Alt-Energy Stock Outlook - Sept. 2015
Environmental considerations have been driving demand for alternative energy sources.
Per the International Energy Agency, the share of renewables in total power generation is expected to rise to 33% in 2040 from 21% in 2012 globally. Again, a U.S. Energy Information Administration (“EIA”) report reveals that electricity generation from renewable sources is projected to increase to 18% by 2040 in the U.S. with renewables accounting for 9.8% of total power consumption in 2014. For 2016, growth in renewables consumption for electric power and heat generation is projected to increase at a rate of 5.8%.
These favorable demand growth trends notwithstanding, the EIA’s weak projection (down 3.5%) for total renewables used in the electric power sector in 2015, the abundant availability of fossil fuels and the resultant drop in oil prices have emerged as key competitive challenges for the industry. The industry’s long-term fundamentals nevertheless remain favorable.
Below we discuss some of the major alternative energy sources:
Solar
A major growth area in the renewable space is solar energy. An EIA report indicates continued growth in utility-scale solar power generation, which is projected to average almost 89 gigawatt (“GW”) hours per day in 2016. In spite of a rapid uptake, solar will still be just 0.8% of total U.S. utility-scale generation in 2016, indicating room for immense growth.
Solar growth has historically been concentrated in customer-sited distributed generation installations. The EIA expects utility-scale solar capacity to expand over 100% between 2014 and the end of 2016, with about 37% of this new capacity being built in California.
Per the latest report released by the Solar Energy Industries Association (“SEIA”), the U.S. trade association of approximately 1,000 companies in the solar energy industry, the U.S. solar energy industry grew 8.7% year over year to reach 1,393 megawatt (“MW”) DC in the second quarter 2015. This is a landmark for the market, with cumulative installations reaching the 20 GW DC mark, buoyed by strong contributions from each of three segments: utility, commercial and residential.
Particularly, the residential market grew 70% year over year, setting a new quarterly record.
The SEIA expects the U.S. PV market in 2015 to witness yet another strong year with installations reaching 7.7 GW DC, representing a 24% increase over 2014.
Solar in China: China has established itself as the world’s largest market for solar panels and will likely be the home to a quarter of the planet’s new energy capacity from solar panels in 2015, according to a new report from GTM Research. China is speedily adding as much power generation as possible, and solar is just one source of new energy generation in the country.
The Chinese National Energy Administration or NEA has set an ambitious goal of installing 17.8 GW of solar capacity in 2015, which is about 18.7% higher than the previous 15 GW proposal announced in February. The NEA has called on local governments of all regions to focus on distributed generation.
China has also pledged to attain peak carbon emissions by 2030 or earlier if possible. The country has set a daunting goal of boosting the share of non-fossil fuels to 20% of its energy mix by 2030.
The following leading Chinese solar stocks are sure to make the most of the favorable government stimulus: JinkoSolar Holding Co., Ltd. (JKS), JA Solar Holdings. Inc. (JASO) and Trina Solar Ltd. (TSL).
Ontario, Canada-based solar product manufacturer Canadian Solar Inc. (CSIQ) is also well positioned with its diversified manufacturing base and project portfolio in Canada, China, Japan and the U.S.
Wind
The American Wind Energy Association (“AWEA”) reported that the U.S. wind industry installed 1,661 MW during the second quarter of 2015, bringing the first half 2015 installations to 1,994 MW. This is more than double the capacity installed in the first half of 2014. This brought the total installed capacity to 67,870 MW. Nearly a record level of wind capacity of over 13,600 MW is currently under construction. The majority of wind construction activity continues to be focused in Texas.
As per the EIA, wind capacity grew by 8.1% in 2014 and it is expected to increase by 12% in 2015 and 13% in 2016. The EIA expects wind capacity to expand twofold as compared to solar as the former is starting from a much larger base than the latter: 18 GW of wind versus 11 GW of utility-scale solar between 2014 and 2016.
