More Tomorrow For Friday Rundown. Lots in corporate news today, need to reflect on what if anything this means.
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Yann
Growth Without Pollution. With positive GDP growth across the world last year it is a departure from the norm that global emissions were flat. Still, with 33.3 gigatonnes of CO2 output, there is more work to do but when the economy grows it has always been the case that emissions do as well. This means that business health is diverging from climate sickness and that’s a step into the right direction.
The Kitchen Sink SolarCo. Real Good Solar has tried it all in the nearly 50 years that it has been around. Going public more than 10 years proved to change the path for the company from which it had difficulty recovering from and ultimately led it to the end last month when it closed the doors and filed for bankruptcy. Over the past decade the RGS got into solar shingles/tiles and even hoped to be a reverse merger vehicle for utility scale solar companies hoping to get public quickly. The OG solar guard will remember RGS as something much bigger and important than those that only encountered the most recent iteration but future solar pros will have to read the history books to learn the name.
4X But More To Come. New estimates show a step growth in residential energy storage in California this year up to 50,000 units to be installed. Let’s be real, that’s nothing compared to where we are going. First, the attachment rate is going to continue to climb but more importantly the retrofit market for adding storage to existing solar is going to be huge. Look to see what percentage of storage goes to existing solar.
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Sentiment Scares CEOs. There is a reason that economists measure consumer sentiment. The feeling of optimism or pessimism affects everything from market share and price, or in this case value. Pure analysts would say that oil companies are undervalued, Exxon trades at 18x but Enphase trades at 109x. While stock price is a rather bad indicator of value, it does create a real-time metric of where someone is willing to buy and someone is willing to sell. When it comes to oil and gas companies, the sentiment is bad. When folks like Jim Cramer comes out and says they are bad investments, it doesn’t help create comfort. Warren Buffet says that if you’re not comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes. So while Blackrock raised their ownership levels in several solar companies in the past few weeks, you have to ask yourself what’s ahead for the oil majors.
Safe And Predictable Solar. Fitch found that 86% of solar project performed to their P50 forecast. At the end of the day the modularity and simplicity of solar matched with the predictability of the sunrise to sunset timing makes solar an incredibly secure asset. As investors are trying to drive down the price of solar equity investments which are largely still double that of mortgages, developers are trying other ways to squeeze more out of the solar panel. I expect Solaredge to announce some initial traction with utility scale projects during their earnings call in a few weeks. This comes as some projects appear to be using optimizers on the solar farms when they’ve traditionally been used on residential installations. Of course, solar output can also be insured against through innovative financial products like the solar revenue put by kWh Analytics.
Definition Of Insanity. Is doing the same thing over and over again. The USITC published its review of the 201 tariffs which found increases of cell imports in light of the tariffs placed on them while module assembly in the US increased over the past few years. Tariffs are obviously the most self-imposed headwind to solar in the US and the job creation that would come with removing all 5 levels of tariffs impacting our industry. That being said, it’s time to take a different political approach with this White House. Trump doesn’t want to work together, he wants credit and praise. So let’s do that, let’s credit him with the module assembly factories in Georgia, Alabama and Florida thanks to his 201 tariff and then praise him for reviewing the anti-dumping tariffs that are hurting further growth of jobs. I don’t know if it would work, but when in Rome…
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Board Room Showdown. The CEO of Engie, Isabelle Kocher, was unceremoniously pushed out in a board meeting last week. Engie is the French utility that is 23% owned by the Government and has been pushing the 3 D’s, decarbonization, digitalization, and decentralization. The stock has been underperforming in recent times as the company has exited fossil generation in the US and elsewhere.
Why It Matters. Kocher is the only female CEO in the CAC 40, the largest companies in France. More importantly, it’s hard to imagine that the government wasn’t aware of the board room move in advance. Insiders are saying that the CEO was not doing enough to maximize the value of the power generation assets and too slow to move into renewables. Herein lies the problem, CEOs can’t be seen to look too far into the future, embracing the next era of clean economy for utility CEOs practically means that they are ready to leave their post. Much like David Crane during his time at NRG, Kocher was driving Engie into the future and it looks like half a decade of time passing and a Paris climate accord couldn’t give her the cover she needed to see the strategy unfold.
What Happens Next. I look forward to hearing what President Macron has to say about l’affaire Engie. If a quasi-governmental corporation with a global mission of the 3 D’s can’t give the CEO room to operate, no other CEO will take action. If Larry Fink’s BlackRock letter was meant to push executives and board directors into a clean economy, the move by Engie’s board is a big rebuttal. There are going to be a lot of powerpoint decks shown to board rooms putting the decision on the directors to point the ship in a direction of either status quo versus making a move towards fossil free. What does Kocher do next? Maybe there’s a private equity fund to look into the future backing Kocher/Crane for activism inside utility board rooms. Too bad I didn’t attend L’Ecole Polytechnique in Paris so I could put my hat in the ring at Engie.
The Takeover. Another week has passed in the PG&E negotiations that are happening behind the scenes. The debtors, courts, PG&E and State of California are talking about how the utility emerges from bankruptcy if at all. From a purely financial standpoint, the utility could emerge but the company knows it needs buy in from the State on the plan. Talk about a brilliant opportunity for the State to counter the failure by the Engie board and say, we want the utility of the future and we want the shareholders to put an executive in charge that lost their job trying to create one at the wrong place at the wrong time. It’s time to name some names and outline the plan, get the consumers to buy into a vision because when it comes to Government run utilities, PG&E already has the CEO of TVA at the helm and that won’t get us anywhere.
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Yann