the most cost competitive source of
electricity in California. And that’s without subsidies.
Of course, it seems like every day the need for additional
subsidies dwindles, anyway.
Solar superstar and founder of SunEdison, Jigar Shah, has been
quite vocal on this issue, insisting that if we phase out the
solar tax credits and other solar subsidies in mature markets, the
result will be more robust growth.
Check it out …
As the Founder of the largest solar services provider,
SunEdison, I had a hand in putting in place subsidies so that we
could reduce costs through scale in local markets. This strategy
has resulted in an average system cost reduction of over 50%
But today, solar subsidies in maturing markets like the United
States are actually holding us back, not propelling us forward.
In fact, Germany has hit an all time high for solar capacity
with 30-gigawatts peak (GWp) of solar power installed. Germany
has done this by installing solar at far cheaper prices than we
are in the United States. That is because solar subsidies are
manipulated by investors like me to maximize our returns. The
truth is that installers in the United States can, and do,
install solar at roughly the same cost as German installers –
save for some increased soft costs. If we want to reach higher
growth, we need to phase out the solar tax credits and other
solar subsidies in mature markets and watch the price of solar
And just the other day, First Solar CEO, Jim Hughes, actually
called the expiration of the solar investment tax credit
“irrelevant,” saying …
Within 18 months, we will overcome the cost delta resulting
from the drop [of the ITC] from 30 percent to 10 percent. It
actually opens up new markets, in our opinion, because you’ll
see an increased interest in utility generation once the
distortion of the ITC is behind us.
Hughes also made an important point that I’ve been making for
The growth in corporates interested in direct acquisition of
photovoltaic power is not driven by climate change concerns –
it’s driven by economics. When you look at data centers, when
you look at electricity-intensive industries, they are all
interested in locking in a significant cost as a fixed cost
rather than a commodity-priced variable cost — and that’s
driving a whole lot of procurement on a global basis.
So here we are, looking at a global market that’s growing
incredibly rapidly, and even in the absence of direct subsidies,
will continue to break records.
When it comes to energy investing, there is simply no greater
growth opportunity than solar.
The United States has the technological imperative to lead on clean energy. We have the economic imperative to engage in job creation that is good for all of creation. We have the moral responsibility to protect our planet for future generat…
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by Debra Fiakas CFA
Last week Brazilian
agriculture technology developer Ceres
Nasdaq) made formal plans to shift its focus to seed traits and the
food and feed markets and away from energy. Ceres is not
abandoning biofuels as such, but with oil prices at historic low
levels, it is not economic enough to justify working capital not to
mention new investments. The company is restructuring
operations and reducing personnel in both its U.S. and Brazilian
operations. Ceres management estimates the changes will save
between $6 million and $8 million next year.
The question investors need to ask now is whether the shift in
priorities can change the value of Ceres.
The company has a strong balance sheet with no debt and $4.8 million
in cash and $9.9 million in marketable securities. The cash
and financial assets will come in handy over the months as Ceres
tries to reinvent its business model. Ceres has yet to post a
profit on its various agricultural technologies. Consequently,
the company has required considerable investment in working
capital. Over the last year alone Ceres has used $23.9 million
in cash to support operations. Assuming the anticipated
savings develops as planned, it is possible that Ceres might need
another $16 million to $18 million to keep the wheels turning.
Still it looks like the company could be $2 million to $4 million
Thus the first hiccup in creating value is the potential need to
raise capital. That means either increased leverage or issuing
additional equity securities. For a company that is not
generating profits or cash, debt can be troublesome. For most
investors, the dilution from new stock is anathema to creating
To be fair, Ceres has been making progress with its crop
traits. In March 2014, the company announced plans to
accelerate development of its sugarcane traits after initial field
trials found better than expected growth and biomass even under
drought conditions. The next stage of field research is
expected to be completed by June 2016. If the company is able
to keep pace with the planned schedule, the sugarcane traits should
be ready for commercial market introduction in 2018.
The company has made some progress that could bring in revenue in
the near-term. Ceres has licensed its homegrown bioinformatics
software platform to HZPC Holland BV, a seed potato developer.
The license will allow HZPC to access DNA databases. One
software license is not material. However, in my view, the
fact that Ceres commercialized a technology that it has originally
developed only for in-house purposes, is a plus for Ceres. It
is just the kind of creative management that is needed during
adverse market conditions like those presented by weak price
conditions in the energy market.
It does not look like there are any significant revenue and earnings
generators in the wings. The single revenue estimate that is
published by Thomson Reuters for Ceres suggests revenue could ramp
dramatically in the fiscal year ending August 2016. That that
analyst thinks there will be profits, he or she is keeping it a
secret as they have not published an earnings
estimate. Of course, this estimate could be
predicated on the old biofuel-centric business model. Yet, I
see little change in the potential for revenue and earnings in a
‘food and feed’ business model.
So if investors must wait for earnings to create value, the stock
represents an option human or capital assets. While I might
like management’s style, Ceres stock price seems a bit steep for an
option on management. Its crop products, sorghum, sugarcane
and switchgrass seem better suited to the energy market than to feed
hungry mouths. Thus the stock seems a bit overpriced as an
option on the intellectual property if its application is to be
limited to ‘food and feed.’
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
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