Solar companies, which have struggled all year, have had a rough round of trading. What has become clear is that, whether you love them or hate them, the solar industry has many challenges ahead.
The most pain came on the morning of Tuesday, Nov. 16, when closely followed solar analyst Satya Kumar from Credit Suisse downgraded the whole sector, pointing out that large amounts of capacity will be coming online in 2011, pressuring prices.
"We have grown more concerned that subsidy-driven solar-market demand cannot keep up with incremental solar supply coming online from mid-2011," wrote Kumar in a research note.
Credit Suisse downgraded GT Solar International Inc. (Nasdaq: SOLR), Trina Solar Ltd. (NYSE: TSL), ReneSola (NYSE: SOL), and First Solar Inc. (Nasdaq: FSLR) from Outperform to Neutral. It also downgraded JA Solar Holdings Co. Ltd. (Nasdaq: JASO) and Suntech Power Holdings Co. Ltd. (NYSE: STP) to Underperform.
Eric Wesoff, a senior analyst with analysis firm Greentech Media Inc. , believes some of the negativity is overdone. He points to an industry that is generally growing, with many profitable companies.
“By many metrics the solar industry is doing well,” Wesoff wrote in an email, responding to questions about the sector. “It's still growing at a phenomenal pace. Global shipments will be in the neighborhood of 15 gigawatts in 2010. That is a 92 percent growth rate from last year.”
Wesoff does, however, point to issues with supply. He agrees there is more supply coming onto the market. “Yes, there is the sense that there will be a glut. Certainly there will be an oversupply of factory capacity.”
The problem on the stock market front is that solar stocks have had an uneven and disappointing performance, especially since solar is often hyped as the next big thing, promising to bring eco-conscious yuppies the dual prize of efficient, low-carbon energy as well as a rising portfolio.
It’s largely a subsidized industry, in many cases supported more heavily in certain markets such as Germany and China.
In fact, if you are trying to compete with a Chinese company, you might have a financing problem. Chinese solar module makers have secured around $22.5 billion in credit from state-owned banks, according to Greentech Media. Western banks have been more lukewarm to the industry, content to sit aside and allow the government to subsidize the business.
But what about the cold, hard numbers? Let's look at some of the most followed solar stocks tagged by Credit Suisse’s Kumar: First Solar, Suntech, and Trina. Over the past two years, First Solar is up only about 18 percent, while the Nasdaq is up nearly 70 percent. Suntech has peformed poorly, down 20 percent. Smaller Trina is the one with the blockbuster performance, up nearly 500 percent.
So can you invest in the industry as a whole, or is it simply a random stock lottery? There is a sector exchange traded fund -- the Claymore/MAC Solar Energy ETF (Clever Nasdaq symbol: TAN) -- that's down 5 percent over the past two years. Year-to-date, the solar ETF is down 15 percent.
Clearly, if you're looking for the road to technology riches, it is not yet in solar. You would have been better off being in cloud-computing gear, data centers, or online advertising rather than get into the solar industry, which has yet to see that many sunny days.