67 WALL STREET, New York - August 27, 2012 - The Wall Street Transcript has just published its Utilities, Alternative Energy and Water Services Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Outlook for Biofuels and Biochemicals - Asia Pacific Demand for Solar Energy - Grid Parity Timelines for Alternative Energy - Water Infrastructure Development - Irrigation and Metering Technology - Water Industry Consolidation
Companies include: Real Goods Solar, Inc. (RSOL), General Electric Co. (GE), Siemens AG (SI), Echelon Corporation (ELON), Sasol Ltd. (SSL) and many others.
In the following excerpt from an interview in the Utilities, Alternative Energy and Water Services Report, an expert analyst from Raymond James & Associates discusses the outlook for the sector:
TWST: You've recently become slightly more positive on solar. Please tell us why. Also, which companies do you believe are the best plays on solar?
Mr. Molchanov: The reality that the solar manufacturing arena is facing structural and severe oversupply has actually not changed at all in the last six to 12 months. Whether it got worse or is about the same, I suppose, is debatable, but it remains an extremely tough market. Unfortunately, for investors, most of the publicly traded companies in the solar value chain are the manufacturers - in other words, the very companies that are facing significant oversupply - and as a result, persistent margin pressures - and in many cases, negative earnings and even negative cash flow.
The most interesting dynamics in the solar value chain are happening outside of the manufacturing arena and specifically on the downstream of the value chain - in other words, financing, installation, marketing and customer engagement. The problem is that these are overwhelmingly privately held companies.
There is one public company, very small, that is a pure play on the demand side of the equation rather than the supply side. Real Goods Solar (RSOL) is a solar installer for residential and small business customers headquartered in Colorado but operating in California and throughout the United States. Again, a very small company with limited share liquidity. So for many investors it may be difficult to buy the stock, but it is, for the time being, just about the only U.S.-traded pure play of its kind.
There should eventually be an IPO of a company called SolarCity. SolarCity is the largest solar installer in the United States, and Real Goods is the second largest. SolarCity has said that they are aiming to go public. We don't know when, of course, and we also don't know what the financial metrics look like, but I think the SolarCity story could be quite interesting for a lot of investors, precisely because it will be another pure play on the downstream of the value chain.
Going back to manufacturing, like I said, most of the publicly traded companies are commodity manufacturers - that is to say, companies that make the wafers, the cells or the finished products, the modules. That's precisely where the oversupply and the margin pressures are.
There are a few exceptions to that - in other words, manufacturers that do not produce a commodity product. One good example that actually went public just in March is Enphase Energy (ENPH). Enphase is a unique pure play on microinverters. What is a microinverter? It is a replacement to a traditional solar inverter, and just about every installed PV system has to have an inverter of one kind or another to take DC power and convert it into AC power for the grid. Microinverters are a cutting-edge product that brings smart grid functionality and advanced communications into the solar arena. Microinverters boost power output of PV systems and improve project IRRs by between 1% and 2%.
The target market is residential and small commercial systems - in other words, this is not for large solar farms. Because microinverters are a very new technology with a narrow set of competitors, Enphase is emphatically not a commodity company. In fact, it is the world's only major producer of microinverters. There are other companies developing this product, and a few have started selling commercially, but Enphase is really the only major one. That's why in the context of declining industry margins and flat to down revenue, Enphase in 2012 is poised to grow top line by about 60%, and perhaps, even more impressively, should improve its gross margin by several percentage points.
TWST: In your recent industry report, you wrote it is important to debunk the myth that a temporary period of depressed oil prices marks the death knell for these emerging technologies. Would you elaborate? What do you believe will be the impact of oil prices on alternative fuel companies?
For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.