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Solar stocks have been derailed
by multiple factors, but the survivors will ultimately rise to great heights.
In 50 years or less, the world
could be run on solar power.
That isn't just a casual
opinion, but a projection from the International Energy Agency (IEA).
"Photovoltaic and
concentrated solar power together can become the major source of
electricity," says IEA analyst Cedric Philbert.
"You'll have a lot more electricity than today but most of it will be
produced by solar-electric technologies."
It's a logical thought. The sun
is a tremendous source of energy, so why not tap it directly?
The key factor is economics --
making solar energy competitive on price, then rolling it out on a massive scale. Given time, a mix
of fierce competition and technological advancement will do just that.
As this process unfolds,
fortunes will be won and lost. Some competitors will struggle. Others will
rise to great heights.
In the near term, the solar
industry is going through a brutal culling phase. "The solar-equipment
industry has begun its biggest consolidation in at least two years as
photovoltaic systems plunge in price," Bloomberg reports,
"forcing weaker companies to team with competitors or close up
shop."
Evergreen Solar (ESLRQ:PK, formerly ESLR:NASDAQ) is a poster child for this process.
In late 2007 and early 2008, Evergreen Solar traded above $100 per share. Now
in the throes of bankruptcy, it trades for less than 20 cents.
For the U.S. government,
something even more embarrassing just occurred. Solyndra,
a solar company based in Fremont, Calif., declared Chapter 11 bankruptcy in
spite of $535 million in federal-loan promises from the Department of Energy
(DOE).
President Obama visited Solyndra in the spring of 2010, NBC reports, declaring
the solar startup to be "a testament to
American ingenuity and dynamism and the fact that we have the best
universities in the world, the best technology in the world, and most
importantly the best workers in the world."
With Solyndra's
shutdown, 1,100 of those workers will see their jobs lost. So much for a
testament...
In Washington, budget hawks are
hammering Solyndra's $535 million in
government-loan guarantees as a wasteful experiment. The closing of Solyndra will be a major setback for new "green
jobs" initiatives, with opponents pointing out how risky energy startups can be a boondoggle.
China
Flood, Solar Washout
China is a fast-growing player
in the solar market. According to Barclays
Capital, China's share of global solar demand could nearly double by 2015.
Solar companies are thus being pincered by the
combination of China's expansion and Western cutbacks.
In the West, European
governments are cutting renewable energy subsidies -- little cash to spare in
a time of sovereign debt crisis -- and the mood is turning sour in the United
States too.
Meanwhile, in China, a
combination of manufactured GDP growth and government backing is leading
companies to aggressively pursue market share. This has led to a rapid drop
in panel prices, and the demise of players like Evergreen Solar.
Says the WSJ:
"Despite shifting its factory to China, from a state-supported facility
in Massachusetts, [Evergreen] couldn't compete."
Solar
Stock's Bright Future
What does this all mean for
solar stocks?
As mentioned, there will ultimately
be fortunes made here. As they say in the commodity business, "the best
cure for low prices is low prices" -- the drop in panel pricing will
ultimately force a drop in production. Meanwhile, as prices drop and solar
becomes more competitive, demand will grow.
Another factor to restore solar's fortunes could be a rising-oil-price trend. With crude oil back below $90 a barrel as of
this writing, the sense of urgency on fossil-fuel alternatives has retreated.
But oil can't stay cheap forever
-- it simply isn't possible. In a return to global growth, oil demand will
rise again, leading to price spikes as we press against the margins. In the
event of civil unrest or turmoil, cutbacks in the Middle East oil supply
could kick off a new energy crisis.
And in the absence of both of
those... if the world continues to slow as economic activity dries up... then
we can expect the powers that be to hit the printing-press panic button,
which would send oil prices higher again by default.
For now, then, we can expect the
continued pressures of Western cutbacks, Chinese competition, and sluggish
global demand to all weigh on solar. The U.S. government's "green
jobs" push is also struggling thanks to boondoggles like Solyndra.
But once the smoke clears and
demand soaks up the supply glut -- likely in tandem with a rising oil price
-- the better run "solar survivors" could be compelling buys.
Justice
Litle
Taipan
Publishing Group
Article
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