Solar Power Booming, Solar Stocks Sucking — What is Going On?

June 20th, 2011 by Zachary Shahan

I’ve been seeing stuff here and there on solar stocks and controversial comments regarding solar or cleantech stocks. Now, I am not much of a stock market guy, so I’ve stayed out of the discussion, but a piece I read last night on MSNBC (which a loyal commenter also dropped in a comment this morning) really got my attention. Let’s start with the seemingly nonsensical issue…

solar power is growing like bamboo (meaning, really fast), solar costs are dropping like raindrops (again, really fast), and this is all expected to continue for many years (by just about everyone)
BUT solar stocks have been a total loser this year and Roberto Pedone noted recently: “Besides the banking sector post-2008 financial crisis, I can’t think of a group that’s as hated and despised as solar stocks…. For whatever reason, this entire complex has become a favorite target of short-sellers.”

Following up on this, Garvin Jabusch, cofounder of Green Alpha Advisors, LLC, and manager of The Sierra Club Green Alpha Portfolio, writes:

“For whatever reason” indeed. Solar is hated in spite of being the fastest-growing energy sector in the U.S. (67% 2010 growth; 66% growth just in the first quarter of 2011) and in the world (70% 2010 growth), and also even though its shares trade at very low valuations already. Take, for example, Green Alpha Advisors holding and China-based solar company LDK Solar. The company’s shares have fallen from $14.49 per share in February to $6.94 as of this writing. I can find no good fundamental reason for the decline: LDK’s latest quarterly earnings came in at $0.95 per share where consensus analyst expectations were $0.86; the company has year-on-year sales growth of 202%, a price-to-earnings ratio of only 2.22, plenty of cash on the balance sheet, and a price-to-book ratio of just 0.91. That’s right: Even if the company were closed and its assets liquidated, the cash generated at the yard sale would be greater than the current market cap, though the earnings should have value.

What gives?

What the heck is going on?

First of all, as I said above, I am not an expert in this arena, not in the least, and the questions above are not just rhetorical — I’m quite interested in learning more about what is going on.

Ideas..

When reading and thinking about this as a stock market outsider, a few ideas came to mind, but none of them seemed to really add up. Nonetheless, I’ll drop those below in a second. Beforehand, though, in reply to a post I wrote over on Earth & Industry on this topic, I got a comment on Twitter from someone who seemed to think he knew, without a doubt, the exact reason for this: “On wall street there is a concerted effort to destroy equity in solar stocks. conservative governments mean= < support.”

Jabusch leans towards the same argument, despite seeming bewildered by the situation as well:

Does Wall Street to some degree answer to the huge buckets of money represented by Big Oil? Yes. Is there therefore some effort under way to delay the inevitable solar-powered future? Possibly, but suffice it to say that Wall Street at least has enabled a culture that, against all economic and climactic evidence, loves fossil fuels and still views renewables as “alternative.” (Anecdotal but interesting on this point, on May 4, 2011, CNBC reported on-air that Arizona’s First Solar, a Green Alpha holding, missed its first-quarter earnings, when in fact the company’s earnings had beaten expectations by 15%. The stock plunged 10%.

Nice. Way to ignore success and create failure.

Another great comment from a Facebook fan (or follower, or whatever the term is these days):

Its called a political bantering – every republican on facebook has been bashing solar and wind for weeks now – it appears the party is making a concerted effort to destroy renewable energy – see the negative post on fb congress and senate pages

Summing up the general point, Jabusch writes: “Any way you slice it, the solar industry is currently very undervalued by analysts and traders….”

Now, aside from the above, some other possible reasons for the solar stock downfall have crossed my mind. Perhaps they are way off and I should just stick to the above (let me know):

Word doesn’t adequately make it to traders that the solar energy industry is booming. As USA Today hypothesized yesterday, perhaps the solar industry has a PR problem. That seems harsh, especially for someone who reads and writes about this issues everyday (and is sort of like a solar industry PR employee), but perhaps there’s some truth in that.
Perhaps, given the long-term certainty of solar energy’s growth, these traders are just playing games with the stock values in order to buy at an artificially low price and sell for a hefty profit.
Perhaps, related to #1, traders are overhwelmed with the large number of solar companies and feel so uninformed on the technology and potential of each of them that they are preferring to stay away from and even shame solar stocks for now.

Some more good points/ideas have also already been added in the comments below.

Your thoughts?

Am I off the wall? Is this whole situation off the wall?

About the Author

Zachary Shahan spends most of his time here on CleanTechnica as the director/chief editor. Otherwise, he's probably enthusiastically fulfilling his duties as the director/editor of Solar Love, EV Obsession, Planetsave, or Bikocity. Zach is recognized globally as a solar energy, electric car, and wind energy expert. If you would like him to speak at a related conference or event, connect with him via social media. You can connect with Zach on any popular social networking site you like. Links to all of his main social media profiles are on ZacharyShahan.com.

