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Distributed Renewable Energy Monthly Report | September

 

August Renewable energy ETF highlights: Tesla’s Strides into Energy and the Compromises in the US Infrastructure Bill

  • Tesla Trades Energy: In 2019 Elon Musk declared that "Tesla Energy is becoming [a] distributed global utility and could outgrow [the] automotive business". [1] The company is giving additional signs of how big the energy business could become. Autobidder software is Tesla’s real-time trading and control platform that uses AI to manage energy storage assets.[2] By the end of 1Q21, the software was managing over 1.2 GWh of energy storage.[3] The use of the software to optimize the Tesla’s Powerpacks, Powerwalls and Megapacks is growing in Europe. In June 2020 Tesla was approved as an electric utility in the UK and partnered with Octopus Energy as an authorized retail partner.[4] This August, the company started to offer Autobidder in the south of Germany. Another not yet known tool is the Opticaster, a software that Tesla designed to “optimize economic benefits and sustainability objectives for distributed energy resources”.[5] Besides software-as-a-service ambitions, the company in its Sustainability Report published this month also stated that Tesla aims to sell 1,500 GWh of energy storage products per year by 2030, an astounding 500x growth over the 3 GWh of clean energy storage sold in 2020. We are doing additional research on how Tesla is to deliver such growth.[6]
  • The Infrastructure Bill: On the 10th August, the US Senate passed a nearly $1.2 trillion infrastructure bill in a bipartisan 69-30 vote. Relevant to DGEN, the package, known as the “Infrastructure Investment and Jobs Act”, includes $7.5 billion for electric vehicle charging stations, which the administration says are critical to accelerating the use of electric vehicles to curb climate change. It would also provide $5 billion for the purchase of electric school buses and hybrids, reducing reliance on school buses that run on diesel fuel. To protect against the widespread power outages that have become more frequent, the bill includes $65 billion to improve the reliability and resiliency of the nation’s power grid. The House of Representatives will vote in late September on this bill.[7]

 

Distributed Energy Resources (DER) Key Concepts – The Rise of “Prosumers”

In a recently published article, we make the point that the key reason behind the increasing adoption of distributed energy and self-production is cost. Behind the meter solar production + storage makes economic sense. A second benefit to users is security of supply. The term “prosumer” refers to users who can both produce and consume electricity. Prosumers become particularly relevant to the wider energy system when they start selling surplus energy, generated by their distributed generating assets, back to the grid and then using their clean energy battery storage (both stationary and mobile, as in the batteries inside electric vehicles) to the benefit of the grid. The European Parliament refers to an estimate that 83% of all EU households could become prosumers by 2050.

The US National Renewable Energy Laboratory, NREL, has estimated the drop in installed cost for solar PV installations (full table in the article) since 2010.[8] Capital cost reductions, combined with improvements in operation, better system designs, and technology have allowed for reductions in the Levelized Cost of Electricity (LCOE). For comparison, residential and commercial retail electricity rates in California in June 2020 were ca. $198/MWh and $192/MWh, respectively.[9] In the same period NREL has summarized the Levelized Cost of Solar Plus Storage (LCOSS) as follows: 

  • Residential PV plus storage: LCOSS is calculated to be $201/MWh (without the federal Investment Tax Credit, ITC) and $124/MWh (with the 30% ITC).
  • Commercial PV-plus-storage: LCOSS is calculated to be $113/MWh (without the ITC) and $73/MWh (with the 30% ITC).
  • Utility-scale PV-plus-storage: LCOSS is calculated to be $83/MWh (without the ITC) and $57/MWh (with the 30% ITC).

 

Distributed Energy Resources make economic sense, both for Prosumers and for the whole economy. That is why we believe that the adoption of decentralized solutions will be fast. Please refer to the full report here.

 

Performance in August - The Tug of War Continues

The underlying index of our renewable energy ETF closed August up 1.54%, and up ca 22.1% in the year. It is pertinent to compare the performance of both iClima’s benchmarks to the S&P500 as stock market in 2021 are being characterised by a rotation from growth to value that started in February. DGEN had solid performance in January and June, but the broader market outperformed the other 6 months. Please note that all performance figures are showing net data.  

August may be a slow month with European summer holidays, but this was a very eventful one. Consumer sentiment in the US dropped, retail sales dropped, automobile sales data were weak, and the Delta variant spread.[10] The US FED, that in previous months gave signs it would start tapering the monthly purchase of $120 billion of Treasury bonds and mortgage-backed securities, may now postpone that decision.[11] Inflation concerns seem to be subsiding with slowdown of the US recovery, while there are still 5.3 million people unemployed in the US. Fears of growing inflation and interest rates stopped the strong performance of growth shares. We observe three groups of companies with negative YTD performance in DGEN, namely companies in the Distributed Power Sources segment that had great share appreciation in 2020. For similar reasons, fuel cell names in the Energy Storage segment and companies that went public via SPACs, also saw negative YTD performance as markets question guidelines given at time of listing and the companies’ ability to deliver. Conversely, companies in the Microgrid & Smartgrid, Smart Houses & Building Energy Management, and Software & Systems are performing well in the year.

Source of all data: iClima/ Solactive /Bloomberg. Past performance is no guarantee of future performance. Data as of 31.08.21. Please note that all performance figures are showing net data. 

