With great fanfare, congress passed a blockbuster $1.8 trillion spending bill in December. President Obama hastily signed the bill into law the next day.
Barley noticed was a measure included in the bill, which extends the 30% investment tax credit for alternative energy investments by five more years, until the end of 2021.
Barely, that is, unless you owned solar stocks.
Since the intention to include this pet democratic program started leaking out in November, shares of the entire industry doubled in value.
Solar City (SCTY) rocketed by 136%. First Solar (FSLR) soared by 81%. Even the normally quiescent Guggenheim Solar ETF (TAN) gained an impressive 28%.
Since then, these shares have given up a big chunk of their gains, thanks to the ongoing stock market correction. Better look hard at this group. They could become one of the top performers this year.
In exchange for the solar extension, the president agreed to permit oil exports for the first time in 40 years. The fact that the country has run out of storage and already has 50 filled takers sitting offshore in the Gulf of Mexico makes this an easy move.
House Minority leader, Nancy Pelosi, my local congressperson, told me the republicans were willing to ?Give away the store? to get the export measure through.
It seems that the Koch Brothers, the republican party?s largest donors and funders of global warming deniers, wanted to use the oil export measure as the means to offshore the entire US petrochemical industry.
It is headed for emerging nations, where labor is cheaper, taxes are lower, and regulation nil. That means the loss of tens of thousands of US jobs, many in California, over which Pelosi complained.
Pelosi complaining about the loss of petrochemical jobs? It?s proof that if you live long enough, you see everything.
Whatever jobs the Golden State loses here, it will make back with solar, big time. Industry analysts estimate that the five-year extension is worth a STAGGERING $125 BILLION IN ADDITIONAL SALES!
That is a multiple of the entire solar industry?s current total annual sales.
What?s more, this is five years during which the solar industry can dramatically improve panel output efficiencies, inverters, designs, and cut costs (remember that the cost of labor and regulation, about half the cost of a solar installation, is still rising).
Solar is already close to grid parity on costs now. It is even competitive in Texas. It will be substantially cheaper in five years.
During the same time, the cost of grid power will keep rising continuously, thanks to rising capital cost of replacing aging infrastructure.
I?m not saying you should rush out and buy solar today. But when the bull market resumes later this year, this group should be at the top of your list.
As for me, I am already getting estimates for a doubling of my existing solar roof system to accommodate the charging of my second Tesla, the Model X.
To learn all the ins and outs of buying and installing a solar roof system for you self, please read ?How to Buy a Solar System? by clicking here.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/10/John-Thomas-Solar-Panal-e1444422199491.jpg296400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2016-01-19 01:08:582016-01-19 01:08:58The Game Changer for Solar
I?ll never forget those immortal words for the hit musical Hair, where I took my senior prom date in 1970.
I had no idea that the entire cast would drop their clothes off at the end of the first act, standing there stark naked. I remember that they guy sitting in front of me almost hard a heart attack. I didn?t know then that such words existed.
My date?s dad would not have been amused.
He was the legendary founder of Wham-O, marketer of famed novelty toys like the Frisbee, the hula-hoop, the Slinky, the Super Ball, and the Slip?n Slide, a multi millionaire, and a famed African lion hunter.
He was a real tough guy.
But he never found out. There were a lot of things he never found out, thank goodness!
But I digress.
I?m sure that California Governor Jerry Brown was humming a few bars of Let the Sunshine In this week, although I doubt he ever saw the play.
Back then, he had just graduated from divinity school as a Jesuit priest (click here for my exclusive interview with the Moon Beam governor ?An Afternoon with California Governor Jerry Brown?.
But the words would have been appropriate, for my illustrious neighbor with the great security detail signed a bill this week that brings into law the most ambitious alternative energy goals seen anywhere in the world.
Jerry?s aspiration is for the Golden State TO OBTAIN 50% OF ITS ELECTRICITY NEEDS BY 2030, IN A MERE 15 YEARS!
In 2014, the state garnered an already impressive 22% of its electricity from non hydro renewables, including solar, wind, biomass, and geothermal sources, already the highest share in the world for a major economy.
There has not been a traditional coal fired electric power plant in the state for more than a decade.
Also included in the legislation are provisions to double the energy efficiencies of homes, offices, and factories. Another goal to cut gasoline consumption by half was axed from the measure after heavy lobbying by big oil.
