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Xcel Energy Inc (XEL), SunPower Corporation (SPWR), Yingli Green Energy Hold. Co Ltd. (ADR) (YGE): Look Out, Solar Is Moving North

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Solar energy isn’t only for hot and expensive states like California. Minnesota just approved a law that requires utilities to get 1.5% of their energy from solar by 2020. These changes will require new investment, and the state’s left-leaning government could further increase its solar requirements.

Some utilities like Xcel Energy Inc (NYSE:XEL) are well positioned as they already have a significant amount of experience with renewable energy. Solar manufactures like SunPower Corporation (NASDAQ:SPWR) and Yingli Green Energy Hold. Co Ltd. (ADR) (NYSE:YGE) will benefit as Minnesota’s utilities will need to purchase a number of new solar panels.



XEL Total Return Price data by YCharts

The Utilities

Xcel Energy Inc (NYSE:XEL) is one of the major utilities in Minnesota. The state provides 35% to 45% of the company’s earnings. The utility has experience dealing with progressive states with high renewable energy requirements. Colorado’s green energy requirements helped to make wind 12% of the firm’s owned and purchased energy in 2012.

Even with this encouraging experience, the utility industry faces the risk that the majority of government mandated solar use may come from distributed solar. If homeowners start to place solar panels on their homes in droves, then Xcel Energy Inc (NYSE:XEL) would suddenly be competing with millions of small producers.

The reality is that Minnesota is far away from sunny and dry regions like California. Minnesota is well-situated to take advantage of cheap coal and wind energy. While it is possible that roof top solar installations could take off, it is most likely that the new solar mandate will be met through a combination of utility-scale installations and rooftop installations.

Xcel Energy Inc (NYSE:XEL) is financially stable with a total debt to equity ratio of 1.21 and a profit margin of 9.3%. Even before the latest solar mandate, it was planning to use 20% of its 2013 to 2017 capital investment plan for its distribution network. A stronger distribution network is needed to strengthen the grid so that it can handle distributed solar and wind generation. With a 3.8% dividend, Xcel Energy Inc (NYSE:XEL) offers a healthy yield and helps the environment.

ALLETE Inc (NYSE:ALE) is another utility active in the Minnesota energy market. This company is using its interests in North Dakota to help increase its wind generation capacity, but its solar assets are still lacking. It is looking at a number of agreements with Canadian operators to increase its use of hydro generation. With a total equity ratio of 0.82 and a profit margin of 10.7%, it shouldn’t have a difficulty reaching the 1.5% solar mandate. Its return on investment (ROI) of 4.7% and dividend are almost the same as Xcel Energy Inc (NYSE:XEL)’s.

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