Wind investors can profit in solar age


June 8, 2015

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Humans have been benefiting from the power of the sun since we evolved from primates about five million years ago. It is a wonder it has taken the ‘solar age’ so long to arrive.

But some say it has, almost. The Saudi Arabian oil minister Ali Al-Naimi said last month at a climate change conference in Paris that the ‘solar age’ could be with us as soon as 2040.

By this, he means that the Middle Eastern fossil fuels powerhouse could see fossil fuel exports as a thing of the past as early as 2040, with Saudi exporting solar power overseas instead.

“In Saudi Arabia we recognise that, eventually, one of these days, we’re not going to need fossil fuels. I don’t know when — 2040, 2050 or thereafter — we we have embarked on a programme to develop solar energy,” he said. Al-Naimi added that oil prices as low as $30 or $40 would not make solar power uneconomic because the costs are falling fast.

Investors in wind energy can either see this as a threat or an opportunity. The emergence of cheap solar power could threaten the status of wind investors as governments opt for solar over wind; or it could present an opportunity, with acceptance for solar meaning that wind is also taken more seriously.

Investment in solar would also lead to major investment in battery storage that wind farm developers could also use to their benefit.

In our view, the emergence of solar presents an opportunity for wind investors. This year we have seen more developers looking to get involved in both sectors.

US solar giant SunEdison completed its $2.4bn takeover of US wind developer First Wind in January to make its first push into the wind sector, and is now reportedly in talks to buy Indian developer Continuum Wind for $650m to give it a foothold in India. Meanwhile, US wind developer Pattern Energy is getting ready for a solar push.

We expect these types of wind and solar operations to become more common in the next few years, and the reasons are simple. It gives developers more options for what they can do with sites. If a site does not work for wind then try solar, or a combination of both.

It also enables companies to enter more markets.

Some countries are sunnier, others are windier. Some governments prefer wind, some prefer solar. Investors with interests in both sectors have more options when it comes to expansion, and better placed to benefit if we see interest rocket in either sector. Likewise, investors are protected if either plummets.

Wind investors and developers would do well to look at the opportunities in solar. Energy consultancy Woods Mackenzie, for example, has said solar could be “the next shale” as it is likely to be as cheap as fossil fuels in 19 US states within the next five years.

But what of Saudi Arabian solar? Frankly, we are not that excited.

Five years ago the country set up its King Abdullah City for Atomic & Renewable Energy to build 54GW of renewables as an alternative to fossil fuels; but ditched the plan in January. It now has only 50MW of solar power installed, out of a world total of 177GW, and needs to do a lot to catch up before the ‘solar age’ arrives. Read more in our Middle East report.

If solar takes off as some predict then it should not worry wind investors. Rather, it gives them a perfect excuse to branch out.

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