Wells Fargo on Clean Energy

Wells Fargo on Clean Energy.

The analyst comments "In our utility-scale solar tracker, we look for datasets (e.g corp solar PPAs) that help us predict installation growth. We slightly lower our 2025 & 2026 installation forecasts, but overall see limited OBBA policy risk. Top picks remain FSLR & NXT. Corporate PPA Issuance Moves Higher in May-June. Corporations signed 1.6 GWs of solar PPAs in May (100% hyperscalers) and another 1.6 GWs in June (also 100% hyperscalers). YTD, the monthly average has been 1.3 GW/month, implying both May & June were above trend. We'd caution there's significant m/m volatility in solar PPA issuance. On a TTM basis, corporate solar PPA issuance is running at 21.6 GWs through June 2025, which compares to 14.3 GWs for the TTM period ending June 2024. Hyperscalers Driving Corporate Solar PPA Issuance to Record Levels. YTD (through end of June), there's been 7.9 GW of corporate solar PPA issuance in the US. We calculate 5.8 GW (or 73%) of YTD solar PPAs were signed by hyperscalers (AMZN, GOOG, META, MSFT). Adjusting for seasonality, this puts corporates on pace to issue an estimated 22.5 GW of solar PPAs in 2025, an implied 20% y/y increase. Hyperscalers are using natural gas for AI data centers, but signing virtual PPAs as carbon offsets. Solar (Directly & Indirectly) Powering 8% of AI Power Gen. Tracking solar PPA issuance by hyperscalers, we can approximate how much of the AI data center buildout is being powered by solar. In 2024-25E, hyperscaler solar PPA issuance was ~8 GW above baseline decarbonization trends, which we attribute to AI demand. If we compare this to our 2027 AI power forecast & assume a 25% capacity factor, we est. 8% of AI power gen through 2027 will be supplied by solar (direct connects & virtual PPAs). Ute Scale Solar vs Nat Gas. Where does solar stack up post-OBBA & tariffs? We think it stays competitive. Pre-OBBA, solar LCOE was $67/MWh & $109/MWh with 4h storage vs $90/MWh for CCGT. OBBA extends credits through 2030 via safe harboring. Even with new tariffs announced this wk (AD/CVD, poly probe, battery AD), solar remains competitive at $73/MWh. Solar + storage rises to $116/MWh, over the ±$20/MWh historical band vs gas, but w/ gas LCOE rising, we expect the gap to normalize soon. Revising Our 2025-26 Utility Scale Solar Growth Forecasts. We're lowering our 2025 installation est to -6% from 18% based on a new methodology. For 2026, we're raising our est to +9% from +5% as PPA strength this year helps boost installations next year. Note: this month, we revised our methodology to use blended approach to forecasting utility scale installations including (1) corporate PPA issuance, (2) a new utility scale EPC crew index (Lium), and (3) factoring in YTD installations."

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