Steve Van Damme

From what I read a few months ago, the argument for selling was that the solar companies had all invested heavily in expansion of capacity in recent years, so much so that there was projected to be a large overcapacity in the wake of falling prices/falling margins and the double whammy of Germany and Italy turning off the money spigots. Sounded specious in light of the fact that so many were profitable and planning to expand even more.

Another article posited that the Chinese solars were victims of the general wave of mistrust about financial transparency and misdeeds of other sectors.

Seems like the decline was partly due at least to a confluence of bad news in general.
- Anonymous
  
  The instability of subsidies creates more volatility in prices.
  
  The overall price slope is downward and rapidly downward. At the same time manufacturing capacity is rapidly increasing.
  
  There’s little doubt that the industry sees lots of sales ahead and good profits to be made even at lower unit prices.
Anonymous

Subsidies have an important role to play in bringing promising technology to the point where they can stand on their own. Were it not for subsidies we’d probably be close to completing the transcontinental railway in the next year or two.

Subsidies continued past the time needed to get a technology to market scale can be sucky. Sometimes we need them to continue, but more often they play a role in creating political power where none is deserved.

Long ago we should have cut subsidies for oil. We should have put that money into transportation solutions which reduce our need for oil. Now, as oil becomes critically scarce, we’re having to scramble to cut our oil needs. We should already have high speed rail and light rail in place. We saw this problem coming long ago.

As for solar and “greenies want solar no matter the cost” let’s assume you’re vastly ignorant of the history of solar technology. Because we’ve subsidized PV solar the price of solar has fallen to ~$80/watt to now under $1/watt and will continue to fall until PV solar is The Cheapest Method to put electricity on the grid.

Right now heavily subsidized wind power holds that title.

(I’m speaking about new generation, not power from paid off coal/nuclear plants.)

Wind and solar, both made workable via subsidies are our hope for a workable future.

Used appropriately subsidies make good things happen. When it comes to financing new technology the free market fails.
Anonymous

There is a Critical point here that’s being skirted. Wind and solar
subsidies don’t compare to coal & nuclear subsidies. So, the claim that wind
and solar should be able to float on their own (while coal and nuclear can
continue to reap massive subsidies) is not fair. No, 2 wrongs don’t make a
right, but two negatives make a positive in math. If you want an even
playing field in the energy market, either subsidies for coal & nuclear need
to be cut (highly unlikely) or renewable need to get more & more stable
subsidies. then, we have a somewhat even playing field and the only
potential subsidizing that’s going on is the subsidizing of power itself.
Anonymous

Thanks, i still have to check these links to see the suggestions, but the
bottom line, in my opinion, is this: until fossil fuel subsidies are equal
or less than solar & wind subsidies, solar and wind should get subsidies
(better than they have). if solar and wind subsidies can be raised to be
even with fossil fuels (we are far from that), then we are just subsidizing
energy.

i don’t see fossil fuel & nuclear subsidies being cut anytime soon in the
U.S., so until then the claim that solar & wind are getting massive
subsidies is just completely LUDICROUS and a horrible distraction to what
the goal should be — not favoring any of these energy sources with
subsidies (including unchecked externalities that cost us at the doctor,
insurance company, etc).
Anonymous

the bubble wasn’t created by the lack of need for those policies but by the INSTABILITY of those policies, and the need for more security in this arena, as nukes & coal have
Anonymous

again, see my comment above on subsidies. subsidies for solar are insecure and unstable, unlike for coal and nuclear.

on variability and price, with massive growth (combined with serious upgrades to our grid), variability becomes less of an issue and price drops. costs have been dropping tremendously for years and will continue doing so as it scales. getting solar deployed is as good as investing in R&D at this point on that front.

of course, not just for solar but for many energy sources, we need much improved grid and storage options.
Anonymous

i think you have a point on why the stock market is reacting as it is, but it is clouded in a lot of other nonsense. solar’s subsidies are no more than any other energy sources, they are just more subject to political fluctuations (they are weaker). it is not that they get subsidies, but that their subsidies are so insecure and unstable compared to other energy sources.
Ray Mimms

No conspiracies. Solar is growing because prices are dropping. Prices are dropping because Yingli and other Chinese manufacturers are bringing on a boatload of cheap solar and are willing to sell at thin margins. This is pushing everyone else (except FSLR) to razor thin margins too, and you’re seeing a lot of inferior solar firms fold or tank.
Jeremy R

I think there is fear of what solar stands for. As far as PV goes, it is the democratization of energy. This formula of people making their own energy instead of buying it is not well liked by many powerful people. I hate to say it is naiveté to think otherwise but come on. What market forces like ending the largest profit machine since the stock market was created? The sad part is this angle does not get reported and information of this type is the most powerful tool the solar industry has. Regular people relate to this David and Goliath story. Come on Zachary Shahan, do some hard reporting, tell the story of the little solar industry against the big energy companies! You can find many fanciful excuses for why the stocks are deflated but most stock owners are sticking with oil ’till its all gone.
- Anonymous
  
  hmm, good points. that didn’t cross my mind, well not as you put it and in this stock market context. thank you
- Anonymous
  
  hmm, good points. that didn’t cross my mind, well not as you put it and in this stock market context. thank you
tibi stibi

what is very importand is that we communicate the kwh price ($0.10/kWh fixed for 30 years) instead of return on investment is 10 years.

