Guggenheim Solar Index

October 2016: Solar stocks still slipping

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Guggenheim Solar Index: Solar stocks are significantly underperforming the market, with fears over Trump’s likely move away from renewable energy adding to wider uncertainty.

The Guggenheim Solar ETF (TAN) fell (14.3%) this month [October 17 – November 18] compared to the S&P 500 (+2.3%), Dow Jones (+4.0%) and Russell 2000 (8.5%).

With Donald Trump as the U.S. President-elect, a stock market crash that many feared was avoided. On the contrary, the U.S. broader market saw record performance post election. In the week of the election [week of 11/7], the Dow Jones and Russell 2000 posted its best weekly performance since 2011 and the S&P 500 posted its best weekly performance since 2014.

The solar sector, on the other hand, has trended downwards, given Trump’s fossil fuel agenda and denial of climate change, as the sector reported weak earnings this season. Approximately 71% of the cleantech companies in ROTH’s cleantech coverage either missed earnings or provided a weak outlook. Reasons for the wide-scale cleantech miss are as follows: 1) the macro economy is far from robust; 2) expected interest rate increases may be curtailing investments; 3) Trump’s outlook for energy policy is unclear; and 4) for solar in particular, there is a lull in project demand in the U.S. due to the perceived ITC cliff that everyone expected.

A green fuel source is inherently worth more to the U.S. than fossil fuel. These sources of energy and efficiency technologies are in many cases cheaper than fossils, have steep cost curves, produce a positive ROI for businesses and consumers, are anti-inflationary because they don’t use a commodity fuel or consume less fuel, have the ability to decentralize and stabilize energy supply. Lastly, regardless of a climate change debate, green energy and efficiency saves U.S. lives and lowers heathcare costs from pollution-related

illnesses. These advanced energy technology efforts may create a new decarbonized economy growth engine for jobs for decades, and technologies that can be marketed abroad to developing nations that are energy and carbon intensive.

Author: Jesse Pichel, ROTH Capital Partners

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September 2016: Solar stocks suffer

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Guggenheim Solar Index: Uncertain times: Solar stocks continue to underperform, with inverter makers feeling the pressure from China. The broader market is slowed by U.S. election fears.

Solar stocks and the broader market have been down for three straight months as October ends. This is the first time in five years that the broader market has been down for three months running. With investors uncertain ahead of the U.S. election, fears of volatility and con-cerns over rising interest rates continue to weigh down in a risk averse environ-ment. In October, solar stocks were down -6.0%, compared to -2.9% in September and -2.4% in August. For comparison, the S&P 500 was down -1.9% in October, -0.1% in September and -0.1% in August. The Dow Jones was down -0.9% in Octo-ber, -0.5% in September, and -0.2% in August. Solar stocks have significantly underperformed the broader market YTD. Solar stocks are down -37.7% YTD compared to positive gains from the S&P500 at 4.0% and Dow Jones at 4.1%.

New data from Hedge Fund Research (HFR) show that hedge funds suffered $28 billion of net outflows in Q3 2016. This is the fourth consecutive quarter in which investors have pulled money out of hedge funds, and is the highest level since Q2 2009. In October, we saw the first solar IPO since August 2015. Azure Power (AZRE), an independent power producer (IPP) in India, raised approxi-mately $136.4 million in its IPO and con-current private placement. As of Octo-ber 31, AZRE is down -11.4% from its IPO price of $18. Inverter companies led the majority of the declines this month as these companies experienced pricing pressure from new Chinese entrants into the U.S. markets.

The majority of upstream solar compa-nies experienced positive gains through October as prices begin to stabilize after an inventory sell-off in September. This comes on the heels of a pushback in Chi-na’s feed-in-tariff cuts for solar projects registered by year end 2016 to be oper-ational by September 30, 2017, which caused the H1 installations rush to slow down. This will ease investor concerns to H2 2017 instead of 2016.

Author: Jesse Pichel, ROTH Capital Partners

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August 2016: An American tale

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Guggenheim Solar Index: Takeaways from SPI:At SPI last month, the 4th Annual ROTH Solar and Storage Symposium met with the solar supply chain. Here are five takeaways from that event.

Takeaway 1: Storage is the star of the show. Storage is viewed as a way for solar to increase penetration worldwide. As the European storage industry surges on energy arbitrage, the U.S. storage indus-try has not reached significant scale. Lower cost batteries will be required for the industry to grow in the U.S. and var-ious chemistry vendors are working a steep cost curve.

Takeaway 2: Utilization of upstream solar suppliers is fading. The policy shift in China followed by reduced demand in Japan and pushouts in North America are the culprits. Companies report utili-zation in the 60-70% range, while those that keep factories at 100% capacity rap-idly lower prices, which creates a most difficult pricing environment. The lower prices that have resulted from the slow-down in China have caused North Amer-ican developers to push out projects until 2017 to take advantage of better pricing.

