Leading solar company First Solar (FSLR) presented its new strategy during the 2012 guidance call, which is based on a 3-year journey into unsubsidized markets by the end of 2014. FSLR states that the main focus will be utility-scale systems based on its low cost technology. The company took down its revenue and EPS forecast significantly, which triggered a further massive sell-off in the stock.
The US Environmental Protection Agency (EPA) released the long awaited Mercury Air Toxic Standards (MATS). The published rule confirmed that power producers must comply with the standard by Q1 2015. The rule will lead to the closure of about 7% of the total installed power generation capacity in the US (mainly coal-fired plants).
We attended the Edison Electric Institute Utility Conference in the US at the beginning of the month. The meetings with 16 utilities confirmed that the fundamentals for power and gas infrastructure remain very solid. There is still ample need for investment along the entire value chain and allowed regulated returns are unlikely to come under significant pressure.
Kinder Morgan’s 37% premium bid for gas pipeline competitor El Paso highlights the attractiveness of gas infrastructure companies in the US market. The fund is positioned with investments in Spectra Energy, Sempra, Transcanada and NiSource. The latter beat Q3 earnings expectations by 20% on improved profitability of its gas distribution unit. The company has a formidable pipeline and gas storage footprint in emerging shale gas production areas.
Power prices in the US are firming despite continued weakness in natural gas. Gross margins (spark spreads) for gas-fired generation on the East Coast have expanded by 20% since the beginning of the year to around 18 USD/MWh.
In a far reaching decision, German solar company and leader in concentrated solar power (CSP) technology, Solar Millenium announced its decision to equip the first two 250 MW plants in its project in Blythe, California with photovoltaic (PV) as opposed to CSP.
The US Environmental Protection Agency (EPA) finalized the Cross State Air Pollution Rule (CSAPR). The rule contains tougher than expected caps on emissions from coal-fired power plants and must be complied with already in 2012. The resulting coal plant retirements will lead to a significant tightening of the US power market, which otherwise would not have been expected before 2014.
The regulated wires and pipeline companies continue to do well. NiSource (3% of NAV) grew Q2 earnings at its gas transmission and storage unit by 13%. This was driven by new pipes entering service and by increasing usage of natural gas for power generation. Transcanada (2% of NAV) reported a 30% increase in earnings as new segments of the Keystone pipeline went into service.
ZF Friedrichshafen, a gearbox producer for the automotive industry, has offered a ~95% premium to the shareholders of Hansen. Hansen, one of the leading suppliers of wind gearboxes around the world, will allow ZF Friedrichshafen to expand its product offering in the wind segment and enter the market with a significant market share. Hansen’s take-over is one of many corporate transactions that took place in the renewables space over the past months and is a reflection of the attractive valuation.
Exelon’s regulatory filings related to the merger with Constellation revealed that the company expects materially higher earnings in 2013 than the current analyst consensus. This is a further indication that the US power market is closing in on its inflection point.
Scottish Energy Minister proposed in the government’s Renewables Roadmap that the country would obtain 30% of its overall energy demand and all of its electricity demand from renewable energy by 2020. Under the plan, the Scottish Government would commit to developing strategies for microgeneration and agricultural based renewables, and would work with investors to create a Green Equity Fund to support community renewable projects.
European CO2 prices fell to EUR 13.5/ton (-20%) on economic uncertainty, additional permit auctions and what appears to be a crisis of confidence in the viability of the trading scheme in the longer term.
After months of debating, Italy’s Council of Ministers in May signed a bill that provides certainty to the solar industry and defines a progressive reduction in subsidies until 2013. Thereafter, the incentives will be reduced in the same way as they are in Germany. Cuts deepen progressively as more projects are built.
On May 29, the German Government coalition decided to shut all nuclear power plants by 2022. As we expected, the plants shut in mid March will not return to the grid. This effectively takes 8.4 GW of capacity off the German grid for good. The nuclear fuel tax remains in place.
In Deutschland bleiben 8.4 GW (oder 40% der im Land installierten 20.4 GW) Kernkraftwerke stillgelegt. Nach unserer Einschätzung werden diese Anlagen nach dem Auslaufen des Moratoriums am 15. Juni höchstwahrscheinlich ausser Betrieb bleiben. Es besteht das Risiko, dass die verbleibenden 12 GW schon vor dem vorgesehenen Termin im Jahr 2020 abgeschaltet wird. Dies ist positiv für die Strompreise.
M&A headlines dominated the sector news: On April 28, Exelon announced the acquisition of Constellation for an equity value of USD 7.9 billion (13% premium), creating the largest competitive power group in the US with a USD 34 billion market cap. Just a few days earlier AES had acquired Ohio utility DPL for an equity value of USD 3.5 billion (9% premium). Further transactions are likely, underpinning valuations in the sector.
Natural gas will become the fuel of choice to produce power in both the short and the long run. In the short run, Japan will need to import substantial amounts of natural gas to keep the lights on. Germany will do the same to replace lost nuclear generation. In the long-run, gas-fired generation will replace many nuclear new build projects despite the increase in CO2 emissions. Rising fuel and emission prices coupled with a tightening supply/ demand balance will drive electricity prices higher.
Die Katastrophe in Fukushima dominierte die März-Berichterstattung. Der Unfall lenkte die Aufmerksamkeit der Investoren auf erneuerbare Energien. Die Ereignisse in Japan hatten auch politische Auswirkungen. Beispiele sind der Wahlsieg der Grünen in Baden Württemberg sowie modarate Töne in den Verhandlungen über angepasste Rahmenbedingungen für Photovoltaikanlagen in Italien.
Laut einem Gesetzesentwurf dreier amerikanischer Senatoren soll Kalifornien bis 2020 33% des Energiebedarfs aus erneuerbaren Quellen decken (bisheriges Ziel: 20% bis 2010). Vom Gesetz würden insbesondere Anbieter entsprechender Systeme profitieren.
M&A continues to make headlines in the sector. Following the merger announcement of Duke Energy and Progress Energy in January, PPL Corp. offered to take over E.ON’s UK distribution business for GBP 3.5 billion.
Germany plans to bring forward subsidy cuts of up to 15% (subject to Q2 2011 installations). New subsidies should take effect on 1 July 2011 for rooftop systems and 1 Sept. 2011 for large solar parks. The plan includes a 9% cut on 1 Jan. 2012 (previously 9-21% depending on 2011 installations).
US earnings season kicked off at the end of the month: NextEra Energy (former FPL Group) reaffirmed its target to grow by 5-7% p.a. through 2014 mainly driven by its Florida utility and continued growth in wind power, where the company expects to add 700 to 1’000 MW in 2011. Exelon grew Q4 earnings by 4% beating expectations due to lower power generation costs.
Future global development depends to a large extent on which technologies humanity chooses to meet its future energy needs. This interview with Dr. Dominique Candrian, Managing Director of partner company EIC Partners AG, explores the subject further. [EN]/[DE]