Solar Power & Electric Utilities: Is The Paradigm Shifting?

by L J Furman, MBA on December 20, 2012

in Connecting the Dots, Economics, Energy, Finance, Nuclear Energy, Renewable, Solar, Sustainable, Sustainable Investing, Value Investing

Ground Mounted Array.

The 16-module solar array pictured above was built in 2005.  It probably has 2.5 Kilowatt (KW) to 2.8 KW of nameplate capacity. In New Jersey, residential solar systems range from 3 KW to 30 KW. Most are between 4 and 10 KW. Commercial systems range from 8KW to 200 KW. Utility scale systems are in the 10 Mega Watt (MW) to 550 MW range. In 2005, the costs for small scale residential systems were around $8.50 / watt, exclusive of any incentives. Today it is probably around half that, and cheaper for the larger utility scale systems. 1.0 MW system would require 4,000 modules of 250 watts each. The system pictured above requires about 50 square feet of land.As illustrated by the photo of the Topaz array, below, a 550 MW system, like Topaz, would require 2.2 million modules, and would cover a lot of ground.

First Solar Topaz

First Solar, FSLR, a $2.8 Billion company, and Sunpower, SPWR, an $840 Million company, two of the pillars of what is left of the American solar energy industry, made some interesting statements in their 2011 annual reports:

First Solar reported (here),

  • “Average manufacturing cost declined to $0.73 per watt in the Fourth Quarter of 2011. It was $0.76 per watt in Q4 2010.” This probably means that utility scale systems can be installed for $3.00 to $3.50 per watt, down from $8.00 to $8.50 per watt in 2005. 
  • “Energy conversion efficiency for Cadmium Telluride (CdTe) PV solar cells increased to 17.3% and 14.4% for solar modules.”
  • “The 17MW Paloma project in Gila Bend, Arizona moved from ground breaking to commercial availability in only four months, a rate of 4.25 MW per month.” (This a function of manpower. If they had doubled the crew they could have done the job in half the time.)

First Solar also announced sales of several solar power plants:

First Solar also concluded,  “The sales of the Desert Sunlight, Topaz, Agua Caliente and AVSR1 projects demonstrate that banks and investors are making significant investments in our technology.” I think this is a reasonable conclusion. 

Sunpower reported (here),

  • Record revenue and production in 2011 … Year-on-year shipments grew 40 percent, driven by our Utility and Power Plants (UPP) and North American Commercial (NAC) business segments.
  • Production of their next generation MaxconTM Gen 3 cells, which have demonstrated efficiencies of up to 24 percent. We are already using our Gen 3 technology to produce solar panels with efficiencies of 20 percent, a world record for the photovoltaic (PV) industry, and see a path to increasing panel efficiencies using Gen 3 solar cells over time.
  • The California Valley Solar Ranch (CVSR) project was acquired by NRG Energy, Inc. in September, 2011 and is currently on track to meet its Phase 1 construction milestone in the third quarter of 2012. This 250-megawatt plant will be one of the largest in the world, and has created approximately 350 construction jobs in San Louis Obispo County.”
  • A North American pipeline with approved power purchase agreements and permits of more than one gigawatt.
  • Sunpower expects India, Japan and Australia to be their three largest markets in the Asia-Pacific (APAC) region.

The bottom line is that electricity from solar is now competitive with electricity from coal, gas, and nuclear power plants. This assessment was also confirmed by Alan Bernheimer, First Solar’s “Public Relations Director – Americas.”

This has me thinking that we are seeing the paradigm shifting from fuel-based systems – which are also waste-based systems like coal, oil, methane, and nuclear – to process based systems like solar, wind, wave, and deep geothermal that don’t consume fuel and don’t produce waste. 

The stock market is probably a lagging indicator of this and other paradigm shifts. Here are basic information regarding First Solar and Sunpower, which design and manufacture solar cells and modules, and GT Advanced Technology, which designs and sells equipment used in the manufacture of solar cells. I also include information about Exelon, a large operator of nuclear power plants, and by the purchase of Anteloope Valley Solar Ranch 1, an operator of a 230 MW solar firm, NRG, an operator of coal, gas, nuclear, and now solar power stations, First Energy, and Public Service Enterprise Group, electric utilities in New Jersey, Ohio, and Pennsylvania.

