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Does Concentrated Solar Pose a Threat?

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Concentrated solar power, or CSP, usually uses a system of reflectors to heat up a liquid, and then drive a turbine. The system relies on simple physics and offers one big benefit that photovoltaics has struggled to offer: storage. The prospect of generating electricity for a relatively large portion of the day is a big plus for utilities that need to power their customers 24/7. In theory CSP could pose a big threat for traditional PV manufacturers. 

The Ivanpah project
Recently the Ivanpah 392 megawatt (MW) CSP plant was competed in the Californian desert. NRG Yield (NYSE: NYLD  ) and its parent company NRG Energy (NYSE: NRG  )  worked to bring the plant to fruition. The facility will help California reach its goal of 33% renewable energy production by 2020. Southern California Edison and Pacific Gas & Electric have already signed long-term agreements to buy power from the facility. 

Don't expect CSP to destroy traditional solar any time soon
In May of 2012 the Fraunhofer Institute For Solar Energy Systems concluded in a study that CSP is simply very expensive. In the sunny North African or Californian deserts CSP plants with parabolic troughs have reached a levelized cost of energy, or LCOE, of 0.163 euros/kWh. Traditional photovoltaic systems have reached an LCOE around 0.08 euros/kWh.

A big problem for CSP technology is the ability for photovoltaics or PV systems to continually increase efficiencies, driving down costs and real estate requirements. CSP's pricing is expected to improve because of increased project experience, improvements in materials, and economies of scale, but it will be difficult to find the same scale of cost decreases found in PV systems. 

Traditional solar panel manufacturers
First Solar (NASDAQ: FSLR  ) and SunPower  (NASDAQ: SPWR  ) are hard at work to produce more efficient PV panels with fewer materials. First Solar recently signed an agreement with GE where it will receive a significant patent portfolio to help improve its products, while GE will get an equity stake in First Solar. SunPower is hoping to improve its average efficiency from 21% in 2012 to 23% in 2015, while pushing its cost per watt down 35% in the same time frame. 

The Chinese firm Yingli Green Energy (NYSE: YGE  ) is stuck playing catch up. Its most advanced residential panel offers 16.5% efficiency, while SunPower's X-Series is 21.5% efficient. 

Strong utility sales
In the second quarter of 2013, U.S. utility PV installations reached an impressive 452 MW. The utility market is First Solar's mainstay and allows the company to sport a profit margin of 10.5%, but in this recent quarter its expected modal shipments fell from 2.6 gigawatts (GW) at the end of 2012 to 2.2 GW. The company needs to improve its efficiencies substantially before its pipeline falls significantly. 

SunPower has been trying to drum up more utility sales, and right now it is developing 579 MW in Solar Star projects for MidAmerican. Going forward, stronger utility demand should help SunPower reverse the negative net income from operations it posted in three of the last four quarters.

Yingli is struggling with a long-term debt load of $1.384 billion compared to $241 million in equity and a horrible profit margin of -23.8%. The company is optimistic that its Chinese utility sales will grow, thanks to feed-in tariffs and Beijing's goal to make China's power cleaner, but investing in a company with such large losses is not too attractive.

A caveat about NRG Yield
While it is hard to get too excited about CSP, NRG Yield is a different story. NRG Energy is a major utility with a generating capacity of 46 GW. It has heavily investing in renewable energy and owns a number of clean solar and natural gas facilities. It recently decided to take a number of its assets and spin them off into NRG Yield, giving investors a green and high yielding investment. 

While NRG Energy can only devote around 25% of its earnings per share to fuel its dividend, NRG Yield is a different story. It is trying to return 90% of its earnings in dividend payouts. The company owns 2.5 GW of gas, solar, wind and thermal generational capacity sold on long-term power purchase agreements. For investors looking for stable high-yield investments with a green slant, NRG Yield is a great new company to look at.

Bottom line
Concentrated solar power sounds nice, but its high LCOE makes it hard to paint it as a PV killer. SunPower and First Solar are two traditional manufacturers with a future in utility generation, but First Solar's pipeline needs to be carefully watched. NRG Energy just spun off NRG Yield, and investors looking to boost their dividend portfolio with green energy would benefit from taking a second look. 

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9/29/2016 11:12 AM
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