Solar power is in struggle town, can these small caps get their projects off the ground?
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Solar power appears a natural replacement if and when coal power is phased out.
Australia is the driest inhabited continent in the world and there are 2.23 million rooftop solar power systems.
Furthermore it seems the state governments are in favour. After all, some even reward you for it – offering rebates and subsidies for households that take it up.
But for large-scale project operators, times have been tough in recent weeks. On Wednesday, the industry suffered a big blow with Downer (ASX:DOW) deciding it would no longer bid to build solar panels.
“Right now we don’t see a construction market in the short to medium term that will accept our terms and risk position on these matters,” CEO Grant Fenn told shareholders.
“Developers, contractors and bankers all struggle to come to terms with the risk of large power loss factors, grid stability problems, connection problems, and equipment performance issues.”
This followed a crisis meeting on Monday held by the Australian Energy Market Operator.
Owners of solar projects in Victoria and New South Wales are in limbo and facing delays of several years due to grid constraints. Other projects that are already in operation have faced output limits for the same reason.
Arguably the biggest factor is market saturation — among all energy players.
While the Morrison government is not anti-solar, as former resources minister Matt Canavan’s comments this week calling renewables “the dole bludgers of the energy system” suggests; it is not favouring it over other renewables or even non-renewables.
Its Renewable Energy Agency helps renewables compete for project investment on an equal footing with traditional coal and gas fired generators.
This has helped bring electricity prices down. According to Bloomberg, average spot power prices are down 27 per cent.
But what’s good for consumers is not good for business. Bloomberg estimated new Australian solar installations fell by 40 per cent in 2019 while globally it rose 14 per cent.
To top this all off, the industry could soon feel the impact of the coronavirus. Because more than 60 per cent of the world’s solar panels are manufactured in China, installers in Australia risk stockpiles running out within days.
Prior to the virus, reports suggested China would cut benchmark electricity prices paid to utility scale projects by up to 18 per cent. It too wants an ultra-competitive electricity market.
The boss of Solar Juice, Rami Fedda, suggested on Linkedin this week Australian companies could turn to non-Chinese brands.
But the rough period for solar panel operators did not just start this month. Downer was most likely spooked by the 2018 demise of then 120-year old rival RCR Tomlinson.
RCR’s projects ended up with cost blowouts and the company had to write down its assets and could not raise more capital. Ironically it raised $100m just three months before its collapse but the money couldn’t save it.
Small caps attempting to crack the solar market have been struggling as well. Last year ReNu Energy (ASX:RNU) got out of solar, selling its assets to private renewable company CleanPeak Energy.
ReNu told shareholders it needed the $5.78m in cash for its geothermal assets even though it had persisted with those for longer than solar and had similarly limited success.
One small cap still in solar is New Energy Solar (ASX:NEW), which invests in solar projects globally.
Its total portfolio capacity is over 772 megawatts direct current and generates over 1.5 million megawatts of electricity annually.
It claims to have displaced more than a million tonnes of CO2, which is equivalent to removing 277,000 US and Australian cars from the road.
The vast majority of its projects are in America. A spokesperson for the company told Stockhead the American market was better to invest in because it had more favourable regulation and operations were more streamlined.
Apart from New Energy Solar, there are a few other ASX small caps that are persisting with solar — at least for now; but all of them are diversified renewable energy players.
Infigen Energy (ASX:IFN) is also involved in wind energy. But it has been spending several years trying to get a handful of solar projects off the ground, three in Queensland and one in New South Wales.
It only has planning approval for the latter — at Bogan River where it already has a wind farm.
Another is diversified energy play MPower (ASX:MPR) (previously known as Tag Pacific), which builds solar panels as well as battery energy storage systems.
In November 2018, it won a contract to construct panels for the proposed Pirie Solar Farm in South Australia.
Genex Power (ASX:GNX) is better known for its hydropower and wind projects, particularly at Kidston, but it has also built a solar project at one of those sites. Last September it received a $132 million grant from the Queensland government.
Finally Windlab (ASX:WND) specialises in wind projects but it has one integrated project at Kennedy Park which includes solar energy.
Of these stocks, Infigen is sitting on the greatest 12-month gain having climbed 46 per cent in that time.
But there’s no question it’s because of its wind farms because it has managed to get them off the ground and producing energy.
In January 2020, it generated 168 gigawatt-hours from its seven projects — 19 per cent more than January 2019.
But while wind is performing better than solar, it still only produces 6 per cent of Australia’s energy, according to Bloomberg, while solar only accounts for 4 per cent.
Meanwhile, coal is still the highest energy generator at 67 per cent and natural gas makes up 15 per cent of the energy mix, likely explaining why the large-scale solar farm operators lack sympathy right now.