Hydro
Hydropower is considered 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.
Hydropower is also the cheapest source of electricity as it has the lowest cost per kilowatt hour compared to all other sources. More importantly, hydropower is independent of the volatile movement in fuel costs. The EIA projects that conventional hydropower generation will decrease by 10.4%, while non-hydropower renewables used for electricity and heat generation will grow by approximately 3.2% in 2015. Although the decrease in hydropower generation is due to the adverse impact of the Californian drought, the figure will likely return to 9.2% growth in 2016.
Zacks Industry Rank – Mixed Outlook
We rank all the 257-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 Zacks Industry Rank. https://www.zacks.com/stocks/industry-rank
The way to look at the complete list of 257+ 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 #54 out of 257. This corresponds to the top one-third of the list, implying a positive outlook.
The Zacks Industry Rank for the Other Alternative industry is #184 out of 257. This puts the industry in the bottom one-third of all industries. The decline in oil prices has made renewable energy stocks unattractive, dragging down both U.S. and Chinese solar stocks on the whole.
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).
JA Solar Holdings, ReneSola Ltd. (SOL) and SolarEdge Technologies, Inc. (SEDG) carry a Zacks Rank #1 (Strong Buy), whereas Vestas Wind Systems A/S (VWDRY) holds a Zacks Rank #2 (Buy).
We remain apprehensive of the Zacks Ranked #4 (Sell) stocks Hydrogenics Corporation (HYGS), Quantum Fuel Systems Technologies Worldwide Inc. (QTWW), Ormat Technologies Inc. (ORA), STR Holdings, Inc. (STRI) and Yingli Green Energy Holding Co. Ltd. (YGE).
EARNINGS TRENDS
As far as the overall results of the alternative energy industry were concerned, the second quarter of 2015 was quite impressive. A number of solar power stocks came up with higher earnings last season, while a few plunged considerably from the year-ago level.
In spite of sluggish numbers from SunPower Corp. (SPWR), SunEdison Inc. (SUNE) and Canadian Solar, earnings from First Solar Inc. (FSLR), JA Solar, JinkoSolar and Trina Solar along with a narrower-than-expected loss at ReneSola were particularly encouraging, spreading optimism in the broad sector.
The top rooftop solar installer in the U.S. -- SolarCity Corp. (SCTY) -- posted a wider loss in the second quarter given rising expenses. Yet, its revenues soared 67.7% year over year and the company reported record bookings and installations for the quarter.
For 2015, we expect solar companies to witness an impressive year with more emphasis on installations. The companies seem to be channeling most of their revenues into installations ahead of the solar-tax credit cut in 2017.
For more information about earnings for this sector and others, please read our Earnings Trends report.
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YINGLI GREEN EN (YGE): Free Stock Analysis Report
VESTAS WIND SYS (VWDRY): Free Stock Analysis Report
TRINA SOLAR LTD (TSL): Free Stock Analysis Report
SUNEDISON INC (SUNE): Free Stock Analysis Report
STR HOLDINGS (STRI): Free Stock Analysis Report
SUNPOWER CORP-A (SPWR): Free Stock Analysis Report
RENESOLA LT-ADR (SOL): Free Stock Analysis Report
SOLAREDGE TECH (SEDG): Free Stock Analysis Report
SOLARCITY CORP (SCTY): Free Stock Analysis Report
QUANTUM FUEL SY (QTWW): Free Stock Analysis Report
ORMAT TECH INC (ORA): Free Stock Analysis Report
JINKOSOLAR HLDG (JKS): Free Stock Analysis Report
JA SOLAR HOLDGS (JASO): Free Stock Analysis Report
HYDROGENICS CP (HYGS): Free Stock Analysis Report
FIRST SOLAR INC (FSLR): Free Stock Analysis Report
CANADIAN SOLAR (CSIQ): Free Stock Analysis Report
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