Lucky for me that I?m already there with my new SunPower Solar installation (click here for ?How to Buy a Solar System? ).
Jerry thoughtfully signed the bill at the Los Angeles Griffith Park Observatory, which offered a panoramic view of the legendary LA smog, the city barely visible.
Some of it is probably still coating the inside of my lungs from my childhood there in the 1950?s.
My readers in all 50 states and 137 countries are constantly begging me to tell them what the Hell is going on in California.
As a technology and regulatory leader, what is adopted here is often imitated across the country and around the world, both the good, and the bad.
You know those seat belts, safety glass, and catalytic converters you find in your cars? They are all the result of laws first passed in California. But then it?s always easy to pile regulation on the industries entirely based out of state.
It doesn?t always work out so well. Adolph Hitler entirely imported the state?s racial purity laws to Germany during the 1930?s, and we all know where that went.
But that is a story for another day.
Of course, there are many who say that the lofty 50% target is unobtainable, or will drive us all broke if we ever get there.
But there is one fact that is utterly undeniable. This will be an absolute windfall of the US solar industry, which has the only technology advanced enough to meet governor Brown?s aggressive targets.
There is, in effect, a solar Moore?s Law that sees efficiencies per dollar spent doubling every four years, such as we have already seen with the faster growth of microprocessor efficiencies since the 1960?s.
Exponential growth of efficiencies will bring exponential growth of company profits.
Annual installations of photovoltaic panels have soared from a token 0.3 gigawatts in 2000 to an impressive 45 gigawatts in 2014, more than enough to fuel 7.4 million American homes.
They are about to grow much larger.
This is all happening because of the simultaneous maturing and cross-pollination of technology, regulation, financing, and venture capital.
A key development was the Chinese entry into mass production of solar panels during the late 2000?s, which led to a near immediate 80% collapse in prices. They now control 70% of the global market.
For the first time in history, solar power is now cheaper than grid power on a non-subsidized basis. Costs are set to still fall dramatically from here.
Fossil fuels are about to become, well?fossils.
The Paris based International Energy Agency, no slouch when it comes to analyzing power data, predicts that solar will account for 27% of the global supply by 2050, and will become the biggest single source.
But futurologist friends of mine, like Tesla?s (TSLA) Elon Musk, Google?s head of engineering, Ray Kurzweil, and cosmologist Dr. Stephen Hawking, believe there is no reason why it shouldn?t be at 100% by 2030-35.
To quote Kurzweil, ?we are only six more doublings away.?
Hillary Clinton wants nothing less than to eliminate all oil and gas tax subsidies worth $100?s of billions, and shift the money to alternatives.
That is a radical move.
Her goal is to increase the solar share of American power generation to 33% by 2027. To expect that this will cause the shares of solar companies to skyrocket is an understatement of the highest order.
Improving solar cell efficiencies promises to take us further and faster into this brave new world.
My own SunPower (SPWR) X-335 panels, with their patented Maxeon solar cells (made in Georgia), convert 20.3% of the sunlight they receive into electricity, the highest in the industry. Cheap imported Chinese panels offer efficiencies as low as 15%.
University labs have perfect cells with 45% efficiencies using advanced silicon compounds. I happen to know that the military has a 65% efficient cell. All that remains are the economies of mass production to bring them to the public market.
This is crucial for the solarization of the global economy. Every 1% improvement in efficiencies cuts that total cost of a new installed system by 5%.
With the trends already in place, it is safe to assume that solar energy costs will fall by at least 10% a year for the foreseeable future.
What are the investment implications of all this? Clearly, the solar industry is about to see its market size increase 30 fold.
Here is the great thing about solar shares.
They have been mercilessly beaten down by the recent collapse in oil prices, which is trading at the $30 handle as I write this, even though its business prospects are vastly improving.
Oil is giving you a once in a lifetime entry point into solar.
Call it guilt by association. Isn?t energy just energy.
These investment plays are the obvious ones that I have been recommending for the past couple of years. They include Solar City (SCTY), First Solar (FSLR), SunPower (SPWR), and more recently, Sun Edison (SUNE).
