The BP (NYSE: BP) Statistical Review of World Energy 2015 came out two weeks ago. This report covers the entire energy sector, and it is one of the best sources available for renewable energy production and consumption numbers. By combining that data with the Renewables 2015 Global Status Report (GSR) — a publication focused solely on renewables that was released last week — we can get a relatively complete picture of the world’s renewable energy sector.

The GSR is released each year by the Renewable Energy Policy Network for the 21st Century (REN21), a global network that connects governments, nongovernmental organizations, research and academic institutions, international organizations and industry to share information and advance renewable energy. I have been a contributor to and reviewer of the report for the past six years, which has given me an early look at new developments in the renewable energy sector.

Today I want to go over the major renewable energy sectors, and highlight the key companies operating in those sectors. Notably absent from this article is the biofuels sector, which I will cover separately in an upcoming issue.

Global Growth

Globally, the overall consumption of renewables (except for traditional biomass burning) grew by 4.4% between 2013 and 2014. Non-hydropower renewables such as solar photovoltaic (PV) power and wind power continued to lead with strong, albeit slowing year-over-year growth.

 
New investment in renewable power and fuels (excluding large hydropower projects) was $270 billion in 2014, a rise of 17% from 2013 and the first increase in three years. This increase was driven by a boom in solar power installations in China and Japan, totaling $74.9 billion for just those two countries.


Solar Power

There are three primary solar power technologies: solar heating, concentrating solar power, and solar photovoltaics (PV). Solar heating uses the sun to provide hot water and space heating for homes, as well as industrial process heat. The process can be as simple as water moving through black tubing outdoors to absorb heat from the sun. Globally there is an estimated 406 gigawatts (GW) of thermal energy capacity from solar thermal energy collectors.

Concentrating solar power (CSP) uses lenses or mirrors to concentrate the sun’s rays, similar to a magnifying glass. The concentrated sunshine is then used to produce heat, which may be used to generate steam that can then be passed through a turbine to produce electricity. Or the heat may be used to produce molten salt, which retains heat when the sun doesn’t shine and can enable CSP plants to run 24 hours a day.

CSP has seen a lot of growth over the past five years. The average annual growth rate over that span has been 46%, though growth fell to 35% in 2014.

Spain dominates global CSP capacity, but the US has seen strong growth over the past two years. The 250 megawatt (MW) Solana plant built in Arizona by Abengoa Solar (NASDAQ: ABGB) was the world’s largest parabolic trough plant when it was built, and the first US CSP plant with thermal energy storage. Brightsource Energy’s 377 MW Ivanpah plant started up in California in 2014 and became the largest operating solar thermal electric facility of any type in the world. A total of 900 MW of new CSP capacity came online in 2014 globally, with plants completed in the U.S. and India. South Africa and Morocco have CSP projects under construction that are scheduled to be completed in 2015.


Spanish companies continue to lead the CSP industry. Abengoa Solar has the largest portfolio of CSP plants in operation, with more under construction. Behind Abengoa were the Spanish companies Acciona (OTC: ACXIF), ACS Cobra (Madrid: ACS), Elecnor SA (Madrid: ENO), Torresol Energy, and Fomento de Construcciones y Contratas (Madrid: FCC); U.S. companies Brightsource and Solar Reserve; ACWA Power International (Saudi Arabia), and Schott Solar (Germany).

One of the challenges of CSP is economic competition from solar PV. Solar PV works because certain materials, such as various types of silicon or cadmium telluride, are capable of producing electricity when struck by solar radiation. Solar PV cells are produced using materials that are susceptible to this photoelectric effect. Most commercial solar PV cells convert solar radiation into electricity at efficiencies ranging from 10% to 15%.

CSP remains a small part of the overall solar portfolio with global installed capacity of 4.4 GW in 2014. In contrast, the solar PV market had a global installed capacity of 177 GW last year. The past decade has seen nearly a 50x global expansion of installed solar PV. More than 60% of all global solar PV capacity has been added in just the past three years, as solar PV is becoming increasingly competitive with fossil-fueled electricity:


Germany’s history of generous solar subsidies resulted in the world’s largest installed solar PV capacity, but subsidy cuts have dramatically slowed the growth of the solar PV industry in Germany. China is in second place globally for installed solar PV capacity, but at the growth rate of the past two years China will have more installed solar PV than any other country sometime in 2016.


Germany was the largest global consumer of solar PV power, with 35.9 TWh consumed in 2014. It was followed by China (29.1 TWh), Italy (23.7 TWh), Japan (19.4 TWh), and the U.S. (18.5 TWh).

In 2014, Asia accounted for 87% of global production of solar PV modules, with China producing 64% of the world total. Europe’s share declined to 8% (from 9% in 2013),  while the US share was 2%. Thin film solar production increased by an estimated 25% from 2013.

New business models for solar PV continued to emerge in 2014 with the launch of several solar PV yield companies (“yieldcos”), which raise low-cost capital for project development. TerraForm Power (NASDAQ: TERP) was spun off from SunEdison (NYSE: SUNE). Abengoa Yield (NASDAQ: ABY) was formed by Abengoa. NRG Yield (NASDAQ: NYLD) was formed by NRG Energy (NYSE: NRG). First Solar (NASDAQ: FSLR) and SunPower (NASDAQ: SPWR) jointly launched 8point3 Energy Partners (NASDAQ: CAFD). Companies are also increasingly leasing solar systems to consumers, eliminating the large capital expenditure that is a barrier for many customers.

