New solar projects in emerging markets now not only outcompete natural gas and coal, but also cost less to build than even wind projects.
This is astounding news considering that even just five years ago there was virtually no investment in solar, and now huge markets like India and China are rapidly deploying solar to power their cities.
The solar market is incredibly young, but it is growing rapidly and the price to install has fallen drastically in the last 10 years. 2016 was a remarkable year with record after record set for cheap solar power. According to Bloomberg:
“It started with a contract in January to produce electricity for $64 per megawatt-hour in India; then a deal in August pegging $29.10 per megawatt hour in Chile. That’s record-cheap electricity - roughly half the price of competing coal power.”
Half the price of coal power.
With the record for unsubsidized solar now under $30 per megawatt hour, and wind power not far behind, renewables are in an era of undercutting.
Forget about competitiveness, if one needs to generate new energy capacity, solar beats every other technology in most of the world without subsidies which is exactly why solar is being adopted so rapidly in emerging markets.
Shifting to solar power in developed nations can be more expensive as electricity in these countries is flat or falling and new solar must compete with already existing coal and natural gas plants, but the shift is picking up some steam regardless. As an example, solar in the U.S. has grown at a blistering 60% per year over the last 10 years and there is still enormous room for growth.
Still, emerging markets have taken the lead in solar investments spending $154.1 to the developed member nations of the Organization for Economic Cooperation & Development’s (OECD) investment of $153.7 in 2015.
The rate of clean energy deployment is far higher in emerging markets, signaling that they are likely to remain the clean energy leaders for the long haul, especially since three-quarters of these nations have set clean energy targets. Considering this, any investment in the incredible solar growth story ought to be in a company that has good exposure in emerging markets, especially in China and India.
One such company is Canadian Solar (NASDAQ: CSIQ). Canadian Solar was founded in 2001, initially offering solar devices to keep car batteries charged on new vehicles sitting in outdoor car sales lots. Since then it has become a panel producer and solar power plant owner and operator.
The company has a presence in 18 countries, has shipped more than 17 gigawatts of solar modules and has more than 2.3 gigawatts of solar power plants developed, built, and connected, making it the second largest solar company in the world.
In 2015, their revenue was $3.5 billion from 4.7 gigawatts of shipments, with net income of $0.17 billion. Canadian Solar’s stock price is at incredibly low levels right now. This is largely due to panel oversupply, though considering how fast demand for solar power is increasing, this oversupply won’t last long. But taking a look at Canadian Solar’s chart gives us a clue that its stock price won’t stay low for much longer.
Let’s take a look:
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At first blush, you’re probably thinking that this looks like a downtrend that’s going to continue. But there’s a technical clue here that tells me this stock is about to go parabolic. What we’re seeing on CSIQ’s chart is a falling wedge. A falling wedge is a bullish pattern that signals that the price will break upwards through the wedge, moving into an uptrend.
Let’s look at the chart again with some annotations:
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You can see the falling wedge pattern here marked by the green lines. In a wedge, price bounces between two trend lines, which are bounding the price movement. To have a falling wedge, the price movement should test both the resistance and support lines at least twice, and the more times the price tests these lines—especially the resistance line—the higher the quality of the wedge. In CSIQ’s case, the resistance and support lines of the wedge are tested multiple times, giving us a clear wedge pattern.
But once the price breaks out of this pattern, where will it go?
On the annotated chart above you’ll see two other lines. These are Fibonacci retracements at the 38.2% (pink line) level, and the 61.8% (blue line) level. These retracements give us a rough idea of where Canadian Solar’s price might be at the top of its uptrend once it breaks out of the falling wedge, which gives us a price around $24 to $31 without much correction on the way up.
My guess would be that we’ll see a price around $30, which would be a 135% gain from where the price is today (Friday), and those gains could be seen in the next 12 months. So from a purely technical perspective, Canadian Solar looks like a great buy.
The company does have a large amount of debt on its balance sheet, but it plans to sell some of its solar power plant assets to pay off the debt, which it is already in the process of doing having just completed the sale of two of its plants on Thursday for a total of $115 million.
Apart from the sale of some of its assets to cover the debt, the trend in solar is clear and as the second largest solar company in the world, Canadian Solar is very well positioned.
The company is focusing its efforts on expanding its footprint in both emerging and developed markets, specifically in India and China in the emerging world and the U.S. in the developed world. The company has multiple short- and mid-term projects in these countries in its pipeline, which I believe the company should be able to convert to revenue considering that the cost of solar is declining quickly, pushing demand ever higher. And in both emerging and developed markets, there is tremendous room for growth.
Right now, solar accounts for just over 1% of global power generation, which is quite low. But that number has been rising rapidly, and it’s expected 10% of the world’s electricity will be generated by solar power by 2030, so the long-term potential for the solar industry is very strong.
If you’re considering an investment in Canadian Solar, do your due diligence and take a closer look at where they’re headed. With proper risk management, CSIQ could be a stellar opportunity.