Forget Lithium, This Energy Source is Booming and No One is Talking About it
“We are like tenant farmers chopping down the fence around our house for fuel when we should be using Nature’s inexhaustible sources of energy — sun, wind, and tide…. I’d put my money on the sun and solar energy. What a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that.”
Can you guess who said that?
Thomas Edison. The man who invented the lightbulb a century ago.
Even before the rise of the automobile and high-powered electrical devices, Edison could see the writing on the wall for oil and coal.
It has taken a hundred years but finally…
The Rest of the World is Beginning to See it Too
In just a bit, we’re going to show you an alternative energy play that is quietly booming, and trades far below its projected revenues for this year.
In fact, this Company has a value of just barely over C$20 million, but has a pipeline of over $100 million – with over $34 million in backlogs already.
I am tired of people telling me about the boundless potential of alternative energy.
In fact, I am downright exhausted.
And I feel that way for one simple reason.
I ALREADY know that alternative energy has practically limitless potential.
And so do you.
We all do.
The wind rushes.
And the sun is a ball of pure energy more than a million times the size of earth.
These forces of nature existed long before we were born.
And they will continue long after we cease.
You know that. I know that. We all know that.
So every time I read about how promising a particular alternative energy sector is or I listen to a pundit say that the next energy revolution is only a day away–all based on the argument that solar or wind, or hydro will give us “unlimited clean energy” I roll my eyes.
Not because they are wrong.
But because they aren’t really saying anything. Nothing new, at least.
We are all aware of the massive troves of energy in the world around us.
We know that there are cleaner energy sources than coal or oil.
We can also see smart people, like Elon Musk, that are working hard to grab that clean energy and store it in Lithium batteries so that we can use it in our everyday lives.
But none of those facts alone are strong indicators that the time to invest is now.
A savvy investor needs to consider more than just the future potential of a technology.
He needs to consider where the tech is RIGHT NOW, when the market will mature, the geographical location at which the market is growing, and which particular investments in the sector will pay out the best returns.
These are just a few of the triggers I keep in mind when evaluating alternative energy plays.
And I am writing to you today because this one tiny company is setting off silent alarms.
But before I get into the specifics of that opportunity, I am going to tell you the three reasons why I find the solar energy sector so promising – excluding the obvious one: how unlimited and clean solar power is.
#1: The Rapid Growth of the Solar Industry over the Last Two Years.
2015-2016 was an incredible period of growth for the solar industry.
- In 2015 global solar energy capacity experienced record-breaking growth, increasing by more than 50 gigawatts.
50 gigawatts of power is equal to fifty-billion watts. If the sheer size of that number is lost on you, consider the following…
New York City runs on approximately 5 gigawatts per year.
So the global solar capacity increase of 2015 represents enough new power to run ten megacities, each the size of New York.
- Additionally, the International Renewable Energy Agency (IRENA) reported that, as of the end of 2015, the number of people employed in the solar industry had reached 2.8 million—and was still steadily growing.
Jobs are a strong indicator of industry size and vitality. Jobs also help solidify a nation’s dependence on particular industries—protecting that industry from getting crushed by policy changes or popular opinion.
On top of that, 2.8 million is nearly 30 percent the number of jobs supported by the gas and oil industry.
And IRENA expects the number of people employed in the alternative energy sector to triple by 2030, potentially placing the importance of the solar industry to our global community on par with the current gas and oil industry.
- Another strong indicator of the growth in the solar sector is the boom in residential solar panel installation. In 2006 barely 30,000 homes across the U.S. had solar panels. By the end of 2015, that number was approaching one-million.
And the growth rate is predicted to spike drastically over the next few years.
In the words of Dan Whitten, vice president of communications at the Solar Energy Industries Association (SEIA):
“It took us 40 years to get to 1 million installations, and it will take us only two years to get to 2 million. This is a time to mark when the solar industry started to accelerate at warp speed.”
In other words, 2015 was an incredible record setting year for the solar industry.
Which should add a little weight to my words when I say…
2016 blew 2015 out of the water.
- Global solar power growth leaped by 50 percent. That means 76 gigawatts of capacity were added to the global capacity, 26 billion watts more than 2015. That is 15 New York Cities added to the global power grid in a single year.
- The U.S. solar industry saw a 21 per cent increase in jobs—a growth that exceeded 12 times that of their national average. This means that the economy of the greatest consumers of oil on the planet is becoming more and more dependent on the tax subsidies and technology progression that keeps solar moving forward.
- The number of residential installations in the U.S. blew past 1 million. Which means more and more people, not just corporations, are turning towards solar.
