President Obama recently revised the Clean Power Plan in what is regarded as the boldest attempt ever on climate change by a U.S. president in reducing carbon effluence from the power sector.
One man's loss, they say, is another man's gain. Though this new plan comes as an added blow for the U.S. coal producers who have hitherto been under tremendous stress, green stocks may have a lot to cheer about.
The Clean Power Plan
On Aug 3, the White House revealed the final version of the ambitious climate policy. This Environmental Protection Agency (EPA) program seeks to cut CO2 emissions from the nation's power plants.
The Obama administration has vowed for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels. This version turns out to be a little stronger than the draft proposal released last summer wherein the EPA had proposed total CO2 reduction of 29% by 2025 and 30% by 2030.
The plan sets carbon pollution reduction goals for power plants and requires states to implement plans to meet these goals. States have until Sep 2016 to submit plans, but all must comply by 2022.
Critics’ View
Obama faces stiff opposition on climate issues from the Republicans in the Congress. The Republicans contend that the climate change deal will be economically damaging for the U.S. economy, middle-class families and struggling miners. Coal mining states such as Wyoming, West Virginia and Kentucky fear that their economies would suffer and people would be laid off.
The struggling U.S. coal industry has been looking eastward to nations like China and India to revive their dwindling prospects. That little bit of comfort was taken away from them following the grievous economic losses in China, which had in its heydays fueled coal demand (read: Coal Stocks Headed for More Trouble on Obama Power Plan?).
On the contrary, Obama brushed off the notion that his plan was a "War on Coal" ruthlessly killing jobs. The President said that he is reinvesting in areas of the U.S. previously known as "coal country."
Black Diamond Gives Way to Glistening Green
The U.S. is the world’s second biggest carbon emitter after China. The administration believes that Monday's announcement will secure a legacy on climate change and these efforts will spur other countries to respond proactively. With China and Brazil having already committed to curb emissions, the new rule will give a much-needed jolt to the global climate summit to be held in Paris this December.
Alternative energy sources have gradually made inroads into the global energy mix due to its clean burning nature and a growing awareness among the masses regarding its benefits. Burgeoning population, economic growth, stricter regulations as well as new technologies are transforming the energy landscape.
CO2 emissions from power plants fell 15% between 2005 and 2013. The steep decline in emissions came on the back of a vicious recession, cheap natural gas pushing out coal, and the rise of wind and solar power along with improved efficiency. But we need to keep in mind that we’re only halfway to the target. The rest of the goal may not be so easily achieved.
Stocks in Focus
Although it’s debatable whether Obama's broader climate plan can solve climate change, this is certainly one of the most historic and ambitious climate rules, given that power plants account for 31% of U.S. greenhouse gas emissions. The Clean Power Plan has unmistakably put renewable energy companies in sharp focus. These companies have had a volatile run – up today, down tomorrow – but with the kind of sustained regulatory backing they’re receiving, no portfolio will ever be complete without its verdant green corner. Below we have highlighted three leading solar plays that are worth the consideration.
SunEdison Inc. SUNE
SunEdison, the world’s leading renewable energy developing company, has been expanding its clean energy capabilities through various alliances and acquisitions. SunEdison has been aggressively investing in emerging markets, particularly in India. It is set to expand its Indian base by investing approximately $15 billion through 2022 and has plans to develop 15 GW solar and wind projects in the country. Recently, the company announced that it will acquire wind energy assets from developer and operator Invenergy Wind LLC ("Invenergy"), which will expand its foothold in the U.S. wind energy market.
SunEdison has a Zacks Rank #3 (Hold) and its share price has soared 15.07% year to date.
Canadian Solar Inc. CSIQ
Canadian Solar caters to a geographically diverse customer base spread across key markets in the U.S., Canada and Europe, as well as emerging markets like South Korea, Singapore and Brazil. The company, which has a strong pipeline of projects, continues to engage in acquisitions and adopt various strategies to further consolidate its position. During the first quarter of 2015, it acquired Recurrent Energy, LLC, a leading North American solar energy developer, thereby strengthening its hold in the business of ownership and development of solar power plants in North America.
Canadian Solar presently holds a Zacks Rank #3 (Hold) and is trading at a forward PE of 11.34x.
SunPower Corp. SPWR
SunPower is one of the most forward-integrated solar companies, having over a decade-long experience in designing, manufacturing and supplying large-scale solar systems. The company is gradually shifting its revenue base from solar panel sales to the development of solar projects, power plants and engineering, procurement and construction systems.
While the company expects third-quarter margins to come under pressure due to the lack of high power plant recognition, its strategic asset acquisition program and increasing production capacity will enable it to meet rising customer demand while providing efficient services at a reduced cost. SunPower recently launched a joint YieldCo with rival First Solar FSLR to lower the cost of capital significantly, which will in turn maximize shareholder value.
SunPower holds a Zacks Rank #3 (Hold) and has a forward PE of 20.54x.
In Conclusion
The 2030 deadline of the Clean Power Plan gives renewable companies a decade and a half to consolidate their positions – this is a long and wide road ahead for a sector that has been at the mercy of state and federal subsidies with the constant threat of such advantages being taken away from them.
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