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Solar power: making money or just changing the world?



In 2010 the BBC ran a radio series called A History of the World in 100 Objects. Based on exhibits from the British Museum, the series stretched from pre-historic artefacts to a Russian revolutionary plate. Object 100 though was chosen to represent the future. Neil MacGregor the British art historian and Director of the British Museum decided that this object should be a solar powered lamp representing human ingenuity and the challenges that we face in the twenty-first century.

 This article was originally published on specialist investor WHEB’s blog.

In many ways this was a brave choice. 2010 was not an auspicious year for solar companies. Still reeling from financial crisis, many solar companies saw steep declines in their share prices. First Solar, for example, the largest solar business at the time, had just seen its share price halve to US$150 over the preceding twelve months and many countries were already discussing ways to cut back on generous renewables subsidies.

Darkest before the dawn

Early investors into these areas, optimistic about the role that renewables could play in tackling climate change made and then lost huge amounts of money. Low carbon and renewables-themed funds had gone in to ‘purdah’ or rebranded themselves as ‘resource efficiency’ funds and the widely anticipated climate negotiations in Copenhagen at the end of 2009 ended in acrimonious failure. Meanwhile fossil fuel investors were full of optimism. The oil price had rallied to over US$110 a barrel and the financier Nat Rothschild was able to raise over $1bn in a matter of days to invest in Indonesian thermal coal production.

But behind these bleak headlines, the renewables industry was still booming. Overcapacity in solar panel production was clearly making life very difficult for the panel manufacturers themselves by driving down the average selling price (ASP) of the panels. Some of the companies with the more esoteric technologies have gone bust and the brutal cost declines have forced consolidation of the remaining players. However these declines in ASPs have also meant that the costs of generating solar electricity were also collapsing. In 2010 solar cost approximately US$1.80/Watt, but less than two years later the cost was just US$0.80 costs are now under US$0.60/Watt).

Value shifting to solar developers

The panel manufacturers’ pain translated into great gain for those businesses operating further downstream the solar value-chain with explosive growth in the volume of solar installed. In fact, no reputable industry forecast has ever over-estimated global growth in the deployment of solar panels. The International Energy Agency’s 2000-2007 forecasts saw cumulative capacity in 2010 of 10 gigawatts (GW). In fact, cumulative demand in 2010 was four times this at 40GW, and just four years later the world installed 40GW. This year the world is expected to install 56GW.

And there is no sign that this rate of installation is slowing down. Solar is emerging as the key energy technology of the future, achieving a 14% compound annual growth rate (CAGR) from 2010-2020. So-called ‘grid parity’ – the point at which a unit of electricity from solar is equivalent to the cost of a unit of electricity purchased off the grid – has already been achieved in 32 countries around the world including in parts of the US and China as well as several countries in Europe and fast growing parts of Latin America such as Chile. In 2011 there were only three multi-GW markets; China, Italy and Germany. By 2020 there will be 14 covering the developed world (Australia, France, Germany, Italy, Japan, US and UK) and fast growing emerging markets such as Chile, China, India, Saudi Arabia, South Africa and even Thailand. Solar represented 15% of new global generation capacity installed in 2014. It is forecast to be 40% in just 10 years.  Renewables as a whole are expected to draw $8 trillion in investments through to 2040, almost double the $4.1 trillion that will be spent on coal, natural gas and nuclear plants.

Swimming downstream

This rapid shift in the value-chain has meant that virtually all the module manufacturers have added project development businesses to their portfolio to capture the value from lower module prices and soaring installation rates. Several have also created separately listed businesses (so-called ‘YieldCo’s’) that are able to purchase solar projects at attractive rates and enable the developers to recycle capital into new projects.

At the same time, risks that government policy might change have become much less acute. As solar power prices have declined, so has the level of subsidies and so making the industry less vulnerable to cost-cutting. The industry already claims several GWs of unsubsidised solar development is taking place in markets as varied as Chile and China.  At this point, the net effect of more solar on the electricity grid may well be to reduce overall power prices. Many more markets are also now installing solar power and by diversifying the end-market, this also further mitigates policy risk to the industry.

But can you make money?

So the sector is growing very quickly, the technology is maturing and becoming cost competitive, political risk is receding and companies are adapting their business models to maximise value. But… can you make money investing in the sector? We believe that you can, but you need to choose your exposure very carefully.

As these trends continue, in our view, value will continue to migrate downstream to the development and ownership of the solar assets. Businesses focused on upstream and even midstream activity such as polysilicon and inverter manufacturing remain vulnerable to price pressure and in the latter case rapidly evolving technology. Several businesses in the sector are also still heavily indebted, for example, Yingli Green Energy Holdings had 11x net debt to EBITDA in 2014 with Renesola on 7x.  Several are also yet to make profits including high profile companies such as SunEdison and SolarCity.

But there are companies that are profitable, that are exposed to downstream project development and have project pipelines that are diversified by geography and end markets. Companies like Canadian Solar and Sun Power in particular perform well on these criteria, are both generating gross margins at or above 20% and are well-placed to grow their revenues and expand these margins further over the coming few years.

The five years that have elapsed since Neil MacGregor’s decision to make a solar powered light his object of the future have been tough for the solar industry. But in spite of this, his decision looks very astute. Investors have a great opportunity to benefit from the deployment of this revolutionary technology that will – and arguably already is – reshaping the economics of global energy.

Photo: Joe Zlomek via Freeimages

Further reading:

Solar road a great success

Solar panels now on nearly 500,000 rooftops across UK

DIY solar project launched in Salford

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB’s blog or in its magazine, WHEB Quarterly.

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How Going Green Can Save A Company Money



going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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