- And China crushed every other nation in the world by installing a staggering 34 gigawatts of solar capacity in just one year.
The rapid growth of the solar industry over the last few years and the even faster growth predicted over the next few years is just one of the three reasons we like the solar sector so much.
The second reason for loving solar is…
#2: The Declining Costs of Solar Energy.
When you first think of “declining costs”, especially in regards to the energy sector, your reaction is probably a mixture of negative and positive.
After all, when the cost of oil declined from late 2014 to early 2016, gasoline became cheaper, a win for anyone driving an automobile.
The value of oil stocks declined alongside the value of oil, a loss for investors in the sector.
So, while declining costs may seem like an obvious reason to install solar panels on your home, are they also a good reason to invest in a solar company?
In short, yes.
The decline in the costs of solar is entirely different from the decline in the costs of oil.
There are two main differences:
- Oil, coal, and fossil fuels have naturally been the most abundant, powerful, and cheap fuels available for industrialized nations for more than a century.
And, more important…
- Oil companies sell a commodity. Solar companies sell a technology.
I will not spend too much time on the first difference between solar and oil because its impact is obvious.
Emerging players, in any industry, need to create customers and demand. An important step in creating those customers and their demand is ensuring that your product has a strong cost-benefit ratio for your customers.
Creating a strong cost-benefit ratio with solar power was impossible for decades.
In 1976, because of the limitations of technology and infrastructure, producing one kilowatt of power with solar cost approximately $83.81.
Meanwhile, in the same year, generating one kilowatt of power with traditional energy sources cost an average of 9 cents.
Obviously, that price had to come down.
Quite a bit.
Or else solar would never have a chance.
And come down it did.
This decline has not harmed the solar sector but, rather, transformed solar into a viable energy source.
Declines in the price of oil obviously have a different effect on oil companies, as can be seen with the recent decline in oil prices that began June 15th, 2014.
From July 3rd, 2014 to January 8th, 2016 British Petroleum’s (BP) stock dropped 45.6 per cent.
The second difference between the solar industry and other traditional energy sectors is that traditional energy companies operate similarly to corporations that specialize in the sale of a commodity, whereas solar companies behave similarly to tech companies.
What does this mean exactly?
Companies that deal with the sale of commodities have a very simple relationship between the value of their commodity and the value of their stock.
The relationship between the cost of oil and the stock-value of oil companies is linear.
When supply surpasses demand in the oil industry and the value of oil plummets, so too does the value of oil stocks.
Solar companies, on the other hand, do not pivot on any one commodity. That’s because solar companies behave like technology companies. (Although, it is important to keep in mind that tech industries still heavily impact, and are affected by, certain commodity markets involved in the production of such technology, like lithium, silicone, and platinum.)
The cost of solar is primarily impacted by drops in the cost of technology production. And the cost of technology production, as you probably know, is constantly in decline.
It is a cycle we are all familiar with, from iPhones to TVs: When more expensive technologies are created, the older ones become slightly outdated and thus, are sold cheaper.
This cycle is extremely profitable for tech companies.
The process allows them to produce a wide range of products aimed at different pay classes and to recommend paid updates and patches on a regular basis.
You can already see the benefits of this cycle playing out in the major solar player, Tesla’s, business model. Just a few months ago Tesla revealed that the simple solar panel installation, ranging between $25,000 and $35,000, is soon to be considered a lower-end product.
The solar roof will be taking its place.
With a yet to be revealed price point that many guesstimate to be between $65,000 and $80,000, the solar roof promises to be a game changer in the industry.
A game changer that was only possible because the cost of a 5 kilowatt solar panel array installation is no longer upwards of $100,000, as it was in 2006.
As the cost of solar technologies decreases, the number of available products and the proliferation of products will increase, leading to an expansion of the industry, just as dozens of other tech sectors have experienced.
What you should take away from this is that the decline in solar costs is good for us.
The third reason I want to add a bit of sun to our portfolios is…
#3: The Globalization of the Solar Industry
While the solar industry has technically existed for more than 40 years most of its growth occurred in the last decade.
And for the first half of that decade that growth was almost exclusively seen in the European Union.
As you can see in the chart above the solar energy industry’s global expansion began in the last five years. And as far as most experts can tell…
It is picking up steam.
The demand that is spurring this expansion comes primarily from the U.S., China, India, and several neighboring countries.
The sense of urgency to tap into solar power is growing everywhere.
But nowhere is that demand growing as fast as it is in China. In 2016 China doubled their solar capacity, increasing their solar infrastructure by 34 gigawatts.
The reason for their haste is, presumably, this:
No, that’s not a rendered image of an Orwellian future.