If you want a broader diversification, you can buy the (TAN).
https://www.madhedgefundtrader.com/wp-content/uploads/2015/10/John-Thomas-Solar-Panal-e1444422199491.jpg296400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-10-12 01:06:002015-10-12 01:06:00Let the Sunshine In!
I am writing this to you from a dive boat headed for the Molokini Crater off the coast of Maui in Hawaii. The rolling of the boat makes typing challenging, so please excuse me for more than the usual number of typos.
In the distance farmers are burning off their harvested cane fields, creating giant plumes of smoke, a practice banned in the continental US decades ago.
A pod of dolphins are racing the bow of the boat and humpback whales are blowing their spouts on the horizon. Periodically, the boat scares up a school of flying fish going airborne to find safety.
Life is good.
Another thing I have noticed cruising off the Maui leeward coast is that almost every building has solar roof panels. Of course, the incentive here is huge, as costly imported fuel for power plants makes electricity in Hawaii 20%-50% more expensive than it is on the mainland.
By now, you probably are sick to death of my banging on about the fantastic investment opportunities in the solar industry. But I am not recommending the sector because I wear Birkenstocks, eat organic bean sprouts and recycle even my vegetable waste. Putting money into solar now also makes solid business sense.
Did I also mention that it prevents millions of tons of carbon from entering the atmosphere, or about 5 tons per household per year?
With the stocks expected to rise by ten times over the next decade, you better get ready for more abuse. The solar industry is about to cross an epochal, sea changing benchmark.
Thanks in part to heavy competition from China, South Korea and Japan, the cost of solar panels has collapsed by 75% over the past four years.
Indeed, Chinese flooding of the US market with cheap imported panels almost wiped out every American producer. If you don?t believe me, then check out the long-term stock charts.
More importantly, the cost of industrial, utility sized solar power plants has fallen by 50%.
Only four years ago, large solar power plants made economic sense only after heavy government subsidies were included. They were all part of a ?stimulate the economy and save the world? philosophy demanded by the global economic collapse.
Now we are about to attain the Holy Grail: solar that is profitable on a stand-alone basis.
Don?t get me wrong. Subsidies are nice, as the oil and gas industry well know. I have been sidling up to the trough myself lately with my own solar projects (more on that in a future research piece). But subsidies are no longer the lifeblood of the business.
The economics of solar roof installations are now so compelling, that they are going up everywhere across the country. In fact, everyone on my street has one except me.
That is because the technology, which I keep close track of, is evolving so quickly that it has paid to wait. I did the same when I skipped six track tapes and waited for eight tracks ones, ignored Betamax in favor of VHS, and passed on Windows 1 (which always froze), but soaked up Windows 2.
A solar installation now also protects you from the hefty price increases that will be demanded by your local utility to pay for long overdue infrastructure upgrades.
I am also holding out for the best possible deal (you know me). With one Tesla Model S in the garage, and a Model X on order, I also happen to be one of the largest residential electric power consumers in the state. So, we?re not talking small beer here.
This is starting to have a sizeable impact on the American electricity market. A reader who works for Southern California Edison (SCE/PF) has told me that the cumulative effect of millions of home silicon roof panels is now so great that the traditional daily afternoon power demand spike is starting to disappear.
Even Saudi Arabia is building solar plants now, and they have access to nearly unlimited crude at a mere $5 a barrel.
The Spanish engineering company TSK has just signed a contract with Dubai to build a sizeable, state of the art 100-megawatt photovoltaic plant. The production costs there will work out to just $5.85 a kilowatt hour.
For oil to be competitive with this capital cost, the price would have to stay under $50 a barrel for the next 20 years. Technological advances on stream will make solar competitive at $20 a barrel in a year or two. This explains why some $2.7 billion worth of solar contracts with the Middle East are currently in negotiation.
Oil poor states are rushing even faster to the solar panacea. Jordan is planning to obtain 20% of its power from alternative sources by 2020, while Egypt has set a more ambitious 20% target. Morocco, which I will be visiting this summer, is the most aggressive, with an impressive 42% goal.
All of the means dramatically falling costs and soaring revenue for the solar companies. That sounds like a great business plan to me.
The usual suspects here include First Solar (FSLR), at $11 billion, the largest capitalized behemoth in the industry, and the master of thin film technology. Their power plant near Las Vegas is a sight to behold from the air.
