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  • Solyndra, The Fifth Amendment and The Threat to the US Utility PV Pipeline

    If there had ever been any doubt, it is now clear that the result of the Solyndra debacle has been to heavily politicize the government’s clean energy loan guarantee program and any other measures remotely connected with the support of clean energy.


    From that point of view, just about the most disconcerting headline that clean energy advocates could be faced with was associated with a report by The Hill late Wednesday night -


    “Solyndra Executives To Plead The Fifth At Hearing”


    The hearing in question was of course called by the House Energy and Commerce subcommittee on Oversight and Investigations. And the reaction by the committee’s senior ranking members was fairly forthright:


    “Who exactly are Solyndra’s executives trying to protect and what are they trying to hide?” full committee Chairman Fred Upton (R-Mich.) and Oversight and Investigations subcommittee Chairman Cliff Stearns (R-Fla.) said in a joint statement.


    “We would encourage Mr. Harrison and Mr. Stover to reconsider this effort to dodge questions under oath and hide the truth from those American taxpayers who are now on the hook for their $500 million bust,” they said.


    I have no desire in the context of this article to discuss the politics behind all of this. My sole point is that clean energy investors now have no option but to recognize that the heavy politicization of this arena can only have one affect – that is, that until the 2012 election is behind us, this politicization process is going to have a dramatic affect on the financing pipeline for clean energy projects in the US. Exactly how bad this will be we are yet to discover. However, the market will no doubt have to price in the uncertainty. And in general, the fear factor leads markets to react to political uncertainty by pricing in an excessively negative risk premium.


    Recent experience with regard to the ‘negotiations’ over the budget deficit should have made this more than clear.


    For the solar industry this is a particularly pressing issue. As government deficits and reduced tariff levels have resulted in a dramatic fall in demand for solar out of Europe, there have been seen to be roughly three important alternative sources of new demand: 


    • The US – and particularly the US Utility-scale sector, which currently has a massive pipeline 
    • Japan – with the prospect of major Utility-scale projects as a result of the country’s new Renewable Energy Bill 
    • China – with the country’s belated focus on domestic solar power generation via the introduction of a feed-in tariff. The 1-2 GW per annum which may result from this is, however, dwarfed by the increase in supply being built out by the country’s solar module manufacturers. 


    From this perspective, the promise in the US Utility-scale PV pipeline is critical to the health of the solar industry going forward. To put this in perspective, data from SolarBuzz shows that the US Utility-scale pipeline grew to stand at a full 24 GW in September, up from only 17 GW two months previously. This number relates to all non-residential PV - ie both Utility-scale and commercial. However, the majority of the projects relate to Utility-scale.


    The glaring issue is that there has been and continues to be a financing gap for projects of this scale and the DoE’s loan guarantee program has been essential in seeing many of these projects move forward.


    The threat to the Utility-scale pipeline is therefore two-fold: 


    • The Section 1603 Treasury Program, which has been critical in ensuring the financing of many of these Utility-scale projects, is set to expire at the end of this year. The extension of the program now looks set to become a major election issue. Not a good sign. 
    • In the short-term, there are around 14 new loan guarantees, nine of which are for solar projects, looking to be finalized by the DoE by the end of the month. Again, the final approval of these loan guarantees is likely to become heavily politicized in the current environment. 


    In relation to the later point, the House Committee on Energy and Commerce already appears to have raised questions concerning these upcoming loan guarantee approvals in a letter to Energy Secretary Steven Chu.


    In particular, the loan guarantees at issue are reported to include $4.38bn in loan guarantees related to three solar projects being developed by First Solar. At time of writing, reports also suggest that at least one of these, the planned 550 MW Topaz project, will not move ahead by the 30th September deadline.


    As the threat to the US Utility-scale pipeline becomes increasingly clear this is likely to have a further depressive impact of solar stocks.


    As I have discussed previously, I had already taken profits on the last of my clean energy stocks by the end of last month and I no longer have exposure to the sector for the moment. The macro-economic and fiscal environment simply presents too many risks at this time. For a fuller discussion, see my article on the issue from the beginning of the month here.


