Nextracker CEO says ‘solar is unstoppable’ as market sees ‘unprecedented demand growth’

Solar power is on a path to double every two to three years amid an “unprecedented period of demand growth” for new electricity generation, the CEO of Nextracker told CNBC.

“Solar is unstoppable,” Nextracker founder and CEO Dan Shugar said in an interview after the company’s latest quarterly report. Nextracker manufactures systems for solar panels to track the direction of the sun.

“The intrinsic economics of utility scale are phenomenal both in the U.S. and overseas. It has never been as favorable as it is,” Shugar said.

Nextracker’s stock closed nearly 25% higher Thursday at $56.50 after the company exceeded Wall Street’s earnings expectations by a wide margin, raised its guidance and reported a record order backlog.

The company has been on a tear since its successful initial public offering in February 2023, beating earnings expectations and raising its guidance three quarters in a row.

While the solar industry is fighting to emerge from the doldrums, Nextracker is significantly outperforming the sector. The company’s stock is up about 24% this year, while the Invesco Solar ETF is down nearly 21%.

The residential solar space has taken a beating as households have been slammed financially by high interest rates, depressing demand and leaving the installers with too much inventory on their hands.

But Nextracker’s fiscal third-quarter revenue has grown 38% year over year to $710 million as demand among the large utility-scale customers that the company serves continues to grow. The company’s order backlog on Dec. 31, 2023 “significantly exceeds” $3 billion, up from $2.6 billion at the end of its fiscal year in March 2023.

Data centers, the electrification of appliances and transportation in addition to reindustrialization in the U.S. are driving a growing need for electricity, Shugar said. Nearly 300 gigawatts of new power plants are needed over the next five years and 500 gigawatts over the next decade to meet the need, he said.

Solar is faster to build and cheaper than conventional energy sources and provides insulation from the volatility of fuel prices, Shugar said. Solar is expected to see 26% compound annual growth over the next five years and will become the leading source of U.S. electricity generation in a decade, he said.

Utility-scale solar costs anywhere from $24 to $96 per megawatt hour without subsidies, about 56% cheaper than nuclear and gas peaking and 42% less expensive than coal at the top end of the cost estimate range, according to an April 2023 report from Lazard.

With demand growing, Nextracker has raised its revenue forecast for fiscal 2024 to a range of $2.43 billion to $2.48 billion, compared to between $2.3 billion and $2.4 billion previously.

The company also raised its net income guidance for the year to $374 million to $429 million, compared to $237 million to $266 million previously. This includes $50 million to $80 million in benefits from tax credits under the Inflation Reduction Act.

The industry faces potential headwinds from rising geopolitical risks abroad and the 2024 presidential election at home. There is growing uncertainty about whether the IRA, which has been a boon for the industry, will survive if Republicans win unified control of the government.

Shugar said he expects the IRA tax provisions will prove resilient. Nextracker has invested in 25 gigawatts of domestic manufacturing in districts across the political spectrum, he said.

“The IRA provisions that are really most impactful to the market are tax code,” Shugar said. “Those tend to have a lot of persistence. The day after the election, those don’t evaporate,” he said.

“Most of the factories that we’re building are across the political spectrum, so there’s a lot of jobs in a lot of places,” the CEO said. “We think there’s a lot of political tailwinds for what we’re doing,” he said.

Nextracker has been affected by shipping disruptions in the Red Sea from militant attacks on commercial vessels and the drought that has restricted traffic through the Panama Canal, Shugar said.

Logistics costs have increased, and shipments of materials have been delayed in some cases, though the company has been able to manage so far, he said.

“It is impacting us,” Shugar said. “It’s not material, meaning it’s factored into our guidance as we understand the issue today, but we don’t want to see ‘hot wars’ continue escalating and impacting global markets and financing.”

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