Takeaway 3: Price Discovery. Many leading vendors presented an out-look that module prices in the U.S. are expected to hit $0.40-0.43/W in 4Q2016, with a possibility to reach $0.35/W by year end 2017. Several module vendors have a cost of $0.35/W today and have a targeted sub-$0.30/W by year end 2017.

Takeaway 4: The residential solar market has moderated in the U.S. The U.S. residential solar market has seen growth rates decline as it reaches higher levels of penetration. Most vendors see 20% growth scenarios, although some anticipate flat to down. We also see the continued shift away from leases to loans and PACE financing.

Takeaway 5: Despite the solar indus-try downturn, capacity keeps rising from China. Relatively unknown or new module players in China have raised a substantial amount of money and are building out capacity. A-share listed companies in China trade at a signifi-cant premium to U.S. or European listed companies. As a result, more privatiza-tions can be expected.

Author: Jesse Pichel, ROTH Capital Partners

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July 2016: Caution in the air

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Guggenheim Solar Index: Anticipated slowdown in the Chinese solar market, post-peak years on the cards for Japan, and with many U.S. developers viewing the ITC extension as something of a breathing space, solar stocks have begun to slide despite overall global growth in the industry.

Solar stocks had significantly underperformed the broader market by mid-August due to poor earnings and a bleak outlook from solar bellwethers. This weakness was well anticipated given the commentary emanating from the large summer solar exhibitions, namely SNEC and Intersolar Munich/SF. China H2 16 is down significantly from H1 16, Japan will slowly decline over the next few years from last year’s peak, and the U.S. will experience a project lull for 2017 and 2018. Additionally, development/project capital and investor appetite for solar stocks in the U.S. remains weak behind the slow-motion train wreck of SunEdison. We fear that the SunEdison debacle may thwart investments in the downstream sector similar to the way the Solyndra and Suntech bankruptcies thwarted investments in the cell/module sector. Further, the SolarCity acquisition by Tesla is widely considered from a position of weakness, not a position of strength.

Solar stocks declined -0.8% this past month [July 11 – August 10] compared to positive gains of +3.8% in the prior month [June 13 – July 8]. The S&P 500, Dow and Russell 2000 gained +2.1%, +1.9% and +3.9%, respectively this month, compared to +1.6%, +1.6% and +1.2% in the prior month.

This month’s largest gainer is a Chinese solar module company that announced it has entered into a definitive agreement for its going private transaction. The merger consideration represented a 21.5% premium to its closing price on the last trading day prior to its announcement of receipt of a “going-private” proposal, and a premium of 40.6% to the closing price on the last trading day prior to the definitive agreement announcement.

Solar module/upstream companies led the majority of the declines for the second straight month. This month’s top decline is a U.S. solar panel manufacturer that reported solid Q2 16 results, but lowered its 2016 guidance due to decreased demand for utility-scale solar projects and lower panel prices. The company’s stock declined -30.2% on the news, which also dragged down many of its peers. On average, solar module companies are down -36.3% year-to-date. Given the threat of overcapacity, solar cell/module average selling prices (ASPs) are expected to decline, which will squeeze margins and earnings. Despite the slowdown of solar demand in 2017, global solar installations are expected to grow 43% this year to 73 GW compared to 55 GW in 2015, according to Greentech Media’s latest report.

As the solar industry embraces for overcapacity, companies that are not exposed to the solar upstream ecosystem are expected to prosper. This month’s third-largest gainer is a U.S. residential and commercial solar installer that is technology and manufacture agnostic, which allows the company to benefit from the decline in solar module costs. The company reported record Q2 16 revenues and raised its full-year revenue guidance by 10-15%.

Energy storage continues to remain a hot sector. Last month, U.S. senators introduced a new bipartisan energy storage bill that would establish subsidies for residential and commercial energy storage deployments designed to help accelerate energy storage deployments in the U.S. The new Bill is modeled after the current 30% U.S. solar investment tax credit (ITC), which has helped the solar industry grow at a compound annual growth rate (CAGR) of 76% since the ITC was implemented in 2006.

Author: Jesse Pichel, ROTH Capital Partners

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June 2016: Brexit bounce-back

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Guggenheim Solar Index: The broader stock market has been on the rise since mid-July despite the Brexit scare pushing market and solar stocks down. Recovery was swift, and for the U.K.’s energy sector in particular it is not all doom-and-gloom.

