Is JinkoSolar (JKS) well-positioned to take advantage of the renewable energy demand?

Shares of JinkoSolar Holding Co. (NYSE: JKS) were up over 7% in afternoon hours on Tuesday. The stock has jumped 178% since the beginning of the year. The solar module manufacturer reported its third quarter earnings results on Monday, delivering a 17% increase in both revenue and adjusted earnings per ADS.

The company’s topline benefited from higher shipments of solar modules but margins decreased due to a drop in the average selling price of the modules due to heightened competition. JinkoSolar believes there is room for more growth in solar power in the coming year and believes it is well-positioned to take advantage of the rising demand in clean energy.

Government policies

Favorable policies on renewable energy from various governments around the world are expected to boost the sector in the coming years. As the company mentioned on its quarterly conference call, China aims to hit peak emissions before 2030 and reach carbon neutrality by 2060, and to achieve this goal, it has to replace thermal power. The country’s annual average installation capacity is estimated to reach 60-70 gigawatt over the next five years, driving massive growth in renewable energy markets.

In the US, solar demand is expected to more than double in the next five years. There are expectations that the new administration will invest in grid transformation and the larger scale construction of energy storage needed to achieve a higher proportion of renewable energy.

The European Union aims to reduce its greenhouse gas emissions by 60% versus its 1990 levels by 2030. This is expected to increase the proportion of renewable energy consumption. Looking ahead, solar power is expected to play a key role in the renewable energy market which is expected to see further expansion.

From the Q3 transcript:

“With the approach of grid parity, leading companies will stand to benefit the most from technological advancement, and cost reduction in the PV industry. On the one hand, top players are well positioned to expand their market share with competitive products, driven by strong and a sophisticated R&D, and to leverage the advantage of their well-known brands and distribution channels worldwide.”

Increased adoption

It is expected that the new administration in the US will lay out plans to reach net zero emissions by 2050, thus furthering the growth of the renewable energy market. JinkoSolar stated that according to the consulting firm Wood Mackenzie, US PV power plants are projected to add about 100 gigawatt of installed capacity from 2020-2025, with an annual capacity of about 20 gigawatt added from 2021 to 2023.

Europe is rolling out its own plans to support the renewable energy market. These include granting EUR45 billion to France to develop renewable energy and making available EUR1.5 billion in loans to its 27 member states to support clean energy. This is expected to help EU reach its goal of generating at least 32% of energy from renewables by 2030. Similar plans are underway in regions like Australia and Japan.

JinkoSolar stated that data from the Brazilian Photovoltaic Solar Energy Association showed that Brazil added around 162,000 new solar generation systems over the past 12 months, reflecting a year-over-year increase of over 130%.

Saudi Arabia plans to add around 60 gigawatt of clean energy installed capacity by 2030, of which 40 gigawatt will come from PV power plants. The company is optimistic about the future of PV as global installations are projected to exceed 300 gigawatt in 2025 and exceed 1,000 gigawatt in 2030.

Challenges

The renewable energy sector has its share of challenges. During the third quarter, JinkoSolar’s profits were impacted by supply shortage of raw materials and higher costs. Although the bottleneck of raw materials is expected to slowly improve, there is still uncertainty related to market conditions and the economy in general.

A report by IEA points out that the COVID-19 pandemic is capable of influencing how government policies and budgets are prioritized as well as the availability of financing over the coming five years. This creates a lot of uncertainty in a market which has seen rapid growth in the past five years.

The data shows that in the next five years, 46% of wind and solar PV projects in the pipeline are tied to government plans which are yet to be finalised. The current health crisis is likely to cause delays in the implementation of these plans. Declines in power prices and a weak financing environment could also lead to some projects in the private sector being reconsidered.

In short, even though the renewable energy market has vast scope for growth with support from governments across the world, it has a fair share of obstacles in its path and the pace of growth might get hindered due to volatility in the market and economy.

Click here to read the full transcript of JinkoSolar Q3 2020 earnings conference call