In a year full of crises, California is now dealing with a very hot one, temperature-wise, that is.
The heatwave, wildfire and rolling blackout season is hitting California again, leaving millions hoping to crank up their air conditioning without electricity as the state’s power grid gets stretched beyond its limits.
From the San Francisco Bay Area to southern California, wildfires now cover more than 1.5 million acres of the state — that’s an area over four times larger than Los Angeles. Officials declared a State of Emergency and at least 136,000 residents are still evacuated from their homes.
The truth of the matter is, blackouts aren’t new to California.
Back in 2001, the state was hit with power shortages, blackouts, sky-high wholesale electricity prices and more. In 2010, the State Water Resources Control Board provided regulators a decade to figure out a plan for energy replacements. To avoid using energy from natural gas plants, the state approved a massive lithium battery storage facility in Moss Landing, and another is anticipated in Morro Bay. But the acute shortage of lithium batteries has delayed the completion of these storage facilities, potentially for years. It’s also strained California’s electric grid.
In the past five years, California has cut about nine gigawatts of natural gas power, or enough electricity for 6.8 million homes. The California grid now sometimes comes up short about 25% to 50% of what it needs as energy from renewable sources like solar drops off during the night. The state has had a difficult time finding replacements and typically imports power from other states to make up for the deficit.
Recently, facilities powered by natural gas have begun asking for multi-year extensions to keep the lights on in the state. California Governor Gavin Newsom admitted that by shutting down big natural gas plants, the state was not fully prepared for the shift to alternative energy.
The situation is worrying and unlikely to abate anytime soon as the fire season in California could persist well into October, as could the extreme heat.
The good news is that California’s power problems could boost the adoption of more lithium Powerwalls and other battery packs to provide uninterrupted electricity. Powerwalls, which are built by Tesla (TSLA), are lithium battery packs that store solar energy that can power a home when the regular electricity is turned off due to an outage or blackout. Current demand is so high that delivery times are stretching into next year. So, there’s a lot of opportunity in the solar energy space right now.
The Perfect Storm for Solar Stocks
Add to that the fact that California has this year become the first state in the nation to require all newly constructed homes statewide to include solar panels or make use of solar energy from somewhere else. You’ve got a perfect storm of increasing demand for the lithium battery packs.
It’s great news for two stocks I’m recommending right now to my Platinum Growth Club subscribers that are poised to capitalize on the increased use of these battery packs.
The first, Enphase Energy (ENPH), has climbed a stunning 159% since I added it to the Platinum Growth Club Model Portfolio in January 2020. The market leader develops the microinverters that sit beneath solar systems, converting sunlight to power. This power is then stored in a battery pack, which is part of the Enphase Ensemble system and is used automatically during blackouts.
The company’s products have been in high demand recently. Earlier this week, it was announced that Solargain, one of Australia’s largest solar energy providers with more than 70,000 solar installations across the country, chose Enphase microinverters for its turnkey retail solar offerings.
This deal should benefit Enphase Energy nicely, but there’s no denying that it’s been firing on all cylinders well before the Solargain deal. In the second quarter, Enphase earned $0.17 share, beating estimates of $0.14 per share by 22.46%. Sales of $125.5 million topped estimates by 2%.
The stock popped more than 6% today to a new 52-week high of $78.53, and I look for it to continue trekking higher from here.
The other company develops solutions that harness and monitor power in photovoltaic (PV) systems or solar panel systems. One of the company’s systems stores unused solar power in a battery, which can then be used seamlessly during power outages. In late June, it launched a new power inverter for home use, providing a valuable solution for folks suffering from blackouts.
Since I recommended it in my Breakthrough Stocks newsletter on March 6, the stock is up about 65%, compared to the S&P 500’s 17% gain during the same timeframe. In its second quarter, the company reported that year-over-year sales increased 2% to 4331.9 million, beating Wall Street’s estimates by 3.9%. Diluted earnings of $0.97 per share rose 3.2% from a year ago, topping estimates by 37.4%.
This company is a “Strong Buy” in my Portfolio Grader, thanks to its solid fundamentals and strong institutional buying pressure. Of course, there are plenty of other stocks outside of solar that are also popping up on my radar. In fact, in today’s Growth Investor September Monthly Issue, I’m recommending six new companies.
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Enphase Energy (ENPH)