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No. 2 solar installer SunPower ( SPWR ) and Nevadan utility giant NV Energy partnered Tuesday to complete a 15-megawatt solar installation on Nellis Air Force Base — adding to a 13.2-MW system implemented in 2007. Together, the two stations can generate enough energy to power the base during daylight hours, according to NV Energy, which is a part of Berkshire Hathaway’s ( BRKA ) energy portfolio. The Nellis Solar Array II Generating Station is the first large-scale solar resource owned by NV Energy. SunPower’s announcement comes less than a week after Nevada regulators unanimously approved a solar-rate scheme that cuts net-metering payments to solar customers over 12 years. NV Energy pushed for that cut. Net metering, which means business and residential customers can receive payment for unused solar energy they feed back into the grid, is mandated in 44 states. The rules rile utilities, which could otherwise purchase the same energy at a wholesale price from utility-scale solar farms. First Solar ( FSLR ) and SunPower dominate the utility solar sector, Barclays analyst Jon Windham wrote in a January research report. In December, Congress’ adopted an eleventh-hour extension of the Investment Tax Credit (ITC) for solar, buoying residential installers like SolarCity ( SCTY ) and Sunrun ( RUN ). But growth in 2016 will come on the backs of utility-scale developers, industry tracker IHS wrote this month . No. 1 solar installer First Solar focuses on low-cost utility-scale projects likely to curry favor with the Obama administration’s 2015 Clean Power Plan. SunPower is vertically integrated with fingers reaching into the utility, commercial and residential solar pots. Utility-Scale Solar Flashes Before SunPower’s 15-MW commercial project wrapped, First Solar announced in January that it has installed “Australia’s largest utility-scale solar plants” — 155 MW between two systems in New South Wales. As of Jan. 20, there were 245 MW of utility-scale solar operating in Australia. First Solar built 165 MW (67%) of that capacity. The Aussies still have a long way to go to catch up to U.S. markets, which exceeded 2o gigawatts in cumulative installations early last year, according to the Solar Energy Industries Association , up from under 2GW in 2011. A gigawatt is equal to 1,000 megawatts and can power about 700,000 homes. China and Germany are the global leaders, raising their estimated installed solar capacity to 43GW and 40GW, respectively, in 2015. Earlier in 2015, the SEIA projected roughly 20 GW of additional solar capacity coming online — effectively doubling U.S. solar capacity — in the next two years. Nearer term, photovoltaic (PV) installations are expected to grow 60% year over year in 2016, reaching total installed capacity of 15 GW on the back of “strong demand for utility-scale PV,” IHS analyst Camron Barati wrote in a report. Previously, Wall Street modeled a 2017 collapse for the U.S. solar industry. The ITC was set to expire at the end of 2016. Then Congress voted in a five-year extension to the key subsidy. “While all market segments are expected to benefit from the ITC extension, utility-scale PV will benefit most and account for over half of newly added capacity from 2016 to 2019,” he wrote. Larger-scale installers like First Solar and SunPower are the safest investments in 2016, S&P analyst Angelo Zino told IBD. “These companies have significant backlogs of pipelines that allow them to navigate softness in the industry,” he said. “If we see more of a flat environment in 2016, First Solar and SunPower have the geographic reach as well as the pipeline and backlog to weather through any potential softness within the local markets here.” Barati doesn’t see any U.S. solar softness in 2016. But utility-scale demand could peter 30% in 2017, he noted. In 2015, 16 GW of projects entered the U.S. pipeline and 10 GW of tracked projects were installed or entered construction, IHS analyst Josefin Berg wrote in a separate report. Currently, the U.S. has a 50 GW pipeline of commercial- and utility-scale projects from 2016 to 2019, Barati wrote. “The previous panic to complete project phases ahead of schedule has reverted to a development pipeline responding to demand and contract fulfillment,” Berg wrote. Barati expects California, Texas and Nevada to each contribute 1 GW in 2016 installations — a divergence from other analysts. Credit Suisse analyst Patrick Jobin, however, sees Nevada demand hitting a floor on the net-metering cut. Will Nevada Demand Survive? Nevada regulators voted unanimously earlier this month to cut net-metering payments without grandfathering existing solar-energy customers — a decision that Sunrun executives plan to oppose legally. Residential installers Sunrun and SolarCity vehemently oppose Nevada’s net-metering cut which will take place in five steps over 12 years. Both exited Nevada in December after the first vote. Cumulatively, Nevada had installed a total 974 MW of solar capacity by Q2 2015, according to the SEIA. During Q4, SolarCity installed 272 MW, which was 8 MW short of its guidance after leaving