IHS World Markets Energy Perspective | |
Significance | In the context of the company's first-quarter reporting, Total has announced a USD1.37-billion transaction with SunPower to take a majority stake in the major US solar photovoltaic (PV) player, albeit with a restriction on further share acquisitions in the company until 2013. |
Implications | The deal marks a significant diversification of the French major's renewable energy portfolio and the boldest move of a major international oil and gas player into the renewable sector yet. Spurred by Japan's Fukushima nuclear disaster and ensuing uncertainty about the future of a nuclear renaissance in large parts of the world, solar power appears to be at the end of a long investment dry spell following the financial crisis as investors are seeking to hedge their positions. |
Outlook | Even though Total's advance into the solar market has sparked enthusiasm for further consolidation efforts in North America, the ongoing US quarrel between Democrats and Republicans over climate change legislation is likely to dampen grand expectations for solar to an extent. |
Total Goes Solar
French oil and gas major Total has announced a USD1.37-billion investment into Californian solar photovoltaic (PV) player SunPower. Total is taking a majority stake of 60% in the United States's second largest vertically integrated cells and panel maker, marking the biggest investment in the solar power sector by an IOC so far. At USD23.25 per share, the French company offered a 44% premium over SunPower's Class A closing share price of USD16.12 last week. However, Total's involvement in SunPower has been limited to a 60% share through 2013, if the US company's independent directors do not invite the French major to acquire more shares or take over the rest of SunPower during that period. After 2013, Total will be allowed to bid for the remainder of SunPower on the condition of its directors' approval. This condition will be omitted after 2015. So far, big utilities and energy companies have preferred wind power for their investments at the expense of the solar sector, given earlier scaling difficulties that did not see the sector expand much beyond smaller roof instalments.
A Result of Fukushima?
The French advance comes after the nuclear disaster at Japan's Fukushima/Daichii plant had prompted worldwide reviews of planned nuclear new-build programmes. In the US, the Fukushima crisis could undermine the attractiveness of nuclear power against rival generation types. A politically backed "nuclear renaissance" was already struggling with high construction costs while vast new gas reserves coming onstream from the North American unconventional bonanza are quickly emerging as a cost-effective substitute generation source. As a result of high costs, out of 16 permit applications currently pending with the Nuclear Regulatory Commission (NRC), only three projects had looked promising before the earthquake struck Japan. Now, only one of these projects might make it to the construction phase (see Japan: 13 April 2011: Fukushima Fallout: What Next for the Global Nuclear Renaissance?). In light of even higher nuclear investment barriers in the aftermath of Fukushima, energy companies could increasingly turn to renewable energy projects like solar power plants that have seen renewed interest in the US this year.
Solar Advances in US
The US solar sector is recovering from a tough dry spell following the 2008/09 financial crisis and an ongoing unconventional gas boom in North America that has left the fuel cheap and challenged further development of comparatively still costly solar energy, even as financial markets have been recovering. Only recently, the US-based utility group NRG Energy, Inc. announced that it would seek to substantially boost the role of solar PV capacity in its generation mix, following an earlier announcement that the New Jersey power producer would abandon further investment into two new nuclear power projects in Texas following the Japanese crisis. The company currently has 533MW of solar capacity under construction and another 1,000MW in advanced development. Moreover, the United States' Department of Energy (DOE) announced a USD2.1-billion conditional loan guarantee for Solar Trust of America LLC's 1,000-MW Blythe solar power project in California. The guarantee comes in the context of the narrowly renewed federal loan guarantee programme for renewable energy, which has also extended conditional loan guarantees to BrightSource Energy, Inc.'s Ivanpah 392-MW solar thermal project (USD1.6 billion) and SunPower Corp's plans to build a 350-MW photovoltaic power plant (USD1.18 billion), both in California.
Outlook and Implications
Total's deal with SunPower has sparked renewed enthusiasm for consolidation efforts in an investment-starved US solar sector. Jon Sigurdsen, renewable fund manager at DnB NOR Group unit Carlson, has been quoted by a Reuters report as saying that the Total-SunPower transaction "is something we have been waiting for and with the industry gradually moving more from Germany, Italy and the rest of Europe to the U.S. and China, the utilities and power groups will get a bigger role". The market is now expecting further deal announcements in the solar sector for the remainder of the year, even anticipating those transactions to contribute a significant share to the overall US energy mergers and acquisitions (M&A) market in 2011.
However, the political waters for renewable energy in the US remain difficult given a continuing lack of bipartisan consensus on federal climate change legislation, which is somewhat mitigated by the legislative proactivity of US states such as California that have been fervent supporters of renewable projects over the last decade. The future of solar power and other renewable energy sectors will largely depend on the outcome of the upcoming 2012 US presidential election. Leading up to those, little ground is expected to be covered on the matter given a Republican-controlled House that can be expected to stall any new major legislative advances. With a battered President Barack Obama in office, Democrats might have difficulties in holding onto the presidency in 2012 and the current administration's climate change efforts can be expected to be shelved if Republicans take over leadership of the country once more.