The top 10 solar PV manufacturers in 2014 were Trina Solar (NYSE: TSL) in China, rival Chinese producer Yingli Green Energy Holding (NYSE: YGE), Canadian Solar (NASDAQ: CSIQ), Aggressive Portfolio holding Jinko Solar (NYSE: JKS; China), JA Solar (NASDAQ: JASO; China), Sharp Solar, a subsidiary of Japan’s Sharp (Tokyo: 6753, OTC: SHCAY), ReneSola (NYSE: SOL; China), Growth Portfolio holding First Solar of the U.S., Hanwha SolarOne (NASDAQ: HSOL; China), SunPower of the U.S., and Kyocera (NYSE: KYO, Tokyo: 6971; Japan).

Wind Power

I believe that solar PV is destined to be our largest source of renewable power, but wind continues to be the world’s dominant non-hydropower renewable power option. In 2014, the world consumed 706 TWh of wind power — nearly four times the world’s consumption of solar power. But the growth rate for wind power capacity in 2014 was just over half the growth rate for solar PV, and the five-year average growth rate is only 18% for wind versus 50% for solar PV.

More than 51 GW of new wind power capacity was added in 2014, bringing global capacity to 370 GW. The top 10 countries accounted for 84% of year-end global capacity, but at least 85 countries have seen commercial wind power activity, and at least 74 had more than 10 MW of capacity by the end of 2014. At least 1 GW of wind capacity is installed in 24 different countries.


Asia was the largest market for the seventh consecutive year, accounting for about half of capacity additions, followed by the EU (23%) and North America (13%). Developing countries were responsible for the majority of installations, with China alone accounting for 45% of the wind capacity added last year. Wind power provided more than 20% of electricity for Denmark, Nicaragua, Portugal and Spain.


Despite China’s formidable lead in wind power capacity, just as in 2013 the U.S. was actually the world’s largest consumer of wind power at 184 TWh, 26% of the global total. China was second with 158 TWh consumed, followed by Germany (56 TWh), Spain (52 TWh) and India (38 TWh).

The Danish company Vestas Wind Systems (Copenhagen: VWS, OTC: VWDRY) remained the world’s largest manufacturer of wind turbines with 11.6% of the global market in 2014, but its market share was down from 13.1% in 2013. Also losing market share was the Chinese company Xinjiang Goldwind Science and Technology (OTC: XJNGF), which saw its share fall from 11% in 2013 to 9% in 2014. Moving up in market share were the German company Siemens (Frankfurt: SIE, OTC: SIEGY), which increased its share from 7.4% in 2013 to 9.5% in 2014, and General Electric (NYSE: GE), which saw its share go from 6.6% to 8.7%.


Hydropower

Hydropower is the largest source of renewable energy consumed globally, with a 6.8% share of global primary energy consumption. But hydropower is a mature technology and has a low growth rate relative to the rest of the renewables. In 2014 the world’s consumption of hydropower only increased by 2% over 2013. Global hydropower capacity reached 1,055 gigawatts (GW) in 2014. For comparison, the world’s consumption of hydropower in 2014 was 53% greater than the world’s consumption of nuclear power.

Idaho Power (NYSE: IDA) and Portland General Electric (NYSE: POR) are two US-based public utilities with a substantial base of hydropower generating resources, but neither is a pure hydropower play. Brookfield Renewable Energy Partners (NYSE: BEP) is a publicly traded partnership with primarily hydropower and some wind power resources. BEP has 250 renewable assets totaling over 6 GW of power in North America, Latin America and Europe. Units of BEP are up 3.4% over the last 12 months and currently yield 5.4% based on the most recent quarterly distribution.

Geothermal

Geothermal electricity uses heat from the earth to produce steam, which is then passed through a turbine. It generally requires fairly shallow geothermal reservoirs (less than 2 miles deep). Geothermal electricity has a high capacity factor, and the cost of generation is comparable to that of coal-fired plants. Its usage, however, is limited by geography and geology. Like hydropower, geothermal is a relatively mature renewable technology with a slow annual growth rate.

Approximately 640 megawatts (MW) of new geothermal generating capacity was completed in 2014, representing annual growth of 6.7% and bringing total global capacity to 12.8 GW. Kenya accounted for more than half of the new capacity additions in 2014. The top 10 geothermal energy producers are the United States (3.5 GW), the Philippines (1.9 GW), Indonesia (1.4 GW), Mexico (1.0 GW), New Zealand (1.0 GW), Italy (0.9 GW), Iceland (0.7 GW), Kenya (0.6 GW), Japan (0.5 GW) and Turkey (0.4 GW). Global geothermal power generation in 2014 was 74 terawatt-hours (TWh), down slightly from the 76 TWh produced in 2013.


The largest producer of geothermal power in North America is Calpine (NYSE: CPN), which operates the 725 MW Geysers complex of 14 geothermal power plants north of San Francisco. The largest producer of geothermal power in the world, however, is Chevron (NYSE: CVX), which pioneered the development of the Geysers, and today operates geothermal plants in Indonesia and the Philippines.

Ormat Technologies (NYSE: ORA), a subsidiary of Israel’s Ormat Industries (Tel-Aviv: ORMT),  is a purer play as a builder and operator of geothermal plants and supplier of related equipment. Ormat owns and operates 647 MW in power plants it has supplied, and expects an additional 90-115 MW to be added in 2015-17. Ormat has an enterprise value (EV) of $2.8 billion and an EV/EBITDA of 11.7. Its share price has appreciated 35% over the past 12 months.

Conclusions

The renewables sector continues to grow at a much faster pace than fossil fuels, but that growth is uneven. While our solar portfolio holdings have performed well, the fast-growing segments of the renewables space will likely continue to be volatile, and only suitable for investors with sufficient risk tolerance and patience.

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