By mid-July broader stock market has been on the rise despite the Brexit scare that sent the market down ~5% and solar stocks down ~7%. Stocks have now recovered from post-Brexit lows as the S&P 500 set a new all-time high on July 11 based on 1) eased Brexit fears and 2) a Blockbuster June jobs report that signaled growth in the U.S. economy. Solar stocks, which outperformed the broader market this month, gained 3.8% compared to 1.6% in the month prior thanks to positive gains from renewable IPPs and yieldcos. For comparison, the S&P 500, Russell 2000 and Dow gained 1.6%, 1.2% and 1.6%, respectively, compared to 2.4%, 5.6% and 1.9% in the previous month.
This month’s top three performing stocks were renewable IPPs and yieldcos. One of the yieldco’s stock spiked 18% after Canada’s largest alternative asset manager unveiled an activist stake in the company, which made it the top gainer. Its sister yieldco, which shares the same bankrupt parent company, was the second largest gainer this month. There were two other positive developments for IPPs and yieldcos this month; 1) a large Danish wind IPP went public in Europe, the largest European IPO of 2016; and 2) a Canadian renewable yieldco (subsidiary of Canada’s largest alternative asset manager) raised CAN$800 million in an equity offering. Also, in light of continued low interest rates, investors are searching for yield.
Solar module/upstream companies led the majority of the declines given the threat of overcapacity in H2 2016 in China. As PV demand in China eases, this will lead to the decline of ASPs. In early June, China’s NEA announced that it may revise its 2020 solar target from 150 GW to 110 GW.
While the consensus is that Brexit is a negative for the U.K. renewable market in the near term, the longer term impact is more uncertain. It is unlikely Brexit will alter the U.S. and EU charge towards renewable energy. Near term, it will take two years for the Brexit process to run its course. In the meantime, the volatility and drop in the British pound makes overseas ownership of U.K.-based projects less attractive. PV panels, inverters and other infrastructure projects in the U.K. are purchased in Euros, and debt providers and project buyers (many from Germany) will take a pause given the currency drop and less attractive yields. Projects may be stranded, or at least paused indefinitely.
Longer term, EU 2020 targets for the U.K. are also called into question, and the country has consistently reversed from its support for solar with severe subsidy cuts. The U.K. remains a global leader in offshore wind, but it is reported that much of that is funded by EU nations such as Germany. Ironically, the largest threat to U.K.-based solar and wind may have been the planned EU intercontinental transmission lines to renewable-rich Scandinavia and Northern Europe, which would lower the high wholesale energy rates in the U.K. If a transmission network is stalled, wholesale electricity rates may remain high, but in turn would make U.K.-based solar installations more competitive since solar project PPA rates under the
Renewable Obligation Certificates revert to wholesale rates after 10-15 years. The reversion to wholesale rates had been an ongoing negative for project buyers that anticipated a drop in wholesale rates. Also, EU duties on imported solar panels would be removed, thus making the panels less expensive. Additionally, it is reported that while removal of EU requirements/regulations may make it easier to develop renewable infrastructure in the U.K., there may be no strong incentive to make that happen, other than high fossil energy prices. And since the EU has no formal free trade agreement with the fast growing India market, it is thought that the U.K. may be in a better position to negotiate a free trade agreement with this market.

Author: Jesse Pichel, ROTH Capital Partners

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May 2016: Caution in the winds

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Guggenheim Solar Index: Fears of a Brexit stalk the global economy, but an impending China FIT deadline and brisk activity in storage keep spirits high.

At the time of going to press, the broader stock market has been on the rise fueled by 1) unchanged interest rates by the U.S. Fed at its June meeting; 2) lowered projections of how much the U.S. Fed will raise short-term interest rates in the coming years, and 3) higher oil prices due to production disruptions in Nigeria, Venezuela, Libya and Canada. However, investors remain cautious on a Brexit (British exit) as the U.K. faces an In/Out referendum on the EU on June 23, which could negatively impact the global economy.

Taiwanese upstream solar companies were this month’s top gainers due to increased demand as downstream companies rush to install projects ahead of the China FIT deadline of June 30. Polysilicon manufacturers weighed down the sector after months in positive territory. Polysilicon price quotes have been on the rise recently due to the China FIT installation deadline and as the ongoing China-U.S. trade dispute continues to keep U.S. polysilicon manufacturers out of China. However, there is indication that polysilicon prices may be modestly falling as buyers anticipate a glut.

Energy storage companies continue to attract interest as a need for grid optimization and increased regulatory policies drive the space. In June, Europe’s largest manufacturer of residential energy storage systems secured an investment from a large multinational conglomerate to support its continued international growth. There were also two energy storage acquisitions in May.

The first acquisition of note was a French specialty battery manufacturer, and the second acquisition was an intelligent customer-sited energy storage solution that can help commercial customers control rising demand charges. According to the Energy Storage Association, the U.S energy storage market will grow from a relatively modest $134 million in 2014 to $2 billion by 2020, with the behind-the-meter sector expected to surpass the utility sector in 2019.

Author: Jesse Pichel, ROTH Capital Partners

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April 2016: Solar stocks buck growth trend

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Geggenheim Solar Index: Energy storage companies and polysilicon producers represent the strong performers, as U.S. solar bellwethers face structural challenges.

In May, the broader stock market experienced three straight months of positive gains. The S&P 500, Dow and Russell 2000 gained +1.5%, +0.1% and +2.1%

respectively, compared to +2.6%, +2.1% and +1.7% in April and +6.6%, +7.1% and +7.7% in March.

