Following a period of low margins and high dudgeon in the solar industry, in September we saw some welcome reversals in the U.S. equity markets as stock prices trended higher and hostilities were put on hold. Indeed, clean energy shares have bounced back by 66 percent since their lows of July 2012.
Toward the end of the month, some good news solidified the gains: Solar will surpass wind in terms of new capacity added for the first time ever this year, according to a forecast from London-based Bloomberg New Energy Finance (BNEF). It's not that the number of projects in the solar pipeline has increased exponentially but rather that the flurry of wind installations has abated slightly compared to 2012.
Specifically, BNEF expects to see 33.8 GW of new onshore wind capacity in 2013 as well as 1.7 GW of offshore wind for a total of 35.5 GW in capacity. In comparison, the analysts predict the solar category will heat up, with a median forecast of 36.7 GW of new photovoltaic (PV) capacity.
Looking at last year, wind cumulatively added 46.6 GW while solar added 30.5 GW — record figures in both cases. But the past few months have seen a downtrend in the world's two largest wind markets, China and the United States, which has cleared the way for the rapidly growing PV market to gain the lead (if not by as great a margin as wind had claimed previously).
Among the U.S.-based companies in the solar sector that not only have rebounded but that our analysts are singling out this month with "buy" or "hold" recommendations are two industry stalwarts, Advanced Energy Industries (AEIS) and SunEdison (SUNE).
SolarCity (SCTY), which opened at a price of US$34.49 (25.48) on Monday, September 30, up 7.3 percent for the month, also deserves a mention, not so much for its performance but for its business-building acumen.
Indeed, the San Mateo, California-based solar installer completed an acquisition and announced a major deal during the past month. These moves are positioned to give the company a marketing edge in the sector and to expand its geographic footprint.
On September 9, SolarCity completed the acquisition of Sacramento-based Paramount Energy Solutions (DBA Paramount Solar) for $120 million. Already one of SolarCitys channel partners, Paramount is a direct-to-consumer marketing powerhouse. To date, its successful strategy has been to sell PV systems to homeowners and then to refer the buyers to solar retail service providers, like SolarCity, to complete the installation work. Prior to the acquisition, SolarCity reportedly had upwards of 68,000 customers; it expects this deal to add one million consumers to its contact database by July 2018.
Two weeks later, on September 23, SolarCity announced a deal that has been broadly bruited within the industry as a major coup. The company is teaming up with Stamford, Connecticut-based Viridian Energy, a retail electricity provider, to offer solar-generated power directly to homeowners at a discount through Viridians 20,000-contractor network. Through Viridian and SolarCity, customers will gain access to clean power at any time of day while, at the same time, reducing their utility bills. They can generate their own clean energy with a solar power system from SolarCity during the day and continue to choose Viridians affordable green energy at night and other times when available solar power has been consumed.
SolarCity will provide customers with free solar panel installation with permitting, installation, insurance, monitoring and repairs included. Viridian will offer SolarCity products and services beginning in its New York, New Jersey, Connecticut, Massachusetts, Maryland and Delaware markets, with an expectation to further expand the reach of this partnership in 2014. Viridian currently has more than 230,000 customers in the United States.
Angelo Zino, equity analyst at S&P Capital IQ in New York City, told pv magazine, "SolarCity continues to probably have the best model thats out there, long-term, although we don't recommend a ‘buy' to investors because their valuation is still too inflated. With the Viridian deal, the company finds itself in a sweet spot to exploit the growth potential of the U.S .residential solar market space. Were going to be seeing more of these deals in the future."
Advanced Energy Industries
Fort Collins, Colorado-based Advanced Energy Industries has one foot in the thin-film business and one in the solar market. On the solar side, which accounts for more than 50 percent of its business today, AEIS supplies photovoltaic inverters to commercial and utility buyers.
AEIS is the third-largest inverter company globally behind SMA Solar Technology AG of Niestetal, Germany, and ABB Ltd. of Zurich, Switzerland and it is the market leader in the United States.
At the beginning of the second quarter of the year, AEIS acquired Metzingen, Germany-based REFUsol Holding GmbH, a manufacturer of string solar PV inverters for commercial applications. Three-phase string inverters are ideally suited for rooftop and potentially larger installations and are becoming one of the fastest-growing inverter applications worldwide. REFUsol has been selling successfully across Europe and Asia.
AEIS expects the deal to boost its solar energy revenue to greater than $400 million in 2014 and has said that it "should be accretive to earnings in the next 12 months."