Select Stocks in Electricity Space – Basic Information
Company Stock Price 52 wk L 52 wk H M Cap
First Solar FSLR 32.03 11.43 50.2 2.79
Sunpower SPWR 5.24 3.71 9.54 0.84
GT Advanced Tech GTAT 3.46 2.85 9.89 0.36
Exelon EXC 29.93 28.4 43.91 25.51
Next Era Energy NEE 70.22 58.75 70.22 29.85
NRG Energy NRG 23.45 14.29 23.78 5.36
First Energy FE 41.27 40.37 51.14 17.28
Public Service Enterprise Group PEG 30.86 28.92 34.07 15.64
Table 1: Data as of close of business, 12/17/12.

Table 1, above, shows basic information about these companies. The utilities, First Energy and Public Service, are in the same size range: PEG is $15.6 Billion, FE is $17.3 Billion. Exelon, at $25.5 Billion is almost five times the size of NRG, which is $5.3 Billion.  Key financial data and ratios, in Table 2, below, add more to the story.

Key Financial Data and Ratios
Company EPS P/E Div Debt to A R o AA
First Solar -7.71 Undef 0 11.49 -0.78
Sunpower -2.73 Undef 0 29.77 -18.33
GT Advanced Tech 0.92 3.31 0 6.62 16.24
Exelon 1.87 16.3 0.52 24.49 4.65
Next Era Energy  5.14  13.72  0.6  40.16  3.49
NRG Energy -0.33 Undef 0.09 36.8 0.73
First Energy 2.53 17.28 0.55 36.63 2.1
Public Service 2.78 11.11 0.35 27.14 4.71
Table 2: Additional financial data.

GT Advanced Tech, Exelon, First Energy, Next Era and Public Service are profitable. First Solar, Sunpower, and NRG are operating at a loss.  However, based on the nature of their business model, GT Advanced Tech, First Solar and Sunpower could be considered sustainable investments in what some are now calling “Deep Green” tech.  On the other hand, based on their performance since 2009, investments in these companies could also be considered speculative.

The question for policy makers – and investors – is “Is this truly a paradigm shift?” 

If the answer is in the affirmative then these companies are developing disruptive technologies. They present opportunities for investors that are comparable to that presented by such as Apple Computer, Inc., Microsoft Corp., and Sun Microsystems presented in the early 1980s, or the opportunities presented by Ford and Standard Oil in the early 20th Century.

If the answer is in the affirmative, then Exelon, First Energy, and Public Service, while currently profitable, are like Cunard Lines. Worse, given the mechanics of nuclear power, there are liabilities, which, like icebergs, are largely hidden beneath the surface. These, then, could be the speculative, even risky investments, depending on the investor’s time horizon.

While according to a press release dated 12/18/12, “NextEra Energy Resources’ North American wind energy fleet is capable of generating enough electricity to power a city the size of Chicago.” here, I don’t know enough about Next Era Energy Company to have an informed opinion of the company as an good investment or a sustainable investment. Similarly, “Solar Panels for Every Home”, co-written by NRG CEO David Crane and Robert F. Kennedy Jr, here, suggests that Mr. Crane, and NRG Energy, has an understanding of the capabilities of solar, I need more data before I can make an informed opinion.

I do, however, think GTAT could be a value investment, FSLR and SPWR are speculative investments which could pay off big – if they don’t go out of busines.

PopularLogistics is  developing a “Virtual Portfolio of Sustainable Investments in Deep Green Technology.”  It would probably include First Solar, Sunpower, GT Advanced Tech, Cree, Lighting Sciences, and Solazyme, and could include Next Era and NRG.  Stay tuned.

I would love to work harder to facilitate this energy paradigm shift, either building, financing, selling systems for a solar module or wind turbine manufacturer, such as First Solar or Sunpower, a utility, such as Public Service or First Energy’s New Jersey subsidiary, Jersey Central Power & Light, NRG, Next Era, or the DoE, DoD, the NJ BPU, or in a policy position in New Jersey, New York, or another state.  I hold a Bachelor’s in Biology and an MBA in “Managing for Sustainability” from Marlboro College. I can be reached at ‘L Furman 97” @ G Mail . com and US 732 .  580 . 0024.

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