And that gray murkiness isn’t a fog, a low cloud, or a very overcast day.
That is pure unadulterated pollution.
Don’t believe me?
See the white wispy stuff on the far right?
That is a cloud.
And the murky gray stuff covering the mainland?
That is the result of China relying on coal for decades.
China’s solar energy push is a critical part of their plan to reduce their dependence on coal—and thus eliminate the terrible air pollution their populace suffers from.
In fact, China now has put in supports for solar energy in its current five-year economic plan. This is a sign that the (admittedly overlapped) public and private sectors of the country are united in this effort.
The United States is the birthplace of the solar cell, and it is currently ranked second in the fight for clean energy.
The U.S. uses more power than any other country in the world. So it should come as little surprise that they are pursuing solar hard.
Federal and state tax incentives are driving force behind solar revolution in the U.S., in spite of low gas and oil prices.
Analysts expect the demand for solar energy will grow even more quickly with the rebound of low gas and oil prices.
Will this demand falter with President Trump’s more traditional stance on energy?
But the massive amount of jobs that solar power has brought to the States might make him hesitate to slash those important tax incentives.
India also has big dreams for solar, with a plan to increase solar energy production 800 per cent by 2021.
The importance of reliable clean energy in India will only grow as the county enacts their “Power for All” plan. “Power for All” is an initiative to ensure there is enough power and consistency on their grid to care for the ever growing Indian population. This plan includes constructing 100 gigawatts of renewable power, much of which will be solar.
In 2017 alone the Indian government plans to add 8.8 gigawatts to their solar capacity, placing them amongst the top countries in terms of capacity.
Canada too has their eye on the sun, albeit, on a smaller scale than these other three. While there is not a race for solar power throughout all of Canada, in part due to historically low energy prices, there are several important uses for solar that will see several billion dollars flow into the sector.
For example, remote or rural towns that rely heavily on noxious and expensive diesel fuels are looking towards solar as a cheaper and altogether more pleasant option.
And Ontario has already surged into the future with several hundred megawatts of solar energy on the grid.
All of this is to say…
Solar is on the rise.
And it’s pretty much guaranteed.
Could the changing political climate negatively impact the American solar industry?
Could China back off on their commitment to improve their air quality?
Might India decide that ensuring their people have power is not a priority?
But I am fairly certain none of those will happen.
And I would stake my right arm that all three won’t.
That is why I am about to introduce you to an international player in the solar industry – a company with a strong presence in the Philippines, the U.S., and Canada, and a growing presence in China.
Best of all, this Company’s success is not linked to any one economy or political system.
We should see growth with this pick as long as one of the major solar players pursues their expected solar goals for 2017 and beyond.
The best part of this opportunity is the strong potential for exponential growth.
I believe in this company’s potential for two reasons.
- Because the company I am about to reveal is still very much under the radar. When other investors recognize it as a gem it is the company’s value may soar without warning.
- If all the major solar players continue on their current courses for 2017 it would be difficult to imagine a scenario where this small cap doesn’t rocket upwards.
So, without further ado…
UGE International Ltd.
(TSX-V: UGE) (OTCQB: UGEIF)
UGE International Ltd. trades on the Canadian stock market under the symbol “UGE” and on the U.S. stock market under the symbol “UGEIF”.
Here is a quick summary of UGE, before I get into what makes them so attractive.
First, it is important to understand that UGE, based in Canada, provides full-service energy solutions to commercial and industrial clients internationally.
This is a sharp distinction from other solar contractors whose primary focus is on residential.
UGE’s business and marketing model differ from residential contractors. And their specialization and focus on commercial and industrial projects allows UGE to take on installations that their would-be competition cannot.
This is because, other than Tesla, most solar companies are small and focus on residential projects.
Even if they do accept the odd commercial contract, often times small solar companies can only do a small part of large commercial installations.
UGE specializes in every part of large-scale commercial and industrial projects.
They design, build and install the solar energy network. Companies of a similar or smaller size would generally have to partner with an engineering firm and, potentially, a construction company.
By having every skill necessary for a large scale project in-house UGE can produce more cohesive products, at better rates.
Also, UGE completes projects with no upfront price tag, and, therefore, no capital risk for their client.
All of this allows UGE to operate in a far less crowded and competitive corner of the solar market, which will enable them to thrive in the near future.
The mindset at UGE is one that both I and their clients can get behind. They sell you power, for less.
You might remember earlier on I explained how important the declining costs of solar power are.
Well, here is where that comes into play.
