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Zacks Industry Outlook Highlights: Duke Energy, NRG Energy, SunPower, First Solar and Vivint Solar

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For Immediate Release

Chicago, IL – August 25, 2017 – Today, Zacks Equity Research discusses the Industry: Semiconductors, including Duke Energy Corp. (NYSE:DUK Free Report), NRG Energy Inc. (NYSE:NRG Free Report), SunPower Corp. (NASDAQ:SPWR Free Report), First Solar Inc. (NASDAQ:FSLR Free Report) and Vivint Solar, Inc. (NYSE:VSLR Free Report).

Industry: Alternative Energy, Part 2


Despite the uncertainty related to U.S. tax policy or commitment to fight climate change, the momentum achieved by the renewable energy sector is unlikely to subside. Contracts from small- to medium-size companies will continue to flow in even if large corporations choose to tread cautiously.

The declining cost of energy storage should further aid the penetration of renewable resources. The underlying driver for each of these market trends is significant customer demand for renewables. It is expected that the renewable space will continue to innovate in the remainder of 2017 to offer consumers clean, affordable renewable energy.

Stocks in the Zacks Alternative Energy industry, part of the Zacks Oil/Energy sector, were up 4.3% in the last year against a 9.5% loss for the Oil/Energy sector and 10.7% gain for the S&P 500 index. Since Nov 8, the Zacks Alt-Energy industry is up 16.2% against 10.6% loss for the Oil/Energy sector and 17.2% gain for the S&P 500. This shows that Trump’s presidency hasn’t harmed the industry as anticipated.

Solar and wind – two major alternative energy sources – are gradually transforming the way we produce and consume energy, driving the ongoing global energy transition. Although some better-established sources of alternative energy – hydro, wind, biomass and waste, not to mention solar PV – are supported extensively, niche renewable energy sources such as geothermal and concentrated solar power (“CSP”) are also on the rise, natural conditions permitting.

Wind and solar are not only essential when it comes to reducing carbon emissions but also have a remarkable contribution in saving lives. This is because these renewable sources edge out fossil fuels and reduce air pollutants in addition to carbon emissions. This leads to improved air quality, with a corresponding drop in premature deaths.

According to recent reports, renewable energy has surpassed nuclear power as a percentage of U.S. energy generation. Declining cost of solar generation is anticipated to be the driving factor behind a dramatic increase in renewable power.

Again, the extension of key renewable tax credits and reduced solar photovoltaic (PV) capital costs will be driving the alternative energy space’s growth trajectory.

Moreover, former President Obama’s "Climate Change Action Plan," which is still valid, has propelled the sector northward. Efforts to restrict carbon emissions are a positive for renewable energy stocks. As per U.S. Energy Information Administration (EIA), in 2016, CO2 emissions declined 1.7%. Going ahead, energy-related CO2 emissions are expected to decline 0.5% in 2017.

The plan urged utility providers to gradually shift their mode of power generation to solar, wind and water. Some of such utilities are Duke Energy Corp. (NYSE:DUKFree Report) and NRG Energy Inc. (NYSE:NRGFree Report). Both Duke Energy and NRG Energy carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The EIA observes that even if the Trump administration abolishes the Clean Power Plan, the renewable space will continue to grow in the U.S. albeit at a slower rate. EIA projects U.S. renewable generation capacity to grow by an average of 1.9% per year between 2017 and 2050.

Apart from this, Francesco Starace, chief executive of Italy-based Enel, the largest European power company, said that investment in renewable energy across the globe including the U.S. will continue to grow regardless of President Trump’s attempt to revive fossil fuels. This is because investment in renewable energy was primarily driven by technological progress and market forces and hence any amendment in U.S. federal policy will have a marginal effect. He added that Enel has plans to invest €5.2 billion in renewable generation, mainly wind and solar power, both in Europe and the U.S., over the next three years.

Realizing growth opportunities in the renewable energy space, companies from other domains have also expressed their interest to invest in solar stocks. In line with this, e-commerce giant Amazon will bring online five new solar farms, totaling 180 megawatts (MW), to help power its massive cloud data centers. The new solar facilities, located in Virginia, will be connected to the grid by the end of 2017. Amazon also has other renewable projects underway, which will be completed by this year.

Here we take a look at the alternative energy space and attempt to identify this nascent industry's strengths.

Extension of ITC: Solar and wind energy got a major boost from the environmental tax credit extension that came as part of the $1.15 trillion federal spending bill, which also lifted a 40-year ban on exporting American crude oil. The latest report from the U.S. Energy Information Administration (“EIA”) also shows that renewable energy will be the fastest growing power source through 2040, accounting for 27% of total U.S. generation.

On Dec 15, 2015, Congress passed an extension and modification of federal tax credits for new wind and solar generators. The new environmental tax credit extension allows solar power companies to keep claiming federal Investment Tax Credits ("ITC") at 30% of the price of solar energy systems installed by businesses or homeowners. The ITC, which was earlier set to expire at the end of 2016, rushed developers to finish projects. Now they look good through 2019 with the five-year extension. However, the credit will start to decline, going down to 10% in 2022.

Moreover, the wind power industry benefited significantly from the production tax credit (“PTC”) extension. The PTC, which had expired in 2014 end due to Congressional gridlock, was extended through 2020. However, the PTC that pays 2.3 cents per kilowatt-hour of electricity generated will be gradually reduced over the next four years before being completely phased out.

The EIA projects that utility-scale solar capacity will increase almost 10 gigawatts (GW) between 2017 and 2018 in the U.S., given considerable rise in consumption in renewables for electricity and heat generation purpose. California, along with North Carolina, Nevada, Texas and Georgia, will account for most of the projected utility-scale capacity additions over the period.

The EIA expects wind energy capacity additions of 14 GW in 2017-2018. With these additions, total wind capacity will reach 95 GW by the end of 2018.

Anti-Dumping Duties and Solar Trade War: Washington imposed import duties on solar panels and other related products from China and Taiwan. The U.S. believes that Chinese manufacturers have benefited from unfair subsidies offered by their government. U.S. solar stocks like SunPower Corp. (NASDAQ:SPWRFree Report) and First Solar Inc. (NASDAQ:FSLRFree Report) are expected to make the most of the trade conflict between the U.S. and China.

The U.S. Department of Commerce (“DOC”), in Dec 2014, set anti-dumping duties at about 52% on most module imports from China and at 19.5% on most imports of Taiwanese cells. It also slapped 39% anti-subsidy tariffs on most China-made panels. The move intended to close a gap in which Chinese companies could use solar cells made in Taiwan to avoid paying higher tariffs.

Imposing of these anti-dumping duties has benefited many U.S. alternate energy companies like Vivint Solar, Inc. (NYSE:VSLRFree Report) and First Solar.

Zacks Industry Rank

Within the Zacks Industry classification, health insurers are broadly grouped in the Medical sector (one of the 16 Zacks sectors).

We rank 265 industries into 16 Zacks sectors based on the earnings outlook and fundamental strength of the constituent companies in each industry. We put our X industries into two groups: the top half (industries with the best average Zacks Rank) and the bottom half (the industries with the worst average Zacks Rank).

Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by more than twice as much. The Zacks Industry Rank is #177 (bottom 34%). The ranking is available on the Zacks Industry Rank page.

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