already been privately speculating, that there was a potential for crossover between his car company Tesla (TSLA) and his solar company SolarCity (SCTY) in the form of battery technology, another solar company was soaring on news of new projects.
Well, that and an ultimately specious rumor about a potential buyout by GE (GE) , but focusing too much on the spike and fall surrounding the GE rumor might cause one to miss the continued news about SunEdison’s rural electrification projects in India.
SunEdison Spikes on GE Rumor, but Still Gains on India Projects
Stock in SunEdison (SUNE) was up as much as 10.8% to $21.39 a share in morning trading after the rumor that pegged GE’s price at $35 a share. The rumors circulated quickly on Twitter and even made their way onto TheStreet.com and Seeking Alpha.
However, the stock experienced a huge noon swoon after the rumors were shot down by GE and plummeted to $19.80. However, the stock remained up for the day, with gains staying above 3% despite the whole GE fiasco.
The gains can ultimately be attributed to the company’s announcement yesterday that of 241 kilowatts of micro-grid projects in rural India. The project, done in conjuncture with India’s Rural Electrification Corporation, a governmental organization, will provide electricity to 7,800 residents of some 54 Indian villages. The project, a part of the SunEdison Eradication of Darkness (SEED) initiative, will begin construction in October.
And, ultimately, even if today’s action isn’t directly related to this announcement, they’re indirectly related as the rumor itself was likely sparked by the announcement. Or, at least, someone looking to pump SunEdison's stock saw an opportunity because of the announcement based on a statement from GE India’s head of renewables Mahesh Palashikar earlier this month that renewable energy would “continue to offer significant value over other fuels for several decades.”
The new project comes during a busy month in a busy year for SunEdison. The company announced a $145 million investment by Google (GOOG) in a southern California solar project earlier this month, spun off its yieldco TerraForm Power ($TERP) in mid-July, and announced a similar 159 kW project in India that same month.
Growing Stock Despite Declining Revenues
SunEdison stock is up over 55% year-to-date.
It’s worth noting as the company’s shown no profit since 2010 and declining revenues year-over-year since 2011. Not to mention, rural projects of under 200 kW aren't usually big news. Especially when they're in relatively capital-averse areas like some of the more remote portions of rural India. So what gives?
Well, the solar industry is one that has a valuation that rests largely on its promise. Certainly, it’s getting closer and closer to breaking out of being an industry of tomorrow, but anyone investing is still likely more interested in the potential for future revenues than the reality of the present ones. In SunEdison’s case, its work in India is another example of a whole new avenue for projects that could continue driving growth in solar installations into the future.
What’s becoming increasingly clear is that, even if solar doesn’t ever reach a price point where it can compete with more conventional forms of generation in the form of large-scale power plants (and hell, it still very well might), it does present a huge advantage in terms of its scalability. Distributed generation in the form of small rooftop solar arrays on individual buildings offer opportunities that simply don’t exist for coal, oil, or gas, where a single massive power plant is really the only option.
This advantage is one thing in the first world where built-out power grids mean pretty much everyone has access to electricity one way or another. However, in more remote areas, small-scale solar grids and smaller solar arrays present an option for electrification that doesn’t involve a massive capital expenditure to expand a costly power grid into an area where it will be lightly used at best or constructed a large power plant that has much higher capacity than necessary.
Where Profits Meet Social and Environmental Justice, Happiness Resides
Micro-grids and small arrays of panels can allow places like the rural Indian villages SunEdison is starting to serve to build a system that provides much-needed electricity at a scale that’s sensible and efficient and doesn’t create additional fuel costs. For the hundreds of millions of people across the world living in remote or rural areas, there’s a massive unmet need and solar has reached the point where it’s an excellent option to fill that hole.
There’s also a social justice factor connected to this. Consider the spread of the internet and smart phones in particular. The more connected the world we live in is, the more crucial electricity is becoming. With smaller rooftop arrays, the opportunity for electricity to be available without a massive building out of infrastructure (like the one included in our own country’s rural electrification projects of the 1930s) is a potential game-changer in bringing the spread of modern information technology to even the most-remote reaches of the globe. That’s to say nothing of the environmental benefits of solar.
"Rough terrain and limited road access make this project the most difficult rural installation SunEdison has attempted to date, but it isn't just about logistics or economics for us; it's about creating positive, long term social and environmental impact as well," said President of SunEdison Asia Pacific, Pashupathy Gopalan. "More and more businesses and organizations are understanding that this triple bottom line approach is working, and they are joining us in bringing clean energy to those who need it most."
But What to Make of the GE Rumor?
There’s clearly some angry people out there as there always is when the markets move around based on rumor and innuendo that ultimately proves unfounded. The ole “M&A rumor pump scam” is a classic, lets be honest. However, it’s also worth noting that it would never work unless there was a kernel of truth there.
Tell people GE is considering buying SunEdison for $35 a share and people will say “Really? You know what, that makes some sense.” Say Johnson & Johnson (JNJ) is going to buy SunEdison at $35 a share and people will say “Wait, what? What the hell are you talking about? No way that’s true.”
And it could easily be viewed as a sign of things to come that people were ready to buy into this rumor. Solar is rapidly grabbing a bigger and bigger piece of the pie, and large- and mega-cap energy and technology companies may soon be considering which smaller solar companies could be worth snapping up so that they can prepare for the future by integrating their products with their very own in house solar technology.
Perhaps the fact that 10 major hedge fund managers have positions in SunEdison’s stock should be a clear sign that the legitimacy of the solar industry in the long run is no pipe dream. These are not people who tend to do anything unless they’re confident it’s going to be profitable. So while one should take any rumor with a grain of salt, the idea that major companies may be seriously considering buying up some of these prominent solar plays prior to them getting much larger is one that may have more juice than today's fiasco would indicate.