Solar market remains 'stock-still'

01. February 2013 | Top News, Global PV markets, Industry & Suppliers, Investor news, Markets & Trends | By:  Cheryl Kaften

It’s okay to blink. Most of the solar market is going nowhere fast – at least, nowhere that the risk-averse investor would want to be. The sector remains a challenging place to do business, as long as subsidies continue to shrink worldwide and panels remain plentiful. There are, however, some interesting opportunities, both downstream and (surprisingly) online.

France 18.2 MW solar photovoltaic plant

"The better way to play solar is to invest in local projects that will generate predictable 10% annual returns."

Indeed, according to Aaron Chew, senior alternative energy/solar analyst at the Maxim Group in New York City, companies that sell and install solar equipment remain the best investment bets in the industry. Although many solar manufacturers are developing their own projects for that very reason, Chew is not jumping on that particular bandwagon – unless the company also has an ownership stake in the property.

In a recent interview with pv magazine, Chew opined that the one stock he would recommend would be the newly public, San Mateo, California-based, "SolarCity (SCTY), because I think the only value capture in solar will ultimately fall at the very end of the value chain – [installing] and owning projects – and it is the only major liquid investment vehicle that offers such exposure.

"Despite the bounce this year, I see only negligible improvement in fundamentals in the manufacturing space, while EPC is clearly losing its distinction, as every manufacturer is rushing into building projects."

One of the most notable events of the month was the US$2 billion-plus (€1.5 billion-plus) purchase by MidAmerican Energy Holding Co. –  the energy utility owned by Warrant Buffett’s Berkshire Hathaway – of Sunpower’s (SPWR’s) Antelope Valley Solar projects, which are actually two adjacent arrays in California that comprise 579 MW of capacity, or, cumulatively, the largest solar installation in the world. 

Within 24 hours, SunPower shares had spiked $2.13 (€1.57), or 34.8%, to US$8.26 (€6.09) on the news; and other solar stocks also rallied. But the long-term winner in that deal is going to be Buffet. By January 30, SunPower’s shares already had slipped to US$7.68 (€5.66).

However, in the "lessons learned" category, San Jose, California-based SunPower is now starting its own downstream business. On January 31, the company announced a new program with U.S. Bancorp (USB) to expand financing options available to homeowners interested in solar power systems.

The new program will provide financing for US$100 million (€74 million) worth of residential systems, expanding leasing options in nine U.S. states. Both SunPower and U.S. Bancorp invested in the program, their first renewable energy partnership. We can expect SPWR’s shares to rise accordingly.

Solar consultant, Washington, DC-based Jigar Shah, told pv magazine he thinks they are going in the right direction. "In general, owning the stocks of the supply chain is a bad idea and pretty risky. The better way to play solar is to invest in local projects that will generate predictable 10% annual returns. If I were forced to pick, I would pick downstream stocks right now given the squeeze on the manufacturers."

Two manufacturers that definitely have felt that squeeze are China-based LDK Solar and Suntech. That said, as of January 3 and January 8, respectively, they were back on the big board again at the New York Stock Exchange, having regained compliance with the listing rules that stipulate that all company shares must trade at US$1 (€0.74) or more. 

What’s more, on January 31, LDK announced that the China Development Bank Corporation had recently approved an RMB 440 million (US$ 69.8 million of €51.4 million) loan to finance a technology upgrade for the Mahong Polysilicon Plant.  The financing will primarily be used to invest in hydrochlorination technology, a critical technological improvement necessary to significantly reduce the manufacturing cost of silicon production at the plant.

While the LDK and Suntech now have some breathing room, the dangerous smog in Beijing also may be good for their health.  After the pollution reached record levels last month, China announced it would increase its solar energy supply goals from 21 GW by 2015 to 35 GW by the same deadline.

This new goal would be a massive increase from the 6.5 GW of capacity China had at the close of 2012. The increased investment in solar energy – especially residential rooftop solar installations – could drive business and share prices up for LDK and Suntech, as well as for their more stable competitors JA Solar and Canadian Solar. Still, in the long run, while these Chinese companies, as well as Trina Solar and Yingli Green Solar, have shown an uptick, analysts do not see them as a safe bet.

In China, things also are temporarily looking up for silicon providers, according to Reuters. After a year of inactivity, the nation’s biggest polysilicon plants are resuming output to meet a demand recovery anticipated when Beijing imposes a retaliatory tax on U.S. and European imports of the material Shares of the Chinese producers that stand to benefit most, Daqo New Energy Corp and GCL Poly Energy Holdings Ltd have risen by 64 and 44%, respectively, in the last month. But the rally might be nearing its end, investors said, as foreign suppliers find ways to circumvent any duties and Chinese plants compete with each other in a crowded market.

In Germany, as stocks – and business confidence – advanced to a five-year high, SolarWorld AG stock showed an upward blip in January; as did Spain’s Abengoa SA. Whether the gains will be sustainable is uncertain.

And finally, in a development that will benefit the average, small investor, Oakland, California-based Solar Mosaic made big news early in January when it announced that the first set of three rooftop photovoltaic projects offered up on its online crowdfunding platform sold out in less than 24 hours.

Similar to the way in which the Kickstarter site has enabled small investors to fund creative projects, Solar Mosaic enables them to support local solar development – and to earn back their investment once the installations are completed.

"We see a massive transition coming from fossil fuels to clean energy, and we think people should be able to profit from that transition," said Billy Parish, Mosaic’s president. "Mosaic is creating the architecture for mass participation in the clean energy economy."

Disclaimer: The author does not own any stocks and will not be purchasing any in the near future. Furthermore, the information contained in this report is not intended to be investment advice. Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection.


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