Solar stocks, on the other hand, underperformed this month due to lackluster earnings from solar bellwethers with exposure to the U.S. residential solar market as installation growth is expected to slow.  Lower growth from residential solar bellwethers reflect the impact of negative policy decisions (Nevada) combined with a decision to eliminate the more costly customer acquisition sources in a capital constrained environment.   One solar company exposed to the U.S. residential solar market almost ended the month as one of the top declines in May, but after it closed a tax equity investment fund with a new investor and an analyst upgrade late in the month (May 27), the stock popped to make it May’s second largest U.S. gainer. The Company’s competitor completed its first cash equity transaction earlier in May, but ended the month as the worst performer.

Taiwanese upstream solar companies (ingots, wafers, cells) were this month’s top gainers due to increased demand as downstream solar companies rush to install projects ahead of the China feed-in-tariff (FiT) installation deadline of June 30, 2016. Polysilicon manufacturers also continue to perform above the average of its solar industry peers.

Global demand for solar modules also continues to remain strong even as demand in China is forecast to slow in 2H16. According to public reports, tier-1 module companies guided to a strong 2Q16 and reiterated 2016 full year shipment guidance. Energy storage companies have attracted interest from large global conglomerates with two major acquisitions in May. According to Energy Storage Association, the U.S energy storage market will grow to $2 billion by 2020.

Author: Jesse Pichel, ROTH Capital Partners

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February 2016: Stocks on the mend

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Guggenheim Solar Index: After a rough start to 2016, solar stocks are now showing encouraging signs of stability, particularly in the important U.S. market.

The global stock market has been on the mend since mid-February. Fears of a 2016 global recession have been somewhat alleviated, and the most worrisome con-cerns surrounding China are beginning to fade. As we write this column in mid-March, U.S. stocks posted gains for three consecutive weeks since February 15 on widespread short-covering, with the S&P 500 up +2.8%, +1.6% and +2.7% in each of the past three weeks. For comparison, the Russell 2000 gained +3.4%, +2.1% and +3.7% and the Guggenheim Solar ETF (TAN) gained +7.0%, +5.7% and +4.3%. Oil prices have also posted gains for four consecutive weeks since February 8, with the WTI Crude up 3.3%, 3.2%, 4.2% and 10.8% in each of the past four weeks, which also bodes well for the cleantech/solar sector overall. Global demand for PV modules continues to remain strong. Based on public company reports, there is good demand visibility through 1H16, yet some uncertainty in 2H16 given pol-icy changes in China and some market and policy uncertainty in Japan. The U.S. remains quite strong on the heels of its recent ITC extension. Several tier-1 mod-ule manufacturers raised guidance, yet two manufacturers indicated caution on risks of overcapacity and pricing pressure in 2H16.

There are two issues in China that are driving concern: 1) China has not paid its FIT on solar projects for ~2 years; this is prompting investors to question how long the delays can stretch for before it negatively impacts demand; and 2) China extended its installation cutoff date from December 31, 2015 to June 30, 2016. This sets up a strong 1H16 and a potential weak 2H16. New Chinese permit requirements starting in 2H16 have not been issued.

On another note, the state of Massachu-setts has been on investors’ radar as the SREC for residential solar installations will soon expire. The publicly traded U.S. residential solar companies exposed to the Massachusetts residential market have been in decline since the news broke.

Author: Jesse Pichel, ROTH Capital Partners

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January 2016: US firms drive index lower

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NYSE Bloomberg Solar Energy Index: SunEdison restructures and net metering battles wage on as the U.S. solar industry shapes the global index.

The NYSE Bloomberg Solar Index plum-meted in January after a short-lived bounce in December. The index gave up 21% as investors eyed SunEdison’s restruc-turing saga and various macro headlines. The decline began early in the month after SunEdison announced that it had arranged two new loans and issued new shares to pay off a portion of its debt. The index saw more pressure later in the month as the Califor-nia and Nevada public utility commissions continued to escalate the net metering bat-tle. Nevada moved to lower the remunera-tion for net metering, and California utili-ties moved to appeal the decision to keep net metering rates steady. Throughout the month, the backdrop of low and falling oil prices continued to cast a shadow on inves-tor sentiment.

Each month, we examine the drivers of solar stock performance for the heavy-weight components across geographies in the index. During the month of January, many Asian-traded constituents pulled down the index. For example, GCL Poly-silicon traded down 15% after issuing $225 million of convertible bonds on the Singapore Stock Exchange.

On the European exchanges, SMA Solar gave up 14% after several months of strong performances. The company traded down despite exceeding sales and earnings guidance for 2015 according to provisional figures. Meyer Burger was down 4% after releasing unaudited finan-cial data for fiscal year 2015.

Heavyweights on the U.S. exchanges were the main drag on the index dur-ing January, driven by the SunEdison restructuring and public utility com-mission battles. First Solar bucked the trend, finishing up 4% after receiving a key upgrade from Goldman Sachs. Solar-City slid 30% after pulling out of Nevada and eliminating 550 jobs after the public utility commission terminated its roof-top solar policy. SunEdison fell 39% after announcing restructuring efforts as a key shareholder initiated a lawsuit to block the Vivint acquisition.

