Green Energy Is Becoming More Reliable and Popular
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Finally, renewable energy is able to transform the U.S. energy market. One of the major objections to the widespread adoption of renewables is its intermittency, but a number of new developments are allaying these fears. Combining multiple energy sources and creating a new national grid will allow America to substantially increase its use of renewables, and renewable energy firms will benefit accordingly.
Two Simple Solutions
One simple way to deal with intermittency is to combine wind and solar. California leads the way in clean energy and a combination of wind, solar, geothermal and other sources allows its renewable production to vary along with the demand cycle. Wind energy is plentiful throughout the night and helps to maintain a relatively stable load. During the day solar provides power during peak demand.
A second part of America's plan is the construction of the Tres Amigas SuperStation interconnector. This facility will connect America's fragmented electricity grids and allow consumers in the east to buy renewable energy from the west. By connecting America's patched electricity grids, utilities will be able to deal with intermittent production without expensive grid scale storage. Denmark generates around one third of its power from renewables and America is finally moving in a similar direction
Investing in Solar
America as a whole generates a very small portion of its energy from wind and solar energy. Around 0.14% of America's power comes from solar while Germany produces 4.6% of its power from solar. These differences show that solar has the ability to grow significantly within the U.S. While significant prices differences between Germany solar systems and U.S. solar systems make it unlikely that the U.S. will reach Germany levels any time soon, the U.S. solar market is still growing.
SUNPOWER (NASDAQ: SPWR) is one of the stronger solar manufactures, but it has suffered along with Chinese overproduction. Sunpower's three year revenue growth rate of 10.6% is strong, but its one year revenue growth has fallen to 4.5%. Recently, Japan has provided precious growth for the company. Strong relations with domestic Japanese firms have helped Sunpower take advantage of Japan's high feed in tariffs.
Sunpower produces highly efficient panels and its vertically integrated model helps it to decrease total system costs. Its gross margin of 14.6% is strong, but it still faces a return on investments (ROI) of -22.0%. Even though Sunpower's numbers aren't the best, the company is one of the most advanced solar manufacturers and its experience in the U.S. should help it to benefit from U.S. growth.
First Solar (NASDAQ: FSLR) fought the cost wars by focusing on thin-film technology, but it ultimately lost to government backed Chinese manufactures. Now, First Solar is fighting to reclaim its former glory. It is trying to bring its cell efficiency up to decrease its total systems costs. Such technological developments are expensive and time consuming; placing First Solar at a disadvantage for the next couple years.
On the positive side, the company is currently profitable with a gross margin of 32.9% and a profit margin of 11.4%. The company has little debt with a total debt to equity ratio of 0.15. Even though its financials are positive, First Solar's relatively low efficiency panels put it a challenging position. Investors should be careful before investing.
Investing in Wind
Trinity Industries (NYSE: TRN) is a manufacture of a number of industrial products, including parts for wind turbines. In Q1, 2013 its structural wind towers products provided $57.2 million in revenue. Overall its energy equipment group provided $14.9 million of operating profit for the quarter.
While Trinity Industries is a play on the wind industry, its main business is in manufacturing rail cars. Growth in U.S. oil production and the slow approval of new pipelines have boosted its rail car business. In Q1, 2013 the segment provided around one third of the company's operating profit.
While growth in renewables should boost Trinity's wind tower business; recent pipeline reversals will hurt Trinity's rail car business. The company is profitable with a gross margin of 26.4% and a profit margin of 8.7%, but its 2014 earnings per share (EPS) projection of $4.53 should be taken with a grain of salt. U.S. crude energy prices are weak compared to international levels, and pipeline reversals will only decrease demand for rail transportation.
The U.S. is finally making renewable energy a sustainable option by dealing with the intermittency problem. A combination of wind and solar sources allow for a more stable production profile, and the Tres Amigas SuperStation will create a national network that can easily balance varying production.
SunPower is one of the better ways to play growing solar demand due to its highly efficient panels. First Solar is worth a look, but it needs to improve its panel efficiency. Trinity offers a good look at the wind industry, but its fluctuating rail business will impact its profits.
Joshua Bondy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!