    Given all of the present risks, this certainly seems a time to keep your powder dry and invest another day.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: FSLR, Solar
    Sep 22 1:31 PM | Link | Comment!
  • Taking Profits on SunPower
    For anyone interested, from a purely trading perspective I've now taken profits on my SunPower position. I'm looking at re-entering a new strategy on solar. I'll write a more detailed article over the next few days.
    Apr 09 2:50 PM | Link | Comment!
  • Egypt: the Democratic Process, Oil and Energy Policy
    The global financial markets are currently expressing relief that Mubarak has resigned in Egypt, at least temporarily diffusing what was increasingly at risk of becoming a very unstable situation. As a result, stocks are experiencing something of a relief rally and oil has continued its fall from its recent highs.

    No doubt there will be a return to something approximating calm in the period immediately ahead as Egypt celebrates and the situation normalizes. However, the issues raised by the pro-democracy movement still require full resolution - and the nature of that resolution remains critical to both people across the Arab world and to the financial markets.

    Two pressing questions need particular thought -

    1. What will the process towards democracy in Egypt itself look like?

    2. How will the pro-democracy movement in the rest of the Arab world react?

    Firstly, in terms of the process towards democracy in Egypt itself, clearly the most unstable path ahead would be a rapid move to an early election. Indeed, if Mubarak had simply resigned reports suggest that executive control under the constitution would have fallen to the speaker of the parliament and elections would have to have been called within two months.

    However, by handing over power to the Supreme Council of the Armed Forces, Mubarak seems to have circumvented this particularly unstable process. The key figure will now be Mohammed Hussein Tantawi, the Defense Minister and the Supreme Council has already issued a statement that it intends to examine the situation 'in order to materialize the aspirations of our great nation'. The Army appears to be well respected in the country and the hope would be that the people will give it time to plan a stable process towards democracy.

    It also seems that the US and the rest of the democratic West are likely to support a fairly lengthy process towards democratic elections. After all, democracy is not just a vote on one set date. It is an open, free process of debate and organization. Given the suppression of any fledgling democratic opposition over the past 30 years, Egypt needs time to let democratic institutions prepare the ground - and most importantly to let democratic opposition parties coalesce.

    In what was perhaps an important indication of the thinking developing amongst democrats, Mohammed ElBaradei, ex-UN weapons inspector and key opposition leader, has already said that what is required is a return to stability and a transitional government for the next year. Clearly, he would like to see a stable period in which to build the organizational structure of a democratically-aligned party.

    This is a viewpoint which both the Army and the international community can probably both see as justifiable. Perhaps then, Egypt itself is about to enter a fairly stable period of democracy-building. That may suggest that the political premium currently in the price of oil may decline further.

    However, the second question outlined above should be a stark reminder that this process has not come to an end. So, how will in fact the pro-democracy movement in the rest of the Arab world react to developments in Egypt?

    For the Arab world the message of both Tunisia and Egypt appears to be clear - that the varied autocracies in the region can be challenged. Both the pro-democracy movements across the Middle East and, more worryingly, the more extreme Islamist opposition will have taken note. Though it is difficult to predict when or where any new pro-democracy protests may arise, it is fairly clear that the potential players in these protests will have been encouraged by the success of pro-democracy groups in Tunisia and Egypt.

    One other point remains poignant. Regime change in Egypt, though not without an unfortunate loss of life, was relatively peaceful. This probably reflected the restraining influence of the relationships which Mubarak himself had in the West and in the US in particular.

    There is no guarantee of the same restraint being in play elsewhere amongst autocracies in the Arab world. And developments in relation to any further pro-democracy protests could potentially be much more explosive.

    From this point of view, the respite in the oil market is unlikely to be long-term. Personally, I would think that a further move in WTI crude below $80 or a move Exxon Mobil (NYSE:XOM) to below $78 would probably represent something of a temporary dip.

    Finally, it is critical that Energy Policy in the US and in the West as a whole pays attention to the lesson - and not to the period of short-term calm immediately ahead. Oil has now become heavily politicized and most importantly it has in recent years shown itself to be heavily sensitized and much more volatile than in past periods.

    As I argued in a recent article on the subject here

    the global economic cycle is now far too exposed to the excessive volatility in this one strategic commodity - oil. This makes oil's monopoly as the only readily available fuel for the global transport system untenable - and an Energy Policy must now be constructed in order to break this monopoly.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Feb 11 2:51 PM | Link | Comment!
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