Nevada. SolarCity and Sunrun still have some runway for 2016 installation growth, even without Nevada, Zino told IBD. A central issue for both, however – particularly SolarCity – is whether they will have sufficient access to capital . SolarCity is undergoing a strategic shift to become cash flow positive . The No. 1 residential installer will halve its installation growth target to do so. Currently, SolarCity is targeting 1.26 GW in 2016 installations, up 44% year over year. Solar is a capital-intense industry, Jobin says. Companies rely on tax equity capital, traditional bank financing and long-term securitizations to fund growth. In this environment, SolarCity and Sunrun are “very attractive” because they’ve already smartly deployed their capital in the form of fixed infrastructure costs. But investors fear dislocation could squeeze available capital, Jobin says. “My view is not that capital isn’t available to them; we’re just monitoring the health of the capital pools to them,” he said. “These assets are significant amounts of capital so if capital isn’t committed, demand would be challenged for all the players.” That could help explain a recent pullback in solar stocks. IBD’s 23-company Energy-Solar industry group ended 2015 1% higher after an up-and-down year. It has since fallen 32%. Still, the group ranked No. 11 on Friday – meaning over the past six months it has outperformed all but 10 of the 197 industries tracked by IBD. Regulatory challenges, fluctuating oil prices and the rise of alternative business models known as yield companies forced violent vacillation in 2015 solar stocks. The combination drove the 49% differential between the IBD group’s April high and its low on Nov. 17. Tough Yieldco Market Continues Wall Street is unlikely to let up on yieldcos in 2016, Zino says. Yieldcos are public companies formed to hold assets, generate dividends and create on-tap cash flow. The latter helps with the capital-intensive nature of the solar industry. In 2015, yieldco stocks were smashed. SunEdison ‘s ( SUNE ) TerraForm Power ( TERP ) and TerraForm Global ( GLBL ) exited 2015 down 57% and 63%, respectively. NRG Energy’ s ( NRG ) NRG Yield ( NYLD ) sliced 40% off its IPO price. First Solar and SunPower’s 8point3 Energy Partners ( CAFD ) left 23% behind in 2015 after going public in June. But 8point3 is one of the stronger names likely to “sustain tougher market conditions better than others,” Zino says. “The market has already shown a name like that is going to hold up better and we’ve seen that with the yields,” he said. Chuck Boynton, SunPower CFO and 8point3 CEO, says investors “have been running for cover” amid serious solar volatility . But 8point3 posted a strong first full quarter in operation, distributing 22 cents to shareholders, up 3.5% sequentially and in line with guidance. “Over time, they will see it really is a safe haven and that of the companies that are yield-oriented we are at the top of the class,” he told IBD in January. SunEdison’s plan for TerraForm Power, however, is seeing a bit more drawback. Activist investor Appaloosa Management is suing SunEdison over its plan to drop a 523-MW rooftop asset to TerraForm Power. Appaloosa owns 9.5% of the yieldco. The assets are owned by soon-to-be acquired Vivint Solar ( VSLR ). Although SunEdison’s acquisition is still pending, SunEd began trying to offload the debt-laden portfolio months ago. SunEdison stock plunged 92% between July and November as the drama played out in national headlines. Can Solar Cut The Cord? Over the last year, Tesla Motors ( TSLA ) teamed up separately with SolarCity , SunPower and SolarEdge ( SEDG ) to explore solar storage opportunities. Tesla CEO Elon Musk also chairs SolarCity. Solar storage is technologically possible, but remains too uneconomical for widespread adoption. As it is, solar customers still rely on utility electricity at night and on cloudy days. In Nevada, Nevada Power Company and Sierra Pacific Power Company solar customers use the grid 42% and 49% of the time. Industry watchdogs are split on whether solar customers will ever be able to completely cut their utility ties. But SolarEdge said earlier this month its StorEdge Solution, in conjunction with Tesla, will “ sell thousands of units ” in the first half of 2016. SolarEdge makes inverters and power optimizers, competing most directly with Enphase to supply panel manufacturers with key components. SolarEdge stock recently topped Needham analyst Y. Edwin Mok’s 2016 solar picks. Enphase ( ENPH ), too, is planning to release an energy storage system later this year in Australia, spokesperson Danny Miller told IBD earlier this month. A U.S.-based project will follow, he added. But Enphase won’t weather the post ITC-environment as well as SolarEdge, Mok wrote. He expects SolarEdge to grow beyond its 36% market share to the mid-40%-range on lessened pricing pressure. “Due to the extension of the U.S. solar ITC, we expect Enphase to deliver lower volume in 2016 as the ITC eliminates the need for installers to rush into completing projects within 2016,” Mok wrote. Scalper1 News
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