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13 Jan, 47 tweets, 10 min read
As I referred to in my pinned thread, I focus on finding the best pick and shovel plays in each industry. I'll be doing deep dives on each of the industries I listed and wanted to start off with renewable energy
First, the renewable energy market:
- Roughly $1T and expected to reach $1.5T by 2025
- In it's simplest form, renewables can be defined as technologies that convert the energy from different natural sources such as sun, tides, wind etc. into its usable forms of electricity Image
Continuous advancement in technologies and increased government funding offer lucrative growth opportunities moving forward
So what types of renewable energy will I be focusing on? In this thread:

- Solar
- Wind

Generally speaking, I believe nuclear energy is the route to go but there is a long way before that can be a reality. I am unfamiliar with hydropower
Let's start off with solar. There are two technologies that are perfect pick and shovel plays, solar inverters and battery storage
What are solar inverters? Solar panels capture light from the sun in DC (direct current) so there needs to be a way to invert it to AC (alternating current) to use as electricity Image
The two largest players in this space are easily $ENPH and $SEDG. They don't technically operate as a duopoly but many in the industry seem to acknowledge them as such. The inverter segment has much higher margins than the module (solar panel) segment Image
$ENPH is the sole producer of microinverters, which are smaller inverters that go on individual panels and provide a safer, more efficient, but more expensive solution than the standard string inverters. They also have an energy storage business that is just starting to scale Image
$SEDG is the global leader in the inverter space, with a 60% U.S. market share. Impressive top and bottom line performance, and has grown at quarterly rev rate of 38% over the last 5 years
Comparing the two, $ENPH has stronger recent growth and margins expansion but valuation and over-dependence on US market is a concern (residential market spefiically). $SEDG has better valuation but missed earnings the past q
Interesing, so what about solar manufacturers? As stated above I am not as bullish as there are lower margins and it's a hardware business. This being said, the most interesting panel producers are: $SPWR, $FSLR, $JKS, and $CSIQ
Apart from manufacturers, companies that sell renewable energy to utility companies could be pick and shovel plays as well
I haven't done much DD on these types of companies, but one interesting I came across is $BEPC. They own and operate renewable energy systems and projects, and sell the energy produced from such systems to utility companies in order to have a recurring rev stream
They also pay a 3.73% dividend yield (if you're into that) and their investments are evenly split between hydroelectric, solar and wind. Lastly, they have made a series of acquisitions, expanding their total portfolio of renewable assets to 19k MW
Ok, so let's finish up with solar. Once the energy is converted from DC -> AC in needs to used in some type of way. Once inverted, it can be sent back to the grid or stored in a battery Image
I'm not familiar with the commercial / industrial space but generally batteries on not installed with residential systems. Why? Limitations in battery tech and risk having it so close to home
Grid connected systems are much more used in the residential space because all the energy produced is used by the homeowner and the leftover energy is sold back to the grid (utility company) as a credit
Given the risks, battery storage is much more implemented and feasible at the commercial level. I have three plays in battery storage: $TSLA, $STPK, and $EOSE
$TSLA and $STPK focus both on lithium-ion batteries but I will focus on $STPK as it is more under the radar
$STPK is an energy storage company focusing on battery storage systems, network integration, and battery optimization. They brand themselves as "the first pure play smart energy storage company to go public" - lot of buzz words I know but bear with me ImageImage
They have an AI platform called Athena to manage its systems. The platform is an operating system for energy distribution and storage systems, collecting big data that enables customers to alternate between onsite generation, grid power or battery power ImageImage
Because of this, they can be considered a "one stop shop" for energy storage and could possible replace other pure play companies in the value chain. Valuation benchmarking is interesting (has changed since recent run up) Image
Ok so what about their financials? It's important to understand they have a hardware and software biz
- Increased hardware rev from $88 mil to $145 mil YoY, expected to increase to $198 in 2021
- Software rev expected to grow from $147 mil in 2020 to $944 mil in 2025
- 81% CAGR from 2020-2026
- Gross margins have hovered around 12-18% since 2018 but expected to increase to 40%+ by 2026
- 90% of forecasted 2021 revs are from closed executed contracts (not pipeline!) -> underpromising and overdelivering
So how does their tech compare to $TSLA? They actually use batteries from $TSLA, Samsung, and Panasonic. Additionally, they have a partnership with $TSLA! ImageImage
Pretty attractive if you ask me. The last one to cover in the battery storage space is $EOSE - more below
$EOSE is a renewable manufacturer of zinc battery systems. According to CEO, Joe Mastrangelo, the way they design their manufacturing system is highly capital efficient. Why? The build their capacity as they receive orders so they save the initial capital outlay
So the classic argument, what is better? Zinc or lithium batteries? In short, they both serve different purposes. Lithium ion is great for short term (0-4 hrs) storage and zinc is great for long term (4-12 hrs) storage. Means both have to coexist to build out a sustainable grid
So $EOSE is focused on the commercial / industrial space which is key. With their tech out of the way, let’s look a little more into the company
- Optimized for the 4+ hour storage market (commercial)
- 21 patents and over 600 claims, own the largest battery testing facility in the US
- No rare earth materials used
- Fully recyclable, non-flammable, and non-toxic! This could be huge for residential as I mentioned earlier Image
Solid management team, not the best but a lot of experience between the exec team. CEO Joe Mastrangelo has 25+ yrs of experience leading GE's energy business Image
Their value prop? Batteries are sustainable, safe, and for commercial use. Additionally, manufacturing is simple and scalable (mentioned above) Image
What about their financials?
- A lot of expected rev, only $2.5 mil for 2020 -> expected to grow to $50.3 mil for 2021
- Unprofitable and negative EBITDA margins, both expected to turn positive in 2022 Image
Not a fan of pre rev / early rev companies as performance hinges on execution. Watching this closely and have confidence in CEO. Tech is just getting started as well
Whew, that was a lot just regarding solar. So let's move onto wind which is much more under the radar compared to solar
First, what's a high level difference of wind vs solar? In short, wind is more efficient source than solar, especially when it comes to commercial use
Out of all renewable energy produce in 2019, 24% came from wind, while only 9% came for solar power! Image
Ok, so on top my wind pick and shovel plays:
$VWDRY is the leading manufacturer and installer of wind turbines. Have global footprint and are expected to grow in line with the growth of sector as a whole. Major growth engine is going to be their expanding service and maintenance business, which has very high margins
It is a unique pure play wind turbine company with 25+ years of experience in the industry
The other leading manufacturers are Siemens and $GE energyacuity.com/blog/2019-top-…
$TPIC is a composite wind blades manufacturer and sells them to wind turbine companies. They have long term contracts with the top 5 non Chinese wind turbine companies (Vestas, GE, Siemens, Nordex & Enercon)
63% of total wind blade manufacturing is outsourced to companies like TPI and they are the market leader in this space with about 20% market share globally. Business currently has low margins, but targeting 12% EBITDA margin for the future, and trading at a measly 1.5 P/S ratio
They are also expanding into EV composite manufacturing which could be a strong catalyst to their growth
So in summary, the best pick and shovel plays for the renewable space imo are

Solar: $ENPH $SEDG $TSLA $STPK $EOSE $BEPC

Wind: $VWDRY $TPIC
If you haven't done research on the space, I recommend the following renewable ETFs: $ICLN $QCLN $PWB - most hold all of the companies I mentioned above (minus $STPK and $EOSE since they are recent SPACs)
Hope y'all enjoyed! If you have any feedback that would be greatly appreciated

@jeremymday
@lcc007
@SeifelCapital (tagging you because I saw you studying nuclear a while ago, thought this could be of interest)

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