The Global Renewable Energy Report Card
Earlier this month the Renewables 2014 Global Status Report (GSR) was released by the Renewable Energy Policy Network for the 21st Century (REN21). REN21 is a global renewable energy network that connects governments, nongovernmental organizations, research and academic institutions, international organizations and industry to share information and advance renewable energy. REN21 assists policy makers by providing high quality information and catalyzes discussion and debate on renewable energy policy.
I believe that the GSR is the most comprehensive report available when it comes to the global renewable energy picture, but I may be somewhat biased as I have been a contributor to and reviewer of the report for the past five years. Each year when it is released, I like to provide an overview and highlight promising sectors for investors.
Following last year’s GSR release we took a deep dive into the solar sector and came up with a gem for subscribers in First Solar (Nasdaq: FSLR), which returned 88 percent in under seven months before we advised subscribers to take some money off the table (and FSLR is down 7 percent since we provided that advice on March 20). We did the same solar deep dive in last week’s Energy Strategist, and made another recommendation in the sector, which has already gained more than 10 percent since. But today I provide a general overview of the GSR.
Global Renewables Overview
Despite declining policy support and uncertainty in many European countries and the US, renewables continued to grow globally. In the power sector global capacity exceeded 1,560 gigawatts (GW), up more than 8 percent over 2012. Hydropower rose by 4 percent to approximately 1,000 GW, and other renewables collectively grew nearly 17 percent to more than 560 GW.
Solar photovoltaics (PV) continued to expand at a rapid rate, with growth in global capacity averaging almost 55 percent annually over the past five years. Even as global investment in solar PV declined by nearly 22 percent from 2012, new PV capacity installations increased by about 32 percent as a result of sharply falling levelized costs. For the first time ever, the world added more solar PV than wind power capacity in 2013.
Capacity additions were greater in 2013 for geothermal power, hydropower, and solar heating than their five-year average growth rates. However, growth rates for wind power, solar PV, and concentrating solar power (CSP) all slowed relative to their five-year average growth rates.
After a few years of uneven growth, global ethanol and biodiesel production both increased in 2013. By early 2014, at least 63 countries used regulatory policies to promote the production or consumption of biofuels for transport — up from the 49 reported in GSR 2013.
In the European Union (EU), renewables represented the majority of new electric generating capacity for the sixth consecutive year (72 percent of new capacity in 2013), and in China new renewable power capacity surpassed fossil fuel and nuclear capacity additions for the first time. Worldwide, renewables accounted for more than 56 percent of net additions to power capacity in 2013.
At the end of 2013, China, the US, Brazil, Canada, and Germany were the top five countries for total installed renewable power capacity. China ranked first in total renewable energy investments, hydropower capacity, solar PV capacity, wind capacity and solar water heating capacity. The US ranked first in concentrating solar power capacity, ethanol production and biodiesel production.
Global new investment in non-hydropower renewable power and fuels was an estimated $214 billion in 2013, 53 percent of which went into solar power. The total was down 14 percent from 2012 and 23 percent lower than the current peak investment year of 2011. (Japan was a notable exception, with an increase in renewable investments of 80 percent over 2012.) Part of the decline in investment can be attributed to declining government subsidies in some countries, but some of it is likely the result of falling technology costs. Solar PV, for example, saw record levels of new installations in 2013, despite a 22 percent decline in dollars invested.
China made the largest investment globally at $54 billion, followed by the US ($34 billion), Japan ($29 billion), the United Kingdom ($12 billion) and Germany ($10 billion). Rounding out the top 10 were Canada, India, South Africa, Australia and Italy.
Conclusions
The new Renewables 2014 Global Status Report confirms that renewables continue to grow globally, but that growth has slowed for major sectors like wind power and solar power. This slowdown was caused in part by a shift in government policies in some EU countries like Germany. Regionally, Asia is beginning to take a more dominant role in renewable energy investments, as China invested more in renewable energy in 2013 than did all of Europe combined.
