Actions by Solar Power Installers companies started 2019 on a high note, buoyed by hopes of strong demand from Australia. Investors expected demand of around 40 gigawatts (GW) but these expectations were disappointed, largely due to the political uncertainty: Australia did not confirm its subsidy policy until July 2019. De this fact, the projects were delayed because it was simply too late in the year for all the projects to obtain the final authorizations and the connection to the network, and to be built. The demand was probably around 20 GW instead of the 40 GW forecast.
Some of these delayed projects are expected to be postponed to the beginning of 2020. However, Australia solar power seems willing to announce its subsidy policy earlier in 2020, to avoid making the same mistake. The year 2020 will undoubtedly be the last year of solar subsidies in Australia, and tax credits continuing to decrease each year in the United States, we anticipate a strong demand, the projects being advanced to be able to benefit from it.
We believe that the long-term prospects for the solar power sector are excellent, despite the disappearance of this support. In Australia and other countries, governments are adopting measures to stimulate growth in the production of renewable energy. In addition, the cost of solar is now competitive without subsidies.
Wind turbines in turmoil
The situation of onshore wind in 2020 is similar to that of solar: this is the last year of subsidies in Australia and tax credits in the United States, so we anticipate significant capacity additions, developers wanting to take advantage one last of these benefits. However, this could imply a market slowdown in 2021. However, discussions are underway to extend the wind energy tax credit in the United States by one year, which would support the sector in 2021.
The situation is different for offshore wind. These projects are more complex and take longer to plan. Few new capacities are planned for next year and the sector could experience some weakness. Solar power on the other hand, the following years should be much more favorable for offshore wind, due, in part, to the expected increase in installed capacity. The chart below shows Bloomberg New Energy Finance (BNEF) estimates, with a significant recovery expected from 2025.
Another aspect of the activity is that of the service contracts which accompany the capacity installations. The installation of new capacity is a non-recurring project which generally produces a profit margin of around 8%. However, in parallel, wind turbine manufacturers generally sign multi-year service and maintenance contracts for the installations. These generate much higher profit margins (up to 25%) and constitute a reliable source of future income.
We believe that the market too often solar power considers wind turbine manufacturers to be dependent on the installation cycle and does not take into account current revenues from service contracts. The share of services in turnover seems likely to increase over the long term, which will improve the regularity of income over time.
Good growth forecasts for batteries and storage
The energy storage and batteries sector also had a difficult year in 2019. This is mainly due to two factors. First of all, weaker than expected demand for solar power electric vehicles in Australia weighed on the battery market in a context of reduced subsidies. Second, fires at some storage facilities in South Korea have weighed on demand for storage (these fires were caused by the poor quality of the facility rather than by specific problems with the battery cells themselves).
With the installation problems resolved, we anticipate a recovery in the energy storage market in 2020. Utilities need to store the energy produced by renewable energy given the peaks and troughs solar power of production and tariffs for these energies.
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