Author: Adam Krop, The Trout Group LLC

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December 2015: Adulation and undulation

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NYSE Bloomberg Solar Energy Index: COP21 and extension of US Investment Tax Credit drive index higher; optimism offset by FIT cuts in China and possible renewal of EU import tariffs.

The NYSE Bloomberg Solar Index bounced off lows in December after looking for direction in November. The index finished up 6% thanks to several positive developments throughout the month. Early in the month, the index received support from the COP 21 conference in Paris, which set goals to reduce carbon emissions by 20% in Organization for Economic Co-operation and Development (OECD) countries. Later in the month, U.S.-traded stocks received a boost from the extension of the solar Investment Tax Credit (ITC) in a surprise move for the industry. During the same time, the California Public Utility Commission rejected a net metering rate increase, considered a key hurdle in the adoption of solar. The index performance was offset by trading activity in most Chinese entities, which lagged as rumblings of the domestic FIT cut was more than expected and more chatter about a renewal of EU tariffs on Chinese-produced components.

Each month, we examine the drivers of solar stock performance for the heavyweight components across geographies in the index. During the month of December, Asian-traded constituents offset the optimism in U.S.-traded names. GCL Polysilicon traded down 15% after executing a rights offering. Sungrow, Chinese inverter manufacturer, gave up 3% on the industry headlines in its domestic market.

On the European exchanges, SMA Solar added another 13% on strong 3Q15 results, including robust sales growth and positive operating income, and confirmed increased 2015 guidance. Capital Stage AG fell 9% on declining subsidies in the UK and yieldco uncertainty in the U.S. REC Silicon slid 12% as polysilicon pricing remained weak.

Heavyweights on the U.S. exchanges outperformed the index during December, driven by the positive headlines in the region. SolarCity spiked 77% after Congress passed the ITC extension. First Solar and SunPower soared 17% and 25% were also up on the ITC and net metering news.

Author: Adam Krop, The Trout Group LLC

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November 2015: Searching for direction

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NYSE Bloomberg Solar Energy Index: Index searches for direction as policy support offsets mixed 3Q15 reports and Paris Climate talks boost investor optimism.

The NYSE Bloomberg Solar Index searched for direction in November after a strong performance in October. The index ticked down 1% as several polarizing headlines drove trading in the sector. Early in the month, many U.S. stocks traded down after weak 3Q15 reports from SunEdison, TerraForm Power and Enphase Energy rattled the market. On the other hand, investor optimism began to build ahead of the UN Conference on Climate Change in Paris in late November/early December. In the weeks leading up to the conference, many countries and financial institutions revealed aggressive CO2 reduction targets and financing commitments to support a potential agreement.

Each month, we examine the drivers of solar stock performance for the heavyweight components across geographies in the index. During the month of November, Asian-traded constituents turned in mixed performances. GCL Polysilicon was down 9% after announcing a further delay in the disposal of its non-solar power business, despite solid 3Q15 results that highlighted strong demand in its domestic market. Sungrow, the Chinese inverter manufacturer, added 3% after announcing new contract wins in several markets.

On the European exchanges, SMA Solar added another 3% on strong 3Q15 results, including robust sales growth and positive operating income, and confirmed increased 2015 guidance. Capital Stage AG fell 2% in November on declining subsidies in the U.K. and yieldco uncertainty in the U.S. REC Silicon soared 29% as investors applauded insider buying despite job and production cuts across the organization.

Heavyweights on the U.S. exchanges underperformed the index during November. SunEdison and TerraForm Power were punished by investors, finishing the month down 56% and 62% after announcing a strategic shift to slow growth and focus on cash generating opportunities, while cutting headcount to rein in costs. First Solar and SunPower fell 1% and 11% in sympathy with SunEdison and its yieldcos.

Author: Adam Krop, The Trout Group LLC

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October 2015: Global demand rebound

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NYSE Bloomberg Solar Energy Index: Strong China volume growth and upward guidance from some U.S. heavyweights drive index bounce back.

The NYSE Bloomberg Solar Index bounced back 13% in October after five consecutive months of down performance. The positive performance was supported by 3Q15 reports from western heavyweights, including strong results at SunPower and First Solar late in the month. SolarCity, however, disappointed investors in its 3Q15 report and 4Q15 guidance. Headlines from China’s National Energy Administration (NEA) helped buoy Chinese constituents. The NEA indicated it expected solar installations to reach 150 GW by 2020, up from 36 GW in mid-2015. In addition, the NEA announced solar installations more than doubled in the first nine months of 2015 to 9.9 GW from 3.8 GW during the same period in 2014.