There is Solar City (SCTY), Elon Musk?s highly competitive entry in the field, which will be able to draw from Tesla?s massive $6 billion giga factory in Reno, Nevada.
Sunpower (SPWR) is the Rolls Royce of the solar industry, producing the highest efficiency rated 340-watt panels (thanks to the pure copper substrate), which I will soon be installing in my own home. Love that biochemistry degree!
You could also go risk averse and buy all of them through the Guggenheim Solar ETF (TAN).
The key here is the price of oil, which has unnecessarily dragged down the shares of solar companies over the past nine months. Once it bottoms, if it has not already done so, it will be off to the races.
While your big cap oil majors might add on 40% in value in any recovery, the solars could be in for a tenfold return.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/04/Molokini-Crater-e1428328695311.jpg268400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-04-06 10:00:322015-04-06 10:00:32The Big Milestone for Solar
Long time solar observers were stunned by the news that First Solar (FSLR) and Sunpower (SPWR) were teaming up to create a joint venture.
The stock market certainly got the message. Sunpower rocketed by 18%, while First Solar soared by 17%.
Imagine Macy?s merging with Gimbels, Coke tying up with Pepsi or the Los Angeles Dodgers teaming up with the San Francisco Giants?
It?s a little more complicated than that.
The move further convinces me that solar is one of the few industries that could offer investors a ten-bagger over the coming decade. Revenues are soaring, costs are plunging.
Throwing the fat on the fire are generous government subsidies that create a massive incentive for consumers to go solar by the end of next year.
The entity that (FSLR) and (SPWR) are forming is known as a ?yieldco.?
A yieldco is a publicly traded company that is formed to own operating assets that produce a predictable cash flow. Separating volatile activities (like research and development and construction) from stable and less volatile cash flows of operating assets can lower the cost of capital.
Yieldcos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizeable stake. They are commonly used in the energy industry, particularly in renewable energy to protect investors against regulatory changes.
Yieldcos are in effect first cousins to other high yielding securities like Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs). Yieldcos give investors a chance to participate in renewable energy without many of the associated risks.
The announcement came on the heels of blowout earnings announced by the two companies. SunPower said it expects to install another 215 megawatts of generation in 2015 and that its project pipeline now totals more than 4,000 megawatts.
First Solar became the first solar photovoltaic (PV) maker to install 10,000 megawatts of capacity last month. Its project pipeline exceeds a monstrous 2,600 megawatts.
A 30% tax credit on any alternative energy investment is set to expire at the end of 2016. I think this will trigger the mother of all stampedes by consumers to buy solar systems while they can still get the government to pick up one third of the tab.
The entire solar industry looks attractive here. Collapsing oil prices has had a leveraged effect on solar shares, dropping them a heart stopping 40% in only three months.
Heaven knows investors are starved for cheap stocks these days.
There is one cautionary note to add here. The government subsidies that help float the company expire in 2017, making the entire proposition financially less attractive. That is, unless they get renewed.
Think President Hillary.
The only things that would save them are dramatically higher conventional energy costs. However, right now energy costs are heading the opposite direction, thanks to fracking and a well-publicized war for market share at OPEC.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/02/Solar-Panels-e1424873952151.jpg221400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-02-25 09:40:052015-02-25 09:40:05Why Solar Stocks are Catching on Fire
Now that the stock market appears destined to soon enter correction territory, I have started searching for industries and companies that I want to buy at the bottom. The solar industry is at the top of that list.
Solar has a been a long time in coming. For decades, it was a niche energy source with very narrow following among scientists, the military, and Greenpeace activists. The problem was that it was just too expensive. It made sense only to those with unlimited budgets (the army), pursuing a political agenda (environmentalists), or when there was no other alternative power source (outer space).
Ironically, what really got the solar bandwagon moving was oil, which saw prices soar to $150 a barrel in 2008. That dramatically raised the breakeven cost of solar. Projects that only existed on paper suddenly made economic sense.
Then, Barack Obama was elected president. One of his first moves was to make available over $100 billion in subsidies for alternative energy projects of every description. All of a sudden, it was off to the races for solar.
This led to the first solar stock market boom in 2009. Some highflyers, like First Solar (FSLR) rose tenfold (it was a favorite ?BUY? recommendation of mine at the time). They were aided by states like sun-drenched California that mandated 20% of power consumption comes from alternative sources, to rise to 30% in the 2020?s.