 

 

iClima Distributed Renewable Energy Performance Table (As of 31.08.21)

 

1M

3M

6M

YTD

12M

SI

iClima Distributed Renewable Energy UCITS ETF (Acc)

1.39%

NA

NA

4.56%

NA

4.56%

DGEN iClima Distributed Renewable Energy Index™

1.54%

6.01%

5.15%

4.77%

88.68%

4.77%

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/08/21.  Please note that all performance figures are showing net data.  

 

2Q21 Earnings Reporting Highlights

Xinyi Solar Holdings (0968.HK, up 20.51% in August, down 7.16% YTD) Xinyi Solar Holdings announced 2Q21 earnings, increased by 118% following a strong sales performance in their solar glass segment.[12] Improved share price performance over August comes as investors seek ‘safe-haven’ Chinese sectors likely to receive continued support by the government following the Chinese Communist Parties sudden crackdown on strategic sectors such as tech.[13]

BYD Company (1211.HK, up 10.21% in August, up 29.63% YTD) The Warren Buffett backed firm saw a 263% surge in plug-in vehicles over July 2021 compared to the same time last year, with 50,057 units delivered.[14] Strong sales seemed to boost a strong rally going into August. Besides plug-in cars, BYD July deliveries include 435 commercial electric vehicles, of which 125 were buses. Year-to-date sales of commercial electric vehicles amounted to 4,803, including 2,743 buses. However, news of the proposed IPO of BYD’s semiconductor arm, due to a regulatory probe into the law firm advising on the deal, led to a slight sell-off towards the end of August.[15]

Nuvve Holding Corp (NVVE, down 12.8% in August, down 25.84% YTD) The California based pure V2G player reported strong 2Q21 earnings with overall revenues increasing by 111.9% compared to 2Q20, driven largely by an uptick in new contracts for their proprietary V2G technology, products and services.[16] Grant revenue as a share of total revenue was also down. However, share price performance persisted; a trend shared by other cleantech firms listed as SPACs. The 2020 hype around new listings like Nuvve has cooled down with many post-merger companies seeing share price declines YTD as earnings announcements have failed to meet high projections initially set.[17]

Proterra (PTRA, down 5.1% in August, down 38.2% YTD) The Californian automotive and energy storage company posted positive 2Q21 earnings. Earnings were up  39.09% over 2Q20 and 18.11% up over 1H20.[18] On the same day as their earnings, Proterra also announced they were extending their agreement with LG Energy Solutions who will be supplying US-made cylindrical battery cells through 2024 and according to Proterra, provide the company with a stable supply of battery cells until 2028.[19] The new LG Energy Solution plant will produce new high nickel NMCA chemistry, that Proterra believes to be ideal for commercial vehicle and industrial applications. The two firms have been partners since 2016, working towards maximizing cell performance for the requirements of the commercial vehicles market. 

SolarEdge Technologies (SEDG, up 11.7% in August, down 9.2% YTD) The Israel headquartered solar inverter expert reported record revenue, with sales reached $480.1 million in 2Q21 (89.9% from the solar segment), up 18% over 1Q21 and 45% above 2Q20.[20] GAAP net income in the quarter was $45.1 million. In the quarter, 1.64 GW of AC inverters were shipped, despite the supply chain challenges. Besides the strong financial performance, shares were also positively impacted by the announcement of an agreement with Samsung for the supply of 1 GWh of cells over the course of 2022.[21] In their Q2 earnings call,[22] The CFO said that the ramp up in supply of cells has largely been driven by the strong demand for their battery storage systems.

Sunrun (RUN, down 16.46% in August, down 36.22% YTD) The 2Q21 results for the Californian residential solar rooftop company are showing uptake for resilient clean energy sources. In the quarter, the company added 26,100 new customers, with the total customer base reaching 599,743 homes, a 19% y-o-y increase.[23] Order in the period accelerated, growing more than 25% over previous quarter. Total revenue in 2Q21 reached $401.2 million, 121% over total sales in 2Q20. The company continues to innovate in applications, for instance, SunRun currently has forged 12 virtual power plant opportunities, a $75 million in expected revenue from grid services. Following the announcement back in May of a partnership agreement with Ford to provide backup power solutions to Fords customers, expectations for the stock long-term remain high.[24] In June, Morgan Stanley upgraded their price target from $86 to $91, reiterating an overweight rating for the stock. [25] More recently, JP Morgan has also added SunRun to its top ideas list believing the stock could rise by 90%.[26] Current CEO and co-founder Lynn Jurich announced she will transition to co-chair of the Board, and Mary Powell, former CEO of Green Mountain Power, will become the new CEO.

Tesla (TSLA, up 7.06% in August, up 4.26% YTD) A Forbes report provides more evidence that the Californian giant is leading the EV pack, this time on range; one of the biggest determinants of EV uptake.[27] Tesla’s 2020 Impact Report claimed that the company enabled CO2e avoidance of 5 million tons over the year,[28] and the company’s latest target is the sale of 20 million units per year by 2030.[29] Tesla shares received a boost in the last week with reports of the company’s entry into the Indian market.[30] Amongst the constant media coverage of the company’s varied operations, the development of autopilot systems has been a prominent story. Tesla’s latest safety report suggests that a vehicle in autopilot is involved in an accident every 14,530,000 miles, compared to a US average of one every 479,000 miles.[31]

Past performance is no guarantee of future performance. Source of all data: Bloomberg. Data as of 31.08.21

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