Each month, we examine the drivers of solar stock performance for the heavyweight components across geographies in the index. During the month of October, the vast majority of companies posted positive performances on strong market demand headlines. GCL Polysilicon was up 8% on implications that polysilicon prices will be supported by China’s decision to impose duties on polysilicon imports. Sungrow, the Chinese inverter manufacturer, was up 15% on strong demand in its domestic market and new orders in other Asian markets.

On the European exchanges, SMA Solar added another 12% as sales and volume momentum continued throughout the month. Bluefield Solar Income Fund and Foresight Solar Fund were up 4% and 2% in October despite evaporating subsidies in the U.K. and yieldco uncertainty in the U.S.

Heavyweights on the U.S. exchanges outperformed the index during October. First Solar soared 34% after reporting 3Q15 revenue and EPS ahead of expectations and raising 2015 guidance. Similarly, SunPower jumped 34% after beating 3Q15 estimates and raising 2015 EBITDA forecasts. On the other hand, SolarCity plunged 31% after reporting 3Q15 and guiding 4Q15 below Consensus. The Company stated it will focus on cost reduction and generating positive cash flows in 2016. Most Chinese ADSs outperformed the index on the strong growth headlines in China.

Author: Adam Krop, The Trout Group LLC

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September 2015: Yieldco meltdown

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NYSE Bloomberg Solar Energy Index: Investor sentiment sours on the yieldco model, pulling down index performance. Chinese constituents offset performance from western peers.

The NYSE Bloomberg Solar Index slid another 6% in September with the majority of U.S. traded stocks in the red. Constituents traded on Asian exchanges offset weak performances from their western peers. U.S.-traded stocks were weighed down by weakening investor sentiment in the yieldco group where investors were spooked by the combination of a flood of IPOs and secondary offerings as well as rising interest rate concerns. The ensuing decline in yieldco stock prices created increased dilution risk and brought growth assumptions into question at U.S. solar companies. However, the market turmoil was in stark contrast to industry anecdotes at the Solar Power International industry conference. There, sour investor sentiment was met with positive outlooks on demand in key markets, stable component pricing and ample project financing availability.

Every month, we examine the drivers of solar stock performance for the heavyweight components across geographies in the index. During the month of September, companies exposed to the yieldco model felt the most pressure, while most heavyweights traded on Asian exchanges played a supporting role for the index. GCL Polysilicon was up 20% after announcing the $502 million sale of its non-solar business. Sungrow, the Chinese inverter manufacturer, was up 25% on the back of strong demand in its domestic market.

On the European exchanges, SMA Solar continued to buck the trend, adding another 11% after raising its 2015 sales and earnings forecast again. Meyer Burger was down 21%, trading in sympathy with other western peers.

Heavyweights on the U.S. exchanges underperformed the index during September. First Solar and SunEdison were down 11% and 31% respectively on the yieldco uncertainty. SolarCity gave up 11% despite announcing a new $400m financing arrangement with an institutional investor. Sunpower was down 17% as investors evaluated growth assumptions in light of the yieldco crash. Most Chinese ADSs outperformed the index likely due to less exposure to the yieldco model.

Author: Adam Krop, The Trout Group LLC

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August 2015: Entering negative territory

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NYSE Bloomberg Solar Energy Index: Flagging economic growth in China and soft second quarter reports drive the largest monthly decline registered so far in 2015.

The NYSE Bloomberg Solar Index plummeted 17% in August, continuing the trend that started in April. Roughly 90% of index constituents were in the red as several macroeconomic themes weighed on stock prices. New concerns about economic growth in China pressured the index as factory output and asset investment came in below expectations for August. In addition, several solar project developers in China noted that they were receiving less than expected from industry regulator’s subsidy policies. In the U.K., regulators made another move to dramatically cut subsidy support to small-scale solar, which is expected to hamstring growth in that country. On the 2Q15 earnings front, certain industry bellwethers reported results below expectations, which created more drag on the index.

Every month, we examine the drivers of solar stock performance for the heavyweight components across geographies in the index. Heavyweights traded on Asian exchanges were weak after the disappointing economic growth metrics and some company specific concerns. Tianjin Zhonghuan Semiconductor tumbled 29% on the slowing economic growth headlines. GCL Polysilicon gave up 21% after reporting a drop in 2Q15 profits as polysilicon prices dipped. On the European exchanges, SMA Solar continued to buck the trend, adding another 17% after reporting strong 1H15 revenue growth and break-even EBIT expectations for full year 2015. Meyer Burger was down 6% despite improving 1H15 results versus the prior period and confirming 2015 financial targets.

The heavyweights on the U.S. exchanges largely turned in weak performances during the month. However, First Solar was in the minority with an 8% boost on a strong 2Q15 earnings performance and increased 2015 volume guidance. SunEdison cratered 55% after reporting higher than expected 2Q15 losses and increasingly aggressive debt levels. SolarCity fell 17%, erasing gains from the completion of its most recent securitization offering. The majority of Chinese ADSs were in the red, with Canadian Solar and Trina Solar down 30% and 7% respectively on the flagging economic growth in China.

