President Obama’s renewable energy policy looks set to encourage the renewable energy sector. The three main sectors that will be encouraged by the new policies are wind, geothermal and solar.
the American Wind Energy Association, which says last year saw a 50-percent increase in the nation’s wind power resources for a total of 25 gigawatts, enough to power approximately 7 million homes. Wind is the most economical energy when oil is trading at it’s current multi-year low. China has rolled out many wind farm projects, targeting a cost of less than 10c/w, while the cost in the U.S. is also low compared to solar farms, which is estimated at around $1~1.5/w. China still has the advantage of cheaper labor compared to the U.S., and as a result, the cost to generate electricity in both wind and solar farms is lower.
A good example of a US company investing in the China energy market is the joint venture between GE and A-Power Energy Generation (APWR). GE will supply over 2.4GW wind turbine products to A-Power starting 2009. A-Power has just completed a facility capable of making 1000MW turbines annually to meet the rapid demand in China as the government promotes wind energy as a major renewable energy source.
On the other hand, solar companies are facing a fund shortage in the short term. Q4 and Q1 earnings are expected to be terrible as demand dropped sharply from 2008’s peak. Meanwhile, some analysts stepped forward with grim forecasts for the sector this year. JPMorgan’s Christopher Blansett openly urged investors to sell solar stocks because prices of solar panels and modules would keep falling for much of the year. China’s Suntech Power’s (STP) CEO Shi said in an interview that he expects gross margins in Q4 will be close to zero if not negative. Companies like Canadian Solar (CSIQ), Solarfun (SOLF), Yingli Green (YGE), Trina Solar (TSL), SunPower (SPWRA) and Energy Conversion Devices (ENER) are facing the same fate in 2009.
Mark Bachman at Pacific Crest Securities, meanwhile, doesn’t even consider SunPower to be one of the best solar companies around. In a research note this week comparing SunPower to First Solar (FSLR), another large American panel maker, Bachman said a solar power plant built with SunPower’s equipment doesn’t necessary perform as well as the company likes to claim.
Bachman made a similar comparison in a previous research note and saw First Solar as a stronger competitor in the marketplace
Bachman lowered his estimate of SunPower’s 2009 revenue to $1.8 billion from $2.1 billion.
First Solar (FSLR), long loved by investors and analysts, isn’t immune to Wall Street’s bearish outlook. The company, based in Tempe, Ariz., has built a reputation for being able to produce solar panels cheaper than anyone else in the industry.
Osborne at Thomas Weisel Partners has cut his estimates of First Solar’s 2009 revenue and production, citing difficulties in gauging market demand this year. He expects the company to produce 837 megawatts worth of panels instead of 975 megawatts in 2009, and the annual revenue to reach $1.72 billion instead of $1.99 billion.
In discussing its third-quarter earnings last October, First Solar executives said they expected to generate $2 billion to $2.1 billion in revenue this year.
One sector that has been neglected by investors is geothermal energy, which is also covered by Obama’s new energy plan and favored by energy secretary Steven Chu. One US company is a pioneer in this sector – U.S. Geothermal Inc (HTM). The company, through its subsidiaries, engages in the acquisition, development, and utilization of geothermal resources in the western region of the United States. It also owns interests in a 3.6 megawatt operating geothermal power plant, and approximately 28,358 acres of geothermal energy leases and certain ground water rights located in the north of Reno, Nevada. Another company in this sector is Raser Technologies, Inc, (RZ) with geothermal power projects under development in Nevada, two in Utah, one in Oregon and one in New Mexico.
Steven Chu has repeatedly stated that nuclear power has to be part of new energy sources for the US as it is still the cheapest clean energy on Earth. If he discloses more details on how he wants to proceed with nuclear power, uranium might get a boost, and companies such as Uranium Resources (URRE) and Cameco (CCJ) might benefit from the uranium rush.