After Consolidation, Solar Will Shatter Expectations

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by Shawn Kravetz, Esplanade Capital

Shawn KravetzSomewhat catalyzed by COVID-19 disruptions but more so by sector maturation, solar is entering a consolidation phase driven by:

  • Solar incumbents seeking to fortify market positions and reduce costs through
    scale
  • Legacy/traditional energy and utility players seeking renewables exposure to
    diversify away from fossil fuels, accommodate investor concerns, and generate
    sustainable, predictable profit streams
  • Corporates capitalizing on cost of capital advantages particularly in cross-border
    acquisitions
  • Parents, specifically China state-owned independent power producers, privatizing
    their separately listed renewable subsidiaries (typically in Hong Kong) to bolster
    their renewable bona fides and exploit wide valuation discrepancies (typically
    between mainland China and Hong Kong).

Like the entire global economy, solar endured some COVID-19 dislocations in the first half
of 2020; however, unlike most industries, COVID-19 has marshalled unprecedented international governmental, corporate, and financial support and momentum for renewables broadly and solar specifically. We remind readers that solar benefitted immensely from modest fiscal, monetary, and policy stimulus (namely in the U.S. and China) in the aftermath of the 2008/09 Global Financial Crisis growing from a 6 gigawatt industry in 2008 to 28 gigawatts in 2011. Given cost competitiveness with traditional energy sources today, post-COVID-19 solar backing relies far less on subsidies and far more on long-term policy clarity, streamlined financing methods, and entirely new, massive sources of end demand.

Without this powerful and likely irreversible tailwind, the sector was already positioned to dominate the power landscape for years to come, but now, solar is poised to shatter prior aggressive expectations through the end of the decade.

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999.  The firm manages private investment partnerships including Esplanade Capital Electron Partners LP, launched in 2009, which intends to be the world’s premier private investment fund dedicated to public securities in solar energy and those sectors impacted by its emergence.

This article is an excerpt from Esplanade Capital Electron Partners’ second quarter 2020 update.

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