In the words of UGE’s CEO Nick Blitterswyk:
“In 2008 solar panels were selling at $4 a watt. That cost has come down more than 10 times to just 34 cents a watt, so now companies are making the decision to go solar based on economics, on real cost savings.
“In the areas where we’ve traditionally operated, like the eastern US or Ontario, the average client is paying around 14 cents per kilowatt hour, but we can sell you energy for 10 cents per kilowatt hour, and that cost is continuing to drop as the technology improves,” Blitterswyk says.
Because of the declining costs of solar technology UGE is able to offer businesses a no-brainer foolproof product.
Power. For less.
“Keep using electricity. Just like you always have. But pay less for it.”
Who could possibly say no?
It is because of this no-nonsense mentality that UGE has earned a number of accolades.
- They were named among the Top Solar Contractors by Solar Power World.
- They are also the number one solar contractor in Ontario Canada.
- And the number two solar contractor in New York.
Their simple value proposition has been very good for UGE.
I would like to make it good for us as well.
Let me tell you exactly why we have UGE in our portfolio…
UGE is a Small-Cap Titan of Commercial Solar Energy
The keyword there is “small-cap.”
UGE is still a small company.
UGE is not small because of stagnation or corporate issues or inability to compete.
UGE is small because it is young.
But it won’t be young for long…
Because UGE’s numbers look great.
This is the ground floor of a company bursting with potential.
- In 2015 UGE saw $2.2 million in total revenue. But by 2016 UGE saw $3.5 million in a single quarter.
- As of December 31st, 2016, UGE has a backlog of $34.8 million worth of projects. Which may very well translate into $6 million quarters moving further into 2017.
- And the pipeline. UGE has a $100 million pipeline.
Clearly, this is a company on the verge of having its first eight-figure year.
And I don’t think they are going to stop at $10 million.
UGE’s primary financial goal for this year is to exceed $20 million in revenue…
And with a backlog of $34.8 million and a deployment schedule spanning over the next 9 to 15 months, I don’t foresee the company struggling to meet their goal.
Here’s the second aspect of this company I like so much,
UGE is a Domestic Company with International Reach
As you probably understand from the company’s proper name, UGE International Ltd., UGE is an international company.
And that’s not just Canada and the U.S.
UGE has its sights set on several exploding solar markets.
UGE is the market leader in Ontario Canada, has a strong presence in the eastern United States, and is one of the few solar companies in the Philippines.
Additionally, with an office in China, UGE is looking to ride the biggest wave of solar power advancement in history.
This international market diversification is not something you will find in many small-cap solar companies. And it’s a huge part of what makes UGE so attractive.
Diversity in a business’s target markets nullifies some of the risks for investors.
Could UGE survive a decline in American clients due to a shifting political landscape?
Could they potentially even thrive?
Because a 50 per cent decline in American clients would only equate to a loss of, approximately, 19 per cent decline of UGE clients.
This would hurt the company sure, but redoubling their marketing efforts on a different front could help them recoup the loss.
A 50 per cent decline in American clients would probably prove fatal for a company that deals solely in the U.S. market.
In addition to being a naturally secure investment, UGE’s international aim also gives them a high potential for overwhelming success.
By involving themselves in several markets UGE has given themselves a higher chance of being involved in a market explosion that will carry them and their investors to new heights.
UGE’s Specialties, Commercial and Industrial Solar, are On the Rise
As I discussed previously, specializing in commercial and industrial solar gives UGE an undeniable edge over solar companies that focus on residential.
Overall, there is less competition in the commercial landscape of solar than the residential.
And the unrivaled level of UGE’s expertise in the commercial and industrial realm makes them the most obvious choice for business owners looking to cut costs and “go green.”
You may wonder, if the commercial and industrial sector is so advantageous, why isn’t it already bloated with companies and investors?
That’s a fair question.
One I asked myself early on in my research.
And the answer was simple.
The trigger needed for a great surge in North American commercial and industrial solar was a decline in solar prices to the point at which its economy became transparent.
And we have only reached this point within the last two years.
Sure companies in 2014 were pursuing solar. But not in a meaningful way. They were not looking to cover a significant portion of their energy needs with solar power. They were only looking for enough coverage to claim they were “dabbling” in clean energy, a relatively useless display of the technology…
But that all changed as the costs of solar continued to decline.
UGE is finding more and more of their clients are looking to pull the trigger on big projects meant to affect real change in the clients’ energy dependence.
Blitterswyk explained it this way:
“In 2014 the key driver was to look ecologically cool. We’d put some solar power up on an awning or rooftop by the front door for maybe $50,000, but most of their power was still coming from the grid. Now, our average installation is about $1.25 million, and it’s growing very quickly.”
