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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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Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage



Natural Disaster Damage
Shutterstock / By Droidworker |

Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.

Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.

Over a Dozen Events With Losses Totalling More Than $1 Billion Each

The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.

Global Warming Contributed to Hurricane Harvey

Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.

Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.

Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.

That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.

Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.

Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.

Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.

The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.

Severe Storms Cause a Loss of Productivity

Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.

Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.

It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.

Longer and More Disastrous Wildfires Require More Resources to Fight

The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.

The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.

2017: Among the Three Hottest Years Recorded

People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.

Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.

Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.

Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.

Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.

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How to be More eco-Responsible in 2018



Shutterstock / By KENG MERRY Paper Art |

Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.

Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:

1. Energy – produce it, save it

If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.

It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.

While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!

2. Don’t be just another tourist

Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.

3. Let your beauty be also eco-friendly


Shutterstock / By Khakimullin Aleksandr

We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t  mean that some of the product’s ingredients haven’t been tested on some poor animal.

To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.

It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.

4. Know thy recycling

People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.

People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.

5. Fashion can be both eco-friendly and cool

Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.

All in all

The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.

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