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U.S. Set to Edge China Out in the Solar Race

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As solar energy keeps getting cheaper by the day, countries across the globe are fast adapting to the clean energy source to fulfil all energy needs. Countries like China have stepped up their game by investing significantly in cutting-edge technologies related to solar energy. As a matter of fact, China has also surpassed the United States when it comes to investing in clean energy. This has led to speculation about the future of solar energy in the United States and whether it would lose to China in the solar race.

Short answer: No. The U.S. Department of Energy (DOE) has announced significant investments committed solely to developing the solar technology in the country. Also, the private sector has seized this opportunity to invest openhandedly in solar projects. Finally, the space witnessed a massive revolution in the last decade even as the U.S. government continues to keep pushing boundaries in the solar space.

U.S. DOE to Fund Development of Solar Technology

On Apr 17, 2018, the U.S. DOE announced that it had reserved as much as $105.5 million for funding approximately 70 projects to enhance solar photovoltaic (PV) as well as concentrating solar thermal power (CSP) technologies. The funding also seeks to start off the process to securely integrate these projects into America’s national electric supply framework.

U.S. Secretary of Energy Rick Perry’s announcement regarding the funding also aims at preparing the US labor force for the future of the solar industry in the country. The funding program has been divided into four segments: About $46 million would be earmarked for about 14 advanced solar systems integration technologies, about $24 million would be spent on 21 CSP R&D projects and approximately $27 million would be kept aside for 28 projects for PV R&D. Finally, $8.5 million would be used to enhance the solar industry by preparing the workforce for the future.

Federal funding has done a world of good to the energy landscape of the United States in the last 10 years. The return on investments from such federal projects has been astonishing. Investments to advance energy efficient technology have led to savings of about $22 billion. That roughly translates to a benefit-to-cost ratio of 66:1. Further, DOE’s continued efforts to reduce emission levels are likely to generate benefits of nearly $111 billion by the end of 2020.

Corporate Ventures in the Pipeline

Declining costs associated to wind and solar power along with grid developments have resulted in many global companies showing interest in the space. Further, conforming to the norm, even U.S.-based solar corporations have planned new ventures for the coming days.

In March 2018, Microsoft (MSFT - Free Report) announced the single largest corporate purchase of solar power in the United States by signing an agreement with sPower — a subsidiary of AES Corp. (AES - Free Report) — to add 315 MW of electricity via two solar projects in Virginia.

Further, again in March, NextEra Energy (NEE - Free Report) announced an agreement to purchase solar panel from Chinese solar module manufacturer — JinkoSolar Holding (JKS - Free Report) . Over the next four years, JinkoSolar will supply approximately 2,750 MW of high-efficiency solar modules to NextEra Energy. Production of the solar panels will start in the second half of 2018. (Read More)

San Jose, CA based SunPower Corp.’s (SPWR - Free Report) CEO Tom Werner stated last month that the company plans to set up a factory somewhere in the United States. Also, on Apr 18, the company entered into an agreement with Germany’s solar panel manufacturer SolarWorld for an undisclosed amount.

The deal is expected to add a further 500MW to the company’s production capacity. The company has also entered into a deal with NextEra Energy to provide solar panels to the latter. SunPower has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Supporting Sector’s Growth

What has kept the sector afloat has primarily been a steep reduction in cost of wind and solar energy. Per a report by International Renewable Energy Agency (IRENA), solar photovoltaic (PV) modules prices had dropped more than 80% in 2017 from 2009. Costs related to electricity from solar PV fell by about three-quarters in the period between 2010 and 2017. Also, the global weighted average cost of electricity (LCOE) of utility-scale solar PV has seen a decline of 73% since 2010.

Another reason why the segment has done well is the high demand outlook for renewables. Per, Renewable Energy: United States report of December 2017, domestic demand for clean energy is expected to surge to 12.6 quadrillion British thermal units (Btu) by the end of 2021.

Demand for solar energy in particular, is expected to soar 20% annually on the back of its abundant supply. This makes solar energy a better alternative to fossil fuel, which is deemed to get exhausted.

Finally, the solar space has also richly benefited from the environmental tax credit which was introduced as part of the $1.15 trillion federal spending bill of December 2015. Per the terms of the Bill, the Congress modified and extended federal tax credits for new wind and solar generators.

This helped solar corporations to claim federal Investment Tax Credits ("ITC") at 30% of the price of solar energy systems installed by businesses or homeowners, essentially allowing for more funds for R&D.

To Conclude

Washington’s continuous drive to establish a sustainable solar industry within the United States has resulted in the government splurging even more on the clean energy space. Labs controlled by governments together with private corporations have led to ground-breaking developments in the alternative energy space. Despite China’s efforts to stay at the top of the solar race by investing much more than its competitors, America has fast caught up with the Asian giant.

Further, cost-efficient technology in the United States has enabled the government to save billions of dollars as well as created plenty of jobs. It would therefore be incorrect to say that the United States lags China, which currently suffers from its credit woes and therefore severe paucity of funds. The right investments would certainly place the United States ahead of China in the solar race.

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