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Better late than never: GE decides to get into the energy storage business
(07 Mar 2018) There are so many reasons why General Electric (GE $14-$15-$31) went from king of the hill to nearly irrelevant, and they all swirl around a leadership vacuum. The former "biggest company in the world" has now decided that its next big thing is energy storage. To be sure, this burgeoning business will be enormous. The overarching problem with alternative energy has been storage of the energy produced, for later use. Tesla (TSLA) understood that years ago, and built the famed Gigafactory near Sparks, Nevada. They also deployed a giant battery system in Australia last year. Germany's Siemens AG (SMAWF) joined forces with US utility company AES (AES) to create what will be the world's largest battery storage unit, to be located in Long Beach, California. Now, finally, General Electric is launching GE Reservoir, a giant platform that will store massive amounts of energy generated from wind turbines and solar panels for use on-demand. Will the company become a leader in the battery storage game? Based on two previous flops—one to sell battery systems and one to create its own battery cells—we don't like their odds.
Under the Radar: TeraForm Global, Inc.
UPDATE: (28 Dec 2017) Tera Form Global goes private. Brookfield Asset Management took TeraForm Global private, paying shareholders $5.10 per share.
(20 Sep 2017) TeraForm Global (GLBL $3-$5-$5) is a diversified, renewable energy company. Headquartered in Bethesda, Maryland, the company owns and operates solar, wind, and hydro-electric power generation assets around the world. The company has steadily grown its revenues over the past five years, doubling its operating revenue last year (to $214 million). The company is in the small-cap growth style box, with an $840 million market cap. TeraForm’s systems have a portfolio capacity of 919 megawatts (MW), with the vast majority being produced in Brazil, India, and China.
Penn New Frontier Fund member First Solar Pops on Earnings Beat
(25 Feb 16) Penn New Frontier Fund member First SolarFSLR popped 12.4% on Wednesday after beating street estimates for the fourth quarter. It is an impressive feat for an alternative energy company to even turn a profit, but the Arizona-based firm reported a bottom-line gain of $1.60 per share on the back of fourth-quarter earnings of $164.1 million. The average analyst estimate for earnings was 80 cents per share.
For the year, First Solar, the largest solar energy company in the US, brought in $3.6 billion in revenue. Nearly $550 million of that amount trickled down to a bottom-line profit for the year, equaling an impressive operating margin of 15%. For comparison, consider SolarCity’sSCTY 2015 operating margin of -162%.
Despite lower energy prices, which typically hurt alternative energy companies, we added First Solar to the New Frontier Fund last fall because of its industry-leading project management and installation process. In the last issue of the Journal, we discussed India’s $100 billion alternative energy push, and how a company like FSLR can reap massive gains from its business in that country.
Despite the current fossil fuel glut, alternatives will continue to gain steam going forward, both in the US and around the globe. That being said, selection is critical to avoid buying into a company based on the outlook of its industry rather than the fundamentals of its business.
Subsidies have kept the solar industry afloat over the past decade. It is not unreasonable to think that these subsidies may suddenly evaporate, considering the country’s $19 trillion debt crisis. If that happens, only the strongest will survive. Economies of scale will shutter the doors of many smaller alternative energy startups, leaving only the biggest and strongest. We believe FSLR stands head and shoulders above its peer group.
The Chinese government has provided artificial life support to its own energy companies like Trina Solar, but we see American ingenuity ultimately winning this race.
(Reprinted from the Journal of Wealth & Success, Vol. 4, Issue 3.)
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