Cree, a leading designer of solutions for LED lighting applications reported solid financial results for the first quarter of fiscal year 2013, ended September 2012 and announced gross margins beating consensus expectations. Cree’s ongoing margin growth comes from continuing product cost reduction and factory efficiency improvements. Both LED and Lighting segments grew during the quarter and are expected to grow further due to the recovering US housing market.
In the US, Hurricane “Sandy” exposed the deficiencies of the aging power grid on the Northeastern seaboard. Grid investment needs to rise significantly to improve security of supply, creating an attractive growth opportunity for electric utilities and engineering companies. We expect regulation to remain favorable or even improve as politicians recognize that the costs of long power outages are unacceptable.
The Spanish Government announced on September 14 measures to solve the tariff deficit issue in Spain. Among others, under the new proposal taxes on revenues for wind generators will be 6% and not 11% as anticipated.
We forecast a relatively tight gas market balance in the UK for the coming winter. High demand in the global liquefied natural gas market (LNG) should provide additional support to gas and therefore power prices. Generators are well positioned.
In Italy, the Government published the first draft of the National Energy Plan (NEP). The NEP targets a reduction in energy costs and a decoupling of the Italian economy from expensive gas and therefore electricity prices. While this may create headaches for power generators, Snam Retegas is set to benefit from ample gas infrastructure investment opportunities and supportive regulation.
The EU and Australia plan to link carbon markets by 2015. Under the agreement, Australia would be able to use EU emissions trading scheme (ETS) permits to meet liabilities under the Australian ETS from July 2015. The link of the two schemes would reduce the oversupply in the European carbon market and hence support CO2 prices.
The merger announcement of the two US power companies NRG Energy and GenOn was well received by the market. The combination offers significant synergy potential and creates the largest independent power generation company in the US with 47 GW of generation capacity. The company is in an excellent position to capitalize on an eventual power market recovery.
Coal to gas switching in US power generation is in full swing. The latest EIA data for the January to April period 2012 shows a 34% increase in power generated by gas-fired power plants. The increase is equivalent to 94 TWh of electric power (Swiss annual consumption is about 60 TWh). At the same time, coal-fired generation dropped by 21% implying a reduction coal consumption of 61 million tons. The unprecedented switch, will help to balance the oversupply in the gas market and eventually lead to improving power market fundamentals for companies like Exelon and NRG Energy.