Pavel Molchanov, energy equity research analyst at Raymond James & Associates of Houston, told pv magazine this month, "Right now, in solar, AEIS is our only buy-rated company." Molchanov explained, "We like several things about this company. First, it is profitable and it is trading at less than 10 times on forward earnings [so it is undervalued]. Also, it has a debt-free balance sheet and lots of cash. This company is throwing off free cash flow from its regular operations. This gives it the opportunity to make acquisitions, as we saw with REFUsol. I predict there will be more opportunistic acquisitions in the future."
On September 30, AEIS opened at US$17.60 (12.99) — down 5.7 percent for the month, but still up more than 24 percent, year-to-date.
Until recently, SunEdison Inc. (formerly known as MEMC Electronic Materials, Inc.), also has been engaged in two businesses. However, on September 9, the St. Peters, Missouri-based company announced that it would spin off SunEdison Semiconductor Inc. in a $250 million initial public offering (IPO) in the March 2014 timeframe in order to focus more attention on its high-margin solar power business. The semiconductor business, which makes silicon wafers used in chips for computers, mobile phones and cars, had revenue of $239 million in the second quarter — or about 60 percent of the company's total.
This division is "the next evolution in our strategic plan to better position both our solar and semiconductor businesses for sustainable, long-term success," stated SunEdison CEO Ahmad Chatila, adding, "This new structure will allow each independent company to pursue its shareholder value-generating strategies, focus on key markets and customers, optimize capital structures and enhance access to growth capital in the years ahead."
Following that revelation, in mid-September, SunEdison announced a public offering of 30 million shares of common stock at a price of US$7.25 (5.36). The underwriters also were provided a 30-day option to purchase up to an additional 4.5 million shares of common stock from the company, all at the offering price, less the underwriting discount. SunEdison stated that the proceeds from this transaction of US$239 million (176.5 million) would be ploughed back into its operations and expansion plans.
SunEdison Inc (SUNE) shares were trading at US$8.06 (5.95) at start of business on September 30 — up 8.6 percent for the month.
Zino told pv magazine, "The biggest news this month came out on September 9, when SunEdison hosted a conference call about its potential IPO next year. Also, with a number of projects still on the companys balance sheet from debt perspective, next year, we think they are going to start putting these vehicles in a yieldco (as NRG Energy did earlier this year)."
What we are going to see at SunEdison, Zino predicts, is "a huge inflection when it comes to the companys solar business. They are going to generate more capital and fund that solar business. Plus, theyre got that $250 million minority stake on silicon. There are lots of moving parts to this company — and it's worth watching. This is our firms top recommendation. We have a ‘strong buy' on it."
Tariff rollback a ‘no go'?
Finally, this month, the Solar Energy Industries Association (SEIA), the trade group for the U.S. solar sector, proposed a compromise to end the tariffs on Chinese-manufactured cells and modules.
- Chinese companies would agree to create a fund that would benefit U.S. solar manufacturers directly and help to grow the U.S. market. Money for the fund would come from a percentage of the price premium Chinese companies are currently paying to third-country cell producers to get around U.S. trade sanctions, reducing costs and supply chain distortion for Chinese companies.
- The Chinese government would also agree to end its antidumping and countervailing duty investigations on U.S. polysilicon exports to China, and remove the threat of artificial cost increases in a key raw material in the solar value chain, benefiting not just Chinese solar companies but all users of solar energy.
- In return, the U.S. antidumping and countervailing duties orders would be phased out.
- The proposal also calls for a safeguard mechanism designed to offset any surge of Chinese solar modules into the U.S. market.
"This proposed settlement is a win all the way around," said SEIA President and CEO Rhone Resch. "It would actually lower costs to Chinese manufacturers for the export of solar cells and modules to the United States, and it would improve U.S. manufacturers' ability to compete fairly on an even playing field. It would also eliminate current and future litigation risks and costs for both Chinese and American companies. But just as importantly, SEIAs proposed settlement would benefit American consumers, as well as all consumers of solar energy, by holding down costs."
However, neither of pv magazine's industry analysts was impressed with the plan. Polchanov was particularly dismissive. "I think that this particular idea is a nonstarter," he told pv magazine. "The US government last year put the tariffs against the Chinese modules under pressure from our domestic manufacturers. I don't believe that there is going to be any re-thinking of the policy simply because SEIA is trying to get it changed. Installers and project developers would like to see that happen, but it won't."
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