Author: Adam Krop, The Trout Group LLC

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July 2015: Downward trend continues

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NYSE Bloomberg Solar Energy Index: Markets heading south amid China concerns and a flood of new capital. M&A and capital raising activity robust.

The NYSE Bloomberg Solar Index gave up another 11% in July as new concerns surfaced in China and numerous corporate capital raises flooded the market. Roughly two-thirds of index constituents were in the red. The Chinese market was again in the crosshairs after the National Energy Administration announced solar capacity was idled due to concerns of stability of the local power grids. In addition, Hanergy shares were officially suspended after an investigation into the disclosures of the company.

In Europe, the U.K. announced another cut to solar subsidies on the heels of a cut in April for installations that are greater than 5MW, creating more uncertainty in that market. Headlines from China, the U.S. and Japan continued to appear regarding pledges to curb greenhouse gas emissions prior to the December climate talks in Paris. Acquisition activity in the space was reported to reach a record high with several deals announced during the month as buyers focused on feeding project pipeline growth.

Solar stocks traded on Asian exchanges were weak after the NEA grid congestion announcement and some company specific concerns. Hanergy was officially suspended by the Hong Kong Securities and Futures Commission after an investigation into the disclosures of the company. GCL Polysilicon was down 12% after issuing $225m in convertible bonds. On the European exchanges, SMA Solar continued to outperform, jumping 49% after raising its revenue and EBIT forecast for the current fiscal year on strong demand in North America. REC Silicon was down 16% after missing 2Q15 estimates, cutting polysilicon capacity in Moses Lake and completing a private placement of shares.

The heavyweights on the US exchanges turned in mixed performances during the month. SunEdison fell 22% after more aggressive activity on the acquisition front, including the acquisition of Vivint Solar, Invenergy wind portfolio and the UK’s Mark Group; investors began to raise eyebrows on rising debt levels. SunPower was down 5% despite beating 2Q15 profit estimates and stronger than expected 3Q15 guidance. SolarCity bucked the trend, adding 8% after the announcement of another $124m proposed securitization. The majority of Chinese ADSs were in the red, with Canadian Solar and Trina Solar down 6% and 18% respectively on the NEA announcement referenced above.

Author: Adam Krop, The Trout Group LLC

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June 2015: Continued pressure

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NYSE Bloomberg Solar Energy Index: Hanergy halted, Yingli liquidity concerns and Japan moves to cut subsidies.

The NYSE Bloomberg Solar Index continued to struggle in June, falling 17% on headwinds in key Asian markets. Top weighted Hanergy was halted in May after being a target of a probe from Hong Kong regulators. Yingli Green Energy cast a pall on the China-based solar group as it contended with liquidity concerns and the potential for more stringent lending policy. Japan, one of the largest global solar markets, announced it will move to cut solar subsidies to boost support of other renewables. On the positive side, regulators in India and Australia advanced solar policy by identifying solar installation plans and goals. Despite mixed headlines, several downstream solar companies continued to assess the US IPO window as 8point3 Energy Partners went to market.

Solar stocks traded on Asian exchanges weighed on the index in June. Hanergy remained halted while the Hong Kong Securities and Futures Commission investigate the affairs of the company. GCL Polysilicon was down 14% after announcing a proposed new issue of bonds. On the European exchanges, companies rode the media buzz from Intersolar Europe in Munich. Meyer Burger Technology added another 8% on more new equipment orders during the month. SMA Solar continued on a path to recovery, adding 20% after announcing a partnership with Siemens and other innovations in new applications at Intersolar.

The major constituents traded on U.S. exchanges turned in lackluster performances during the month. SunEdison was flat as it continued a strong M&A campaign. First Solar was down 5%, despite achieving world record thin film module conversion efficiency and pricing its IPO for 8point3, a yieldco formed in conjunction with SunPower. SolarCity fell 11% on a quiet month for company-specific news flow. The majority of Chinese ADSs were in the red, with Canadian Solar and Trina Solar down 12% and 6%, respectively, after liquidity concerns from Yingli projected uncertainty on the near-term lending environment in China.

Author: Adam Krop, The Trout Group LLC

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May 2015: Headwinds for China

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NYSE Bloomberg Solar Energy Index: The Hanergy probe, GCL component pricing and Yingli going concern issue serves to fuel the decline.

The NYSE Bloomberg Solar Index gave up ground for the first time in 2015, falling 5% in the month of May. Top-weighted Hanergy was the main driver, plummeting after Hong Kong officials confirmed a formal investigation into the trading activity of the company. Yingli Green Energy also put pressure on the index after announcing “substantial doubt” to continue as a going concern in its 2014 20-F filing. Offsetting these headwinds, Southeast Asia stepped up on the policy front as Vietnam looked to adopt FITs, and Taiwan announced a goal to triple installed renewable capacity. In addition, SunEdison helped prop up the index after it announced plans to launch a second yieldco with an emerging markets focus.

