Solar panels work great, as long as the sun is shining. This is not some esoteric problem. Solar's intermittency boosts its overall cost because utilities can only depend on a small portion of a panel's generational capacity. The good news is that grid operators realize that pumped hydro storage is tried and tested, offering grid scale storage and a straightforward path for more reliance on solar.
What is pumped hydro storage?
Pumped hydro storage transfers water between two reservoirs, allowing the water to flow downhill and make electricity when prices are high. Back in the 1890s Italy and Switzerland were already using pumped hydro storage, and it currently represents around 3% of global generation capacity.
More storage facilities are already being built to help handle the new solar farms in America's Southwest. The 1,300 megawatt (MW) Eagle Mountain facility was recently approved with a price tag of $1.4 billion. The operator will be able to release energy during times of peak demand, helping California meet its renewable energy goals.
Nobel Prize winning former Secretary of Energy Steven Chu has been bullish on pumped storage for a long time. With a cost of $100 per kWh it is very cost effective compared to traditional lead-acid or lithium ion batteries, and it offers the gigawatt storage capacity that utilities need.
Utilities are important for solar manufacturers
In Q2 2013 utilities accounted for a little more than half of all U.S. solar photovoltaic (PV) installations. First Solar's (FSLR 0.76%) bread and butter is utility scale solar. It California alone it is working on the 550 MW AC Topaz Solar Farm, the 550 MW AC Desert Sunlight Solar Farm and the 230 MW AC Antelope Valley Solar Ranch One, among others. The Antelope Valley project is planned to reach full commercial operation by December 2013. These projects are significant considering that in Q3 2013 First Solar had expected shipments of 2.7 GW.
With big utility projects and new pumped hydro storage coming online, First Solar's future is looking up. The company is active in the Western U.S. where there are many opportunities for new pumped hydro storage, and it has a healthy profit margin of 12.2%.
SunPower (SPWR +0.00%) focuses on distributed generation systems, but it also offers utility solar systems. MidAmerican contracted the company to build its 579 MW Solar Star plant. In Q3 2013 utility and power projects contributed 8.5% of SunPower's revenue within its Americas segment. While pumped hydro storage is more applicable to utility systems than a small 10 KW system, in the long term SunPower will benefit from more utility scale storage because it helps utilities mange large net metering programs.
SunPower's profit margin of -4.5% is deceiving. The market has improved, and in the last two quarters it brought in diluted normalized net income per share of $0.58 and $0.04 respectively. Thanks to strong demand for rooftop systems and the long-term development of grid scale storage, SunPower is worth a second look.
The Chinese story
Chinese companies still have big problems with debt, but some of these companies are positioning themselves to benefit from strong utility solar sales.
Trina Solar (NYSE: TSL) projects that in 2013 China will be the most important nation for the company with an estimated 27% of sales. The Chinese solar market is becoming stronger thanks to high pollution levels pushing the government to divest coal assets. This year China became the first country with more than 4 GW of installed utility scale solar.
With a total debt to equity ratio of 1.59 and a profit margin of -18.4% Trina Solar is not the most attractive solar manufacturer, but it is still doing better than a number of its Chinese competitors. Trina recently bumped its Q3 2013 shipment projections by 100 MW to a range of 750MW to 780MW, while Yingli Green Energy (NYSE: YGE) is still stuck with its massive total debt to equity ratio of 11.59 and its profit margin of -25.1%. Even though better storage technologies will help all solar manufacturers, Yingli has too much debt for it to be worth your money. If you want to invest in Chinese solar Trina Solar is a better firm to look at.
The Foolish bottom line
Building solar plants in regions with varying topography and lots of sunshine is a great idea, as it paves the way for pumped hydro storage. By focusing on plants in the western U.S. First Solar is helping to push the entire industry forward. More pumped hydro storage will allay utilities' fears about the intermittency of distributed generation systems, providing a further boost to SunPower and Trina Solar.
