New GE Turbines Aid the Solar Industry
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A major problem with the integration of solar and wind energy into the world's energy grid is the need to develop a flexible system which can deal with the daily frequent changes in weather. The amount of energy produced by solar panels varies greatly due to changes in cloud cover. Ever changing weather patterns make wind especially problematic. The ability to store the energy created from renewable sources for future use is has not been solved. For renewable energy sources to provide a larger portion of the earth's energy needs, the energy infrastructure needs to be able to adapt itself to a more chaotic system. General Electric Company's (NYSE: GE) latest development of more efficient natural gas turbines which can quickly be brought online and offline will allow more renewable energy to meet the world's power needs.
GE's revenue from energy infrastructure has increased since 2007. Though revenues have not consistently increased year to year the segment posted $43.69 billion in revenue in 2011 which was second only to GE capital. In the same year energy infrastructure was the biggest profit generating segment with $6.65 billion in profit. As the emerging markets continue to develop and other nations like the United States upgrade their aging infrastructure, GE is ready to profit. The company is able to use their expertise in other areas like aviation to create more efficient power plants which reduce energy use and C02 output. Selling to various governments across different cultures is not simple. GE's experience in developing markets shows that it is willing and able to work with local officials. The turbines which GE recently developed are a positive sign for the solar industry and GE. The company's ability to grow their energy portfolio to match the current developments in the market show that though it is large it is able to innovate and create profits.
In the long run there are many companies in the solar industry which stand to benefit from the maturation of the energy grid. First Solar, Inc. (NASDAQ: FSLR), SunPower Corp (NASDAQ: SPWR), and Trina Solar Limited (NYSE: TSL) will benefit in the long run from efficiency and quick natural gas turbines. As a nation's natural gas plants are able to quickly increase and decrease production in conjecture with changes in weather patterns, these nations will trust solar energy to provide a greater portion of their electricity needs. Even with positive long term forces not all manufactures will be able to take advantage of such growth. Some companies have high debt levels which will limit their ability to grow. First Solar has a low total debt to equity ratio of .15 but an ROI of -14%. Sun Power has a slightly higher total debt to equity ratio at .72 and an ROI of -31%. Trina Solar is a Chinese manufacture and its total debt to equity ratio of 1.27 suggests deeper problems. Their ROI is only -9.6%, but as China has recently agreed to talk with the EU about dumping practices more instability may be coming to Trina.
The trickle down effect will also help other companies like GT Advanced Technologies Inc. (NASDAQ: GTAT). This company makes the capital equipment necessary for the production of solar cells and other electronics. As solar energy starts to reach parity solar cell manufactures will need to continue to upgrade their capital equipment in order to keep up with price deflation. This company has seen strong revenue growth over the past 5 years at 55.7% though the removal of some government solar incentives have placed a damper on growth. Over the long run decreasing costs from technological development will drive demand for more advanced solar manufacturing equipment.
The development of more efficient natural gas turbines with rapid response times is a positive sign for GE and the entire solar industry. A more efficient energy portfolio with a greater variety of sources will allow developing and developed markets to make their economies more efficient with less environmental damage. The price of solar energy continues to decline, but for the emergence of industrial scale solar power generation the entire electricity grid needs to evolve. Investors who see the trends and invest will make profits while helping the world develop.
MrCanadian1 has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.