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Sunshine Lacking in US Solar Stocks

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 {complink 6436|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 {complink 11000|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.

14 comments on “Sunshine Lacking in US Solar Stocks

  1. AnalyzeThis
    November 23, 2010

    I do agree that the solar industry faces many challenges in the years ahead. I think it's going to be a rough decade, actually.

    While I support solar and believe that long-term it will be a viable and successful industry, I still don't feel that the technology is where it needs to be yet. For solar to go mainstream and break free of its current heavily subsidized state, the technology is going to have to have to see dramatic improvements in efficiency and a drastic decrease in costs.

    I do believe that these challenges (and the ones you mention) can be overcome. But it is going to require much more time. And I am certainly not personally investing any money in this sector at the present time.

  2. SP
    November 23, 2010

    I also agree that sloar business is slow. Although from environment point of view its just great but not many wants to invest in that as the demand is low. We still have long distance to go before everyone wants to go solar. Also risk is high as it depends on sunshine.

  3. Mydesign
    November 24, 2010

         Even I am also agreeing with your point, that the solar business is very down through out for the last few years. Let’s think about, how we can motivate the solar business. First the marketing peoples have to make a general awareness about the solar energy and how its ecco friendly by different marketing methods. The government can also play an important role to promote the solar business, primarily by providing subsidy to the customers, for solar based equipment purchase. Secondly by giving a discount in the traditional electricity or gas bill, based on the energy saved through solar products. More over local governing bodies can insist the builders to contribute atleast by 25 percentage of the total energy consumption by solar energy.

  4. eemom
    November 24, 2010

    In order for Solar to become mainstream in the US, the companies must find a way to reduce the cost of the technology.  Right now the technology is only being utilized (for the most part) and installed by municipalities, schools, corporations, etc.  What will make this mainstream is if the consumer starts to consider installing panels on their own roof to reduce their individual energy costs.  To do that, panels must be cheeper to purchase and install, the government should offer incentives in the form of tax rebates.  Energy cost savings will be realized naturally through the solar panels. 

    When solar farms are insalled in a municipality, sometimes, they are met with resistance from the residents who fear a reduction in their home value.  These solar farms do not benefit the consumer.  Until there is a way for the individual consumer to see value in solar, the solar companies will struggle to proliferate their technology and ensure its mainstream success.

     

  5. SP
    November 24, 2010

    Hi Toms, You have put it so correctly. The marketing guys and government needs to step in and make it attractive. Otherwise people would hesitate to see solar as the first alternative. But then there is mother nature who also decides few things like in many parts of the world the temperatures go below 0 and solar is not an option. But yes for much part of the year we can make use of solar energy. And now everyone talks about being greeen and reducing waste, i guess this is the ideal way to go about it. But you need to market it.

  6. kumar1863
    November 24, 2010

    It's really hard to reduce the manufacturing price or the price they are sending out to the market. But it will be really helpful if the companies convince customers in a way that they will be charged at a reasonably less price compared to electricity bill they are paying now for a certain number of years. This will be good deal for both the manufacturing companies and customers. This will definitely increase the usage of Solar technology,also encourage the manufacturing people and researchers to increase the efficiency.

  7. Backorder
    November 25, 2010

    I think it is important to note that while dramatic improvements in efficiency and drastic reductions in costs is required, the pattern for these parameters has been quite dramatic and drastic so far as well. The market Solar is penetrating has a threshold of sorts and Solar will have t build that much momentum to get past that barrier and be a winner. It is already hurtling at a great pace towards the goal!

  8. Clairvoyant
    November 25, 2010

    I agree, Kumar. Yet the issue is for companies / homeowners, who would like to use solar power, to come up with the large initial amount of money it costs to actually implement the solar solution.

  9. elctrnx_lyf
    November 25, 2010

    Even though the reports suggest the solar market is not making a any progress in the stock market I can say that still it will take long time for the companies involved in the solar business to really be visible and make some real growth in the market. It is more connected to the emerging markets again, the technology should be included into many electronic products ranging from street lights to the solar energy based mobile base stations.

  10. saranyatil
    November 26, 2010

    Toms i agree with you especially this methods can be incorporated starting lot of camps in schools and colleges plus definitely industries which are going to be a major driver for this business. this should be made as a government policy for each and every industry and homes. we can facilitate this process at a faster rate by employing special team to be right into action and this should be given the most priority till it reaches certain heights in the market.

  11. Susan Fourtané
    November 26, 2010

    SP, 

    There is no risk in countries where the sun shines most of the year. 

    -Susan

  12. Ms. Daisy
    November 27, 2010

    Absolutely!!

    The oil magnates in the US are anti-Solar energy, because it will cut into their profits. The cost of aquiring solar enery privately is currently exhorbitant fot this reason. In addition, the American consumer does not take the time to look into this alternative source of energy, instead they listen to the political talking heads who are also the agents of the oil barons.

    There is enough sun in the south that could be tapped if the oil interest groups are not blocking the opportunity for interested investors.

     

  13. Mydesign
    November 29, 2010

    Saranyatil,
        I do agree with your points up to an extant, the camps in schools and colleges have going to give you only little impact, because have to wait till that generation going to adopt this technology. But if the local authorities or governing body’s make it mandatory, every body will go for it. To boost, they can offer some grant or additional benefits like discounts in tax or some other way, which I stated in previous message. Normally majority of peoples wants to go with the traditional ways. They are always used to keep away from new technology unless and until it is proven. I can point you some interesting development in solar enery consumption please have a look.

    See the details of “WORLD'S FIRST SOLAR POWERED STADIUM IN TAIWAN”

    http://www.nidokidos.org/worlds-first-solar-powered-stadium-in-taiwan-t49675.html

     

  14. hwong
    November 30, 2010

    To understand why US is lagging behind, we have to first look at the many competitors out there. For example, Sun Tech is one of the leading Solar company in China that offers clean power for every application and market, from off-grid systems, to homes, to the world’s largest solar power plants. They can make products alot cheaper because of the relatively inexpensive labor and materials. Its solar modules are installed in over 80 countries.  The key for U.S. company to grow is to see how it can possibly lower the cost.


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