Solar stocks traded on Asian exchanges weighed on the index in May. Top-weighted Hanergy Thin Film Power Group plummeted 46% (and $19 billion of market value) after Hong Kong officials announced a probe into the affairs of the company. GCL Polysilicon dipped 12% after reporting a weak pricing environment and inventory build in Q1 2015. On the European exchanges, Meyer Burger Technology climbed another 17% after announcing new equipment orders during the month. SMA Solar continued to recover, adding 24% after reporting stronger than expected Q1 2015 revenue and EBITDA.

The major constituents traded on U.S. exchanges turned in mixed performances during the month. SunEdison jumped 18% after solid Q1 2015 results and filing a registration statement for a second yieldco with an emerging markets focus. First Solar was down 17% after reporting Q1 2015 revenue below expectations as projects were held ahead of its proposed JV yieldco with Sunpower. SolarCity was flat after reporting in-line Q1 2015 results and new cash valuation metrics. The majority of Chinese ADSs were in the red, with Canadian Solar and Yingli Green Energy down 8% and 45% respectively after Yingli disclosed in its 20-F that there is “substantial doubt” that it will continue as a going concern.

Author: Adam Krop, The Trout Group LLC

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April 2015: A healthy ride

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NYSE Bloomberg Solar Energy Index: SolarCity’s energy storage launch augments investor interest, with 2015 volumes looking positive.

The NYSE Bloomberg Solar Index posted another positive performance in April, adding 9% in the period. As a solid 4Q14 earnings period wound down, the early reporting companies began to issue mixed 1Q15 results. Top-weighted Hanergy was again a contributor to the positive index performance, despite announcing plans for a new share issuance. On the policy front, Japan proposed a target of a 20% reduction in emissions by 2030 ahead of the June G7 summit in Germany. In addition, Latin American countries continued to support solar: Mexico set a national energy production target of 5% renewables by 2018 (below an initial draft goal of ~8%) and Brazil announced the establishment of a US$6.5b fund to finance wind and solar projects. The month was capped off with SolarCity’s launch of its energy storage offering Solar stocks traded on Asian exchanges were generally on the positive side and carried the index performance during the month. Top-weighted Hanergy Thin Film Power Group was up 3%. Tianjin Zhonghuan Semiconductor Co Ltd popped 49% after announcing a partnership with Apple and Sunpower to develop solar projects in China.

On the European exchanges, Meyer Burger Technology clawed back 8% after entering into a strategic collaboration with leading French research center, CEA to develop next generation HJT equipment and SmartWire Connection technology. SMA Solar bounced back 17% on minimal April news flow after several months of weak performance.

The major constituents traded on U.S. exchanges turned in mixed performances in April. SunEdison added 6% as it continued to execute on its project pipeline. First Solar was unchanged. SolarCity jumped 17% on the month on the back of its energy storage launch with the Tesla Powerwall battery pack. The majority of Chinese ADSs were in the black, with Canadian Solar and Trina Solar up 6% and 1% respectively.

Author: Adam Krop, The Trout Group LLC

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March 2015: On the positive side

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NYSE Bloomberg Solar Energy Index: Top-weighted Hanergy reports profitable 2014, carrying index higher.

The NYSE Bloomberg Solar Index rode a number of positive data points during the month of March and, as a result, finished up a substantial 23%. A solid 4Q14 earnings period wound down with two Chinese heavyweights issuing favorable 2015 outlooks. Top-weighted Hanergy put up another strong stock performance, but this time was backed up by a profitable 2014 earnings announcement. Demand headlines remained active: India issued bidding guidelines for 3 GW of solar projects, China’s NEA announced expectations of 18 GW of solar in 2015, Scandinavian countries boosted renewable energy targets, while Mexico pledged a 25% cut to its emissions. The month was capped off by the successful IPO of SolarEdge, a key module level power electronics (MLPE) player.

Solar stocks traded on Asian exchanges were generally on the positive side and carried the index performance during the month. Top-weighted Hanergy Thin Film Power Group popped another 54% after it reported a surge in 2014 net income on the sale of five solar projects in China. GCL Polysilicon added 10% after reporting a strong 2014 and forecasting a return to profitability in 2015. On the European exchanges, SMA Solar resumed a decline, falling 4% after reporting Q4 14 and confirming it will not return to profitability in 2015 as volumes continue to flag. Meyer Burger Technology gave up 14% on soft 2014 results, which included losses from the GT Advanced Technologies insolvency, and an ambitious break-even EBITDA outlook for 2015.

Most constituents traded on U.S. exchanges underperformed the index. SunEdison added 8% as it continued to execute on its project pipeline and expand its energy storage solutions. First Solar was unchanged after it announced the public filing of a registration statement for its yieldco, a limited partnership with SunPower. SolarCity was unchanged on the month despite expanding into new states and launching its microgrid product, GridLogic. The majority of Chinese ADSs were in the black on the updated NEA demand projections, with Canadian Solar and Trina Solar up 13% and 16% respectively.

Author: Adam Krop, The Trout Group LLC

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