This created an enormous solar and wind infrastructure throughout the west to meet the state?s voracious needs. Some 29 other states have passed similar laws with varying targets.
I inspected the centerpiece of the state?s solar strategy, flying over the gigantic Ivanpah facility in a wheezing, rented Cessna 172 in the barren, baking, but beautiful Mojave Desert. I brought plenty of extra water bottles and a compass in case I crash-landed and had to walk home.
It all looks like a film set from a science fiction movie, with 347,000 concave mirrors placed in enormous circles focusing light on hot water boilers atop three 460-foot towers. The plant opened in February, 2014 and is generating 377 megawatts of electricity, enough to power 140,000 homes in the Los Angeles area.
Planned a decade ago, the technology is now so primitive that it is unlikely to be ever used again. Far more advanced than film, solar is now taking over the world.
Then China came in and spoiled the party. Overproduction by poorly managed and weakly financed Chinese solar firms using inferior technologies quickly glutted the global market, and solar prices crashed by 80% or more. Many companies did not survive, such as the San Francisco Bay Area?s Solyndra, which defaulted on some $536 million in federal government loans (the feds got $143 million back).
This triggered a Darwinian clearing out of the industry, where only the strongest, the most innovative, and the most desperate survived. Technologies and efficiencies improved. The administration extended a helping hand by slapping hefty anti dumping tariffs on Chinese imports. The industry is lobbying for further restrictions. This all set the stage for a solar renaissance.
For the first time in history, solar is now cost competitive with conventional sources of power on a standalone, unsubsidized basis. As a result, the industry is exploding. In 2013, solar accounted for 29% of new power generation capacity in the US, after quasi-green natural gas, at 46%.
The advent of cheap solar roof panels and ?smart? electric meters in 43 states has enabled individuals to get in on the act. Such devices are now a standard feature on most new high-end homes. They genuinely do save money, especially when considering that utilities will bill you up to 50 cents per kilowatt hour for prime time consumption, compared to their average rate of 11 cents. There have been over 200,000 such installations in the past two years, half in the Golden State.
The Department of Energy wants to see solar grow from 1% of total generation today to 27% by 2050. This is creating the basis for a gigantic industry in the future. Hence, my interest as a long-term equity investor.
All of this will require a complete rethinking of the electric utility industry (XLU), which still uses a volume based business model that has remained unchanged for 120 years. The more they sold the more money they made.
The utility industry has mixed feeling about the new solar revolution. They are going to have to evolve from distributors of power for a single, large, capital-intensive source to an intermediary operation that buys and sells power between millions of users and producers. This is easier said than done, as this is the most conservative of American industries. People run to utilities in a bear market for a reason.
Only the other hand, moving towards solar and other alternatives gets them out of the carbon burning business, either through using coal or oil as fuel. There is not a utility in the country that isn?t swamped by lawsuits from well represented consumers claiming that the byproducts from burning these traditional fuels gave them asthma, lung cancer, or worse.
In the end, it won?t be a desire to save the environment, or the expediency to appear politically correct that will convert utilities to solar. It will be hard-nosed business sense.
The buy on the dip list is fairly short. The front-runner in this industry is the aforementioned First Solar (FSLR), which has been an industry leader for two decades. Not only is their US business booming, they have a gigantic project in western China that promises to spin off profits for years to come.
SunPower Corp (SPWR) has the attraction of a $1 billion order backlog. Or you can go generic and buy the Guggenheim Solar ETF (TAN), which tacked on and impressive 270% last year.
I am less enamored with Solar City (SCTY). It is in the business of installing roof panels on homes. It takes advantage of generous government subsidies and the current ultra low cost of financing to keep prices low.
As much as I applaud the long-term vision of founder, Elon Musk, his association with the company has given it a cult like status. That is good for the share prices, but bad for valuations, which are through the roof. A greater dependence on subsidies could hurt them in the future.
Some formidable challenges lie ahead. In 2017 the government?s investment tax credit for solar drops from 30% to 10%. Other state subsidies are expiring as well. If this coincides with a recession that triggers a collapse in the price of oil, we could be in for another great clearing out.
Hopefully, by then, steadily advancing technology will further cut costs by half, making it possible for more firms to survive.
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