So why was residential so popular in the past?
First, it is important to understand that residential electricity rates are generally about double the rates of commercial power.
Around 2008 the U.S. federal government and several state governments began to offer significant incentives to people who added solar panels to their homes. These incentives, combined with the actual savings from the solar technology, made solar panels financially appealing to homeowners
Similar incentives were available for corporations as well.
But they weren’t large enough to make the transition financially appealing to businesses.
As it would turn out, however, there was no need for stronger incentives. A few additional years and a decline in the cost of solar has created the perfect environment for commercial and industrial solar to thrive.
What does all this add up to?
Well, let’s see.
UGE Summary and Valuation
UGE presents us with a very unique and high-reward opportunity.
Solar is the future. There is no question about that. There wasn’t any for Thomas Edison one-hundred years ago and there shouldn’t be any for us now.
The solar industry, part tech, part energy, part construction, is like an opportunity to invest in a mixture of Microsoft and BP—before either had made their first billion.
Investing in solar is obvious and natural.
The agenda of this letter wasn’t to convince you of that.
We are all rational and reasonable people. I am writing this under the assumption that you can already see how important solar will be in the future…
But that you may not be aware that the time to invest is right now.
You see, solar was a terrible investment for forty years.
But now that the tech is in the right spot…
You are looking at the ground floor of a new trillion dollar global industry.
So the only question that remains is…
Compared to more mainstream Solar plays, like Tesla, UGE is riskier.
They are a smaller company. With far fewer media presence, investing, and revenue.
Plus they have no intention of breaking into the luxury car business.
But, make no mistake, UGE is not a startup.
They have a backlog of work valued at twice the market cap of the company.
And their sector is strong, even underpopulated.
As I am sure you are aware, the earlier you invest in a company the higher return you could, potentially, make.
Tesla’s stock is currently hovering around $260 with a market cap of $44.28 billion. Will the stock value eventually double? Will Tesla become a $100 billion company?
But that growth will take a while.
Because Tesla has already experienced its period of unrestrained exponential growth.
From January 2013 to July 2015 Tesla’s stock value increased by a factor of nine from $32 to $280.
This exponential growth period, right after a company’s product has caught on with the general public, is normal in the early years of a soon to be a successful tech company.
This isn’t something I am making up. You can observe the same phenomenon in other tech companies like Oracle, Cisco, and Apple.
Tesla has long since exited its rapid development stage.
I believe UGE is at the beginning of theirs.
The stage is set. The solar industry is picking up pace. UGE has differentiated themselves from much of their competition. They have international reach. And have experienced their first year of exponential growth.
While UGE is small, their stock is cheap, they are cash flow positive, and they are looking significantly undervalued.
UGE’s work backlog alone is evidence that the company’s is undervalued.
At the very least their valuation does not seem to take into account the rapid growth they experienced in less than a year, tripling their annual revenue.
I could go on about the importance of investing in the fuel of the future.
I could even embark on the very tangent I promised not to at the beginning of this letter. Talking about how natural and clean energy sources will give us unlimited access to power in the future.
But I think I have said enough about how good the solar market is looking.
Instead, I will leave you with this thought.
It is a rare opportunity to invest in the beginnings of a new industry. It is a scary opportunity as well.
New industry sectors are not born very often.
When they are, it is often difficult to tell whether or not they will be successful.
By the time it is obvious that a sector will explode, early investing is over and you miss out on incredible returns.
Residential solar is still a young sector but definitely out of infancy. Are there still huge profits to be made? Yes. But the “Microsoft” of residential solar has already been found, Tesla, formerly Solar City.
And, while only a small percentage of U.S. and Canadian citizens have actually installed solar panels on their home, a study by the Pew Research Center found that 89 per cent of Americans favour an expansion of the solar market. Which just goes to show how far consumer-oriented marketing for the solar industry has come.
Commercial solar, on the other hand, is still a baby.
Corporations care about the bottom line. The moment it becomes apparent there is money to be saved by “going green” large corporations with tens or hundreds or even thousands, of buildings will turn to solar and billions of dollars will flow into the sector—far faster and far more reliably than with residential solar.
Where will this occur first? The United States? Canada? China?
I don’t know.
What I do know, is that UGE is in a unique position that should let you ride that wave regardless of where it starts.
Even if it somehow starts in the Philippines.
UGE International Ltd.
Canadian Trading Symbol: TSX-V: UGE
US Trading Symbol: OTCQB: UGEIF
Lonny W. for Equedia
UGE is a paid advertise on Equedia.com and we own shares of the Company.