While growth in solar power slowed, solar power’s growth rate has been substantially higher than wind power’s over the past five years. In 2013, new capacity additions of solar PV surpassed wind power capacity additions for the first time, and solar power received more than half of all renewable energy investments. I expect this trend to continue, and for solar to be the best long-term bet in the renewable energy space. See last week’s Energy Strategist for a more detailed look at the solar sector.
(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)
Portfolio Update
Williams Buys the Pot
There’s nothing like buying your way out of problems and immediately getting the purchase price tacked on to the value of your equity.
That’s the neat trick Williams (NYSE: WMB) pulled off today in converting its equity investment in Access Midstream Partners (NYSE: ACMP) into full control that will allow it to use ACMP’s surplus cash flow to offset the deficit at its fully sponsored Williams Partners (NYSE: WPZ) master limited partnership (MLP), which is to be folded into Access. Williams shareholders get stepped up dividend growth and strategic control of valuable assets.
With the stock recently up nearly 19 percent on the deal news, subscribers who acted on our Oct. 9 buy recommendation promptly have now seen a total return of 66 percent. And at least two analysts following Williams have opined in the deal’s wake that there’s room for more, since the stock continues to offer a yield above that of other MLP general partners.
As part of the deal announcement, the company said it would increase its third-quarter dividend to 56 cents a share, up 32 percent from a year ago and good for an annualized yield of 4 percent at the recent share price of $56. From there the dividend would increase another 10 percent next year, and an additional 15 percent a year in 2016-17. Limited partners have been promised annual distribution growth of 10 to 12 percent through 2017, starting with a 25 percent increase per unit next year over what Access was forecasting on a standalone basis.
How will Williams afford this everyone-wins bonanza? Well, the restart of its Geismar, Louisiana olefins petrochemical plant following a deadly blast almost exactly a year ago will surely help. Production there is expected to resume in August, a month behind the previous schedule, and the additional costs associated with the delay were “primarily” to blame, the company said, for the 10 percent cut it made to the Williams Partners distributable cash flow forecast for 2014. That would have left Williams with a distributable cash flow deficit of 11 percent relative to the forecast Williams Partners distributions.
And that deficit could have grown, and still may, with insurers “recently rais(ing) questions” over Williams’ Geismar claim and withholding the bulk of the $200 million sought by the company in its most recent claim. (They did pay out $50 million, boosting Williams’ receipts on its claims to $225 million out of the $500 million in forecast insurance proceeds.)
But Access also has a crucial role to play in covering the distribution gap, most immediately because Williams will be able to reduce its rich 1.38x distribution coverage ratio. Over the longer-term, Access is expected to enjoy rapid growth in demand for its gathering and processing services in the Marcellus, Utica and Eagle Ford, among other shale basins, complementing Williams’ gathering assets and its extensive distribution system spanning the Eastern seaboard and the Gulf coast.
Williams said equity sales would finance half of the $6 billion purchase price, which also covers enough Access limited partner units to give Williams a 50 percent stake and ensure approval for its planned MLP merger. The remaining half would come from long-term debt, revolving credit line and some $1 billion of cash on hand. Williams plans to subsequently drop down more of its directly owned assets to the MLP to repay some of the borrowing on the revolver.
Not typically mentioned in those comparisons of Williams to other GP stocks is that few are already as heavily leveraged, with the company’s nearly $13 billion in debt working out to more than 5 times its trailing annual EBITDA.
We’re every bit as excited about growth opportunities at Williams as we were when we called it a Best Buy in January and increased the buying limit in March. But today’s action certainly limits the scope of future appreciation. Given the magnitude of the gain, a drop from these levels below our prior buy limit of $46 would no longer constitute an immediate buying opportunity. As such, we’re downgrading WMB to a Hold. But we wouldn’t be in any rush to sell it.
— Igor Greenwald
Stock Talk
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