Solar Industry Rising: Can Energy’s Fastest-Growing Sector Keep It Going?
Mar. 25 2011 - 1:47 pm
Solar industry grew 67% in a year -Wikipedia
A nuclear crisis in Japan has been a market mover since an earthquake-tsunami combo hit Tepco’s Fukushima Daiichi plant and damaged its various GE-designed reactors. As a consequence, renewable energy stocks rallied, and solar didn’t miss the party, with the Guggenheim Solar ETF (TAN) rallying almost 15% from Friday March 11 to Tuesday March 15. SEIA, the industry’s trade group, made the case that after the industry grew 67% in 2010, this will be the year for the U.S. solar industry.
The “Fukushima rally” was obviously a reaction to the possibility that a so-called “nuclear renaissance” is over, as public opinion and regulators shun nuclear energy projects. While most experts agree this won’t happen, stocks related in the nuclear game, from uranium miners to plant builders, suffered steep dives as more reactors showed problems at the Daiichi plant. This opened the door for a rally in other sources of energy, and obviously solar was among them. First Solar, the largest name in the game with a market cap of almost $13 billion, gained 13.7% in that time period. (Read Japan Will Struggle To Meet Electricity Demand).
SEIA, the Solar Energy Industries Association gave a presentation in New York on March 24 where president and CEO Rhone Resch said 2011 would be the year for solar. The U.S., they explained, had never been the main destination nor market in solar. But, with revenues in solar going from $3.6 billion in ’09 to $6 billion in ’10, a 67% increase in one year, solar was the fastest growing industry in the energy sector by far. Costs, through the year, fell 20.5%.
Photovoltaic (PV) installations, the largest chunk of the market by far, are predicted to grow five-fold by 2015, with US global market share going from about 5% today to 15% in the same time period. Large manufacturers of PV products, such as SunPower and China’s Suntech Power, are set to have long-term support in the medium to long run; the companies gained 12.6% and 13.2% respectively in the “Fukushima rally.”
Manufacturing is another segment that would benefit from the momentum picking up around solar. According to SEIA numbers, 100,000 U.S. workers are in the solar industry, with 25,000 of them in the solar manufacturing sector. Silicon wafers, used to manufacture solar devices, is also a main component in the semiconductor industry. Companies such as MEMC Electronic materials, which gained 8.4% in the aforementioned rally, benefit from the diversification and safety they can derive from exposure to these two industries.
Regulatory risk is a big dilemma solar investors face. Resch explained that a Treasury program called Section 1603 has helped provide key incentives for the solar industry, allowing it to weather the storm that was the financial crisis. Due to expire in 2011, 1603 will force President Obama to show if he actually can put his money where his mouth is, as his administration’s rhetoric hasn’t led to any form of tangible support for the booming industry. Another program facing the budget-cut axe of Congress is the Treasury’s Loan Guarantee program, which has provided key support to the industry but has been ravaged by earmarks and budget reallocation. “This is anti-business,” said Resch, “they are picking winners and losers, saying nuclear, yes, renewable, no.”
The advantage of the U.S. on the regulatory front, though, is its Federal organization, which leads to diverse incentive programs across states and insulates the industry from dependence on a single form of regulation. States are turning to more market based incentives as opposed to rebates, such as the Solar Renewable Energy Credits (SRECs), a cap and trade like credit granted to firms or individuals who have installed solar capacity, which can be sold on spot markets. With California the biggest market and New Jersey the most dynamic, solar is catching on as states like Nevada, Arizona, and Pennsylvania revamp installed capacity.
Utilities will play a big role in sector in the near future. As states force energy companies to derive more and more of their electricity from renewable sources, utilities will have to enter the market on all fronts, from owning their own installations to buying SREC-like instruments, to funding new projects and technologies. NextEra Energy is J.P Morgan’s private bank’s suggestion to tap the renewable through a large utility, as it is the largest wind operator and it is substantially expanding its solar development.
The solar industry has shown incredible potential these last years, so much so that it became the fastest growing industry in the energy business in 2010. While that momentum could continue, with Resch claiming the industry could double in size in 2011 to become the second market in the world, it only produces half of one percent (0.5%) of U.S. energy consumption. That provides both a challenge and vast potential.