Yesterday (Jan. 3) Raymond James issued its Clean Tech Primer 2017: A Holistic Update on the Ten Major Verticals, a report on investing in the renewable energy and related sectors. The news is, well, as complicated as the technologies covered in the report.
“On the whole, 2016 was not a good year for clean-tech stocks,” observed Pavel Molchanov senior vice president and equity research analyst in Raymond James’ Energy Group, in a research note about the report. The financial firm said the ECO index was down 22 percent. But such changes were expected.
“This comes in the wake of relative outperformance in 2013, 2014, and 2015. In fact, we wrote one year ago that ‘clean tech is coming off three years of relative outperformance (vs. most other energy stocks) and a fourth might be a stretch.' We should also dispel the myth that Donald Trump's election was the major reason for 2016 underperformance—in fact, all of the ECO's decline came before the election,” Molchanov asserted.
Solar manufacturers had a particularly hard time in 2016. “The three worst performers—SunPower, Enphase Energy, and First Solar…all share a common theme. While a few solar stocks had a decent 2016, it was a tough year for the PV value chain across the board,” Molchanov wrote.
The report explained that between the end of 2015 and the end of 2016 solar module prices tumbled from 56 cents per watt to 37 cents per watt, a drop of one-third. The culprit for the steep drop in prices was once again, China. Solar manufacturers there overproduced modules in an attempt to beat a mid-year cut in feed-in tariffs, leading to oversupply throughout the global market.
In the report, Raymond James said it anticipated that prices will continue to come down between 6 percent and 8 percent. This easier price drop could lead to more stability in the market, in fact, the company now rates 8point3 Energy Partners—SunPower and First Solar’s joint YieldCo, as a strong buy opportunity and SunPower as an outperform-rated stock.
In the wind power industry, Raymond James observed that consolidation has occurred over the past few years. For instance, it observed that the top 10 manufacturers of wind turbines produced 69 percent of the world's turbines between 2013 and 2015. The firm anticipated that growth in global wind installations will be in the low to middle single digits over the next few years and that more companies will merge or be acquired.
Another emerging subsector of the clean energy industry, energy storage, is going through an interesting growth period as well. Both grid-scale and residential battery-based energy storage markets are in early stages. The firm said that at this point, the economics for most energy storage systems don’t make sense yet, except for some markets like Hawaii and Australia where electricity is expensive.
“While market penetration is certainly set to rise over the coming several years, we would not envision residential batteries becoming truly mainstream until 2020 at the earliest. On a side note: this market is going to be intensely competitive. Tesla’s Powerwall is certainly the best-known of the residential battery products, but there are seemingly countless others that are already commercially available or set to come on the market soon,” Raymond James said in the report.Tweet