 The Booming Solar Market - By Bob Bellemare Daily IssueAlert 12/16/2005 Free California policymakers have taken off their shades and are looking to the sun to help ease their electric supply problems. The California Public Utilities Commission (CPUC) unveiled a proposal to install 3,000 million watts (MW) of solar generation over the next 11 years. And don't be surprised to see some neighbors hanging solar generators on their rooftops this Christmas or next. The recently passed Energy Bill contains tax incentives for solar installations, although you would need to act quickly because those incentives are set to expire in two years. It's all adding up to continue solar's high flying annual growth rate which has averaged about 25 percent over the past 15 years and last year was a staggering 70 percent. The Solar Flare Investor interest in alternative-energy companies has risen along with the prices of oil and natural gas. Solar power becomes more economically viable as the prices of fossil fuel rises. Meanwhile government mandates, subsidies, and tax breaks for solar power is growing worldwide. Solar cell businesses are quickly becoming the new darling on Wall Street. Take Suntech Power Holdings Co., a Chinese solar cell manufacturing company, which this week raised nearly $400 million by issuing 26.38 million shares on the New York Stock Exchange (NYSE: STP) at an IPO price of $15 per share. That company's stock price has jumped to $20 per share in just one day of trading. Suntech's debut followed last month's IPO of SunPower Corp. (NASDAQ: SPWR), a California-based solar cell maker. SunPower IPO price was $18 and is now trading around the $28 mark. Investors can take heart that at least one of the underpinnings for demand, government mandates, is getting strengthened. California's proposal is almost certain to be adopted in January 2006 by the CPUC. Not only are the CPUC commissioners likely to back it, but a famous actor turned governor has also come out publicly in support of the measure. California's proposal is ambitious indeed. 3,000 MW represents about 6 percent of Califorina's peak electric demand and is roughly the total amount of the solar cell installations (also known as "photovoltaics") in the world today. But with investment capital now flowing, the industry has quickly increased its annual production capability to nearly 800 MW and is likely to continue to grow. The California Solar Initiative (CSI), will offer more than $3.2 billion in rebates over the 11 years. The plan's aim is to install solar panels on 1 million homes and public buildings. Also eligible for funding would be solar water heating and concentrating solar power technologies where the sun is focused using a reflector or lens onto a solar cell or some other power producing device. All projects must be between one thousand watts (a kilowatt, kW) and one million watt (a megawatt, MW) in size. Today, California offers $400 million in solar rebates through programs funded by a surcharge on consumer utility bills. The new initiative would increase that surcharge starting in 2006. Other states are joining in on the act. Connecticut, for example, now offers homeowners up to a $25,000 contribution towards a solar installation. The contribution amount is capped at $5 per rated watt and the system can be no larger than a five thousand watt (5 kilo-watt, or 5 kW). A typical home photovoltaic generation system costs in the $8 to $12 per watt range, meaning that if you were to install a 2 kW system in Connecticut at a cost of $20,000 ($10 per watt), Connecticut will rebate you $10,000 towards the cost of the system. A Solar System in Your Stocking? The solar energy industry received a tiny share of the energy bill subsidies, yet there are some provisions in the bill that may help to further stimulate demand. The bill increases tax credits for solar installations at commercial facilities but also gives homeowners their first federal tax credits for solar installations in 20 years. The tax credits are scheduled to last only two years but, like the wind industry, I would expect that through heavy lobbying efforts they will get renewed on two year cycles. Businesses can claim a federal tax credit of 30 percent of the solar equipment cost with no dollar limit on the credit. In 2008, the credit reverts back to today's 10 percent tax credit limit. Homeowners can also claim a federal tax credit for 30 percent of a systems' cost, but for homeowners the amount of federal tax credit is capped at $2,000 per system. And that is straight off the bottom line on your tax bill. If the credit is more than you owe in taxes you can carry any "credit" forward to next year's tax bill. Qualifying systems include both solar cells (photovoltaics) and solar hot water systems. Like most federal handouts, there are some exceptions. Solar water heating systems must be certified by the Solar Rating Certification Corporation or a comparable entity endorsed by the government of the State in which the property is installed. Systems used to heat pools or hot tubs do not qualify and the credit applies only to amount of the system cost after any state incentives have been deducted. Are investors and California flying too close to the sun only to have their wings melt like the mythological Greek tale of Icarus? Perhaps there is some over exuberance in the market today. But capital is flowing to allow the industry to step up production. And if California follows through on it proposal and other states take its lead, the industry will certainly continue to see double digit growth rates well into the future. UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2005. UtiliPoint International, Inc. All rights reserved. |
