In the current economic environment, finding an industry with robust growth is a rarity. However, solar companies have been bucking the trend, posting stellar revenue growth and revealing the continued demand of solar modules worldwide. In fact, FSLR, which reported year-over-year sales growth of 119%, has experienced such rapid sales growth that the company is unable to meet customer demand due to constraints on their production capacity. Industry peers SunPower Corporation (SPWRA), and Energy Conversion Devices (ENER) also recorded phenomenal year-over-year sales growth of 61%, and 96%, respectively.
One factor contributing to the record performance in the solar space has been the implementation of feed-in tariffs (FiT). FiTs provide a profit incentive for individuals and businesses to invest in solar modules by greatly reducing their payback period on the initial investment. For years the European Union has paid individuals and businesses based on the amount of energy contributed to the electrical grid. As a result of FiTs, grid-linked solar power has grown 60% per annum from 2002-2006.
The first European country to seriously implement feed-in tariffs was Germany. An early adopter of solar technology, Germany had installed 1,400 MW of solar modules by the end of 2005, increasing the amount of electricity derived from renewable energy sources in the country to 10%. A whopping 70% of Germany’s renewable energy sources are sustained from feed-in tariffs.
The U.S. is now primed to follow Germany’s example. On February 6, Gainesville, Florida, passed an ordinance for the United States’ first solar FiT, setting a maximum of 4 megawatts (MW) of solar modules per year that can use the FiT. While this is not a significant amount of megawatts, the ordinance could provide the impetus for other cities in the U.S. to distribute FiTs. If the Gainesville ordinance is considered a success, there may be many more ordinances passed throughout the United States. States such as Minnesota, Michigan, and Indiana drafted feed-in tariff legislation in 2008, indicating that there may be more FiT ordinances passed in 2009.
While we are being cautiously optimistic about the growth of feed-in tariffs throughout the United States, the growth potential of solar modules in the United States compared to other countries is robust. The United States is more reliant on energy than any country in the world, which makes them the largest potential buyer of renewable energy sources in the world. If feed-in tariffs gain traction in the United States, demand for solar modules will spike significantly. With the biggest solar module manufacturing companies already being pushed toward production limits, there is a need for additional companies to manufacture solar modules. FiTs have led to massive increases in solar module installations, and there is plenty of market demand remaining for smaller competitors to take advantage of.
One company that we believe is poised to take advantage of this burgeoning demand is Worldwide Energy Manufacturing USA, Inc. (WEMU). WEMU’s revenue has grown more than fivefold year-over-year while earnings have more than tripled. With $38 million in contract backlog the company is expanding capacity with a lease for a 128,000-square-foot facility devoted exclusively to solar module manufacturing, which allows the company to move away from using subcontractors to manufacture their solar modules. Producing solar modules in-house will lead to higher margins across the board and increase WEMU’s bottom line.
The future is bright for solar companies big and small. Feed-in tariffs have a direct influence on individuals and businesses investing in solar power and the Gainesville ordinance will serve as a litmus test of FiTs in the U.S., providing a catalyst for solar module sales and manufacturers.