when ask my friends if they want to invest $1000 (or euro) to get a return after 10 years they are not interested. when i ask them if they want to have a 30 year guarantee on a electricity bill with only .10 per kwh they are all ears
- Anonymous
  
  thanks for the comment. this is a really useful one for me, i think. will try to focus on that more. always though ROI sounded better to people, but thinking about how i would react to each of them, the cheap electricity price does have more of a natural pull
- Anonymous
  
  This is a common problem with renewables, the ignoring of (essentially) free power once the capital expenses are recovered. Renewables are all about capital expense and no fuel costs.
  
  What we’ve seen at Altamont Pass, our oldest wind farm, is that turbines continue to crank out the watts for a decade or more past their ’20 year lifetime’. And the oldest large scale PV installation is now over 35 years and producing power with little drop in output.
  
  People talk about the low price of power coming from older, paid off coal and nuclear plants. Just think how low power prices will be from wind and solar installations once their upfront costs are recovered.
- Anonymous
  
  tibi – Also, tell your friends that buyers seem to be paying a premium price for homes which have solar installed.
  
  Chances are, not only will they save money while they live in their homes, they may enjoy a higher sales price if they do move.
Anonymous

People might want to read the Motley Fool article about Wall Street’s hate of solar stocks.

http://www.fool.com/investing/general/2011/06/19/wall-streets-irrational-dangerous-hatred-of-solar-.aspx

One of the points that the Fool makes is that we are looking at huge demand for PV over the next few years. China has upped its goals of 5GW of new solar by 2015 to 10GW. Saudi Arabia has announced plans to create enormous solar fields and become a large scale exporter of electricity. Many countries and some US states have set goals along the lines of “20% renewables by 2020″.

All that demand is going to create markets for all the panels China, the US and other suppliers can deliver.

We’re likely only months from solar reaching $2/W installed (installations of 5kW and larger). Two dollars per watt means $0.10/kWh electricity in sunny climes. Expectations are that we will hit $1/W, $0.05/kWh within the next few years. With those kinds of production prices installation rates will soar.

I’m betting we see a ‘great awakening’ in the market solar sector before long. Politics be damned when it comes to making money….
- Anonymous
  
  “I’m betting we see a ‘great awakening’ in the market solar sector before long. Politics be damned when it comes to making money…” i have to agree. but maybe as some commenters suggest, being naive.. ?
- https://sites.google.com/site/freemarketsolarpower/home Freemarketsolar
  
  I hope you’re right about all those projections, Bob. Meanwhile, one of the BIGGEST obstacle to a truly free market in grid-tied solar PV power (which is what America needs if tens of millions of Joe Six Packs install systems on their roofs and in their backyards) is its variability (i.e., no base-load factor).
  
  In Georgia, where I live, utilities must (by law) buy my solar PV electricity from me (subject to caps) and so I can sell it. But would they buy from me in a free market? “No,” said my utility’s top guy, “because people want their alarm clocks to awaken them in the morning,” and that can’t happen with variable power sources like Solar PV.
  
  Solar PV can compete when its electricity can be feasibly be stored. NO ONE is pointing to cost-efficient electricity storage heading our way anytime soon. So sure, we may see prices falling as masses of people (and I’m betting the majority using subsidy dollars) invest in Solar PV, but at some point people will do the math and wake up. My 10KW array, at $1.4/watt installed (65% subsidized), makes/saves me $1000/year.
  
  That means it will still take me 14 years to recover my investment. Know many people who’ll wait that long? Get me a feasible electricity storage system, however, and now it starts smelling sweeter to me.
  
  I’m projecting, by the way that a 7-year payback cycle will get EVERYONE into solar because that’s the longest car loan or lease deal (hence, it’s a mass psychology benchmark) and it’ll put free wealth in their pocket — so they’ll feel crazy NOT investing in a solar array. Until then, I warn fellow greenies to do the math before jumping into solar.
  - Anonymous
    
    You know, your utility’s top guy is either an idiot or a blatant liar.
    
    Utilities deal with variable supply and load 24/365. Stuff is always coming on and going off line. Nuclear plants and coal plants go off line with no advance notice and utilities deal with it.
    
    We need exactly zero storage to make solar a significant supplier of our grid energy. We just need other types of supply (and load) which can be switched on and off as needed to allow us to take advantage of the sun when it is shining. Hydro and gas turbines comes to mind, EVs are going to be a great dispatchable load.
    
    Solar is very predictable. We know when the sun will be high enough to produce power and when it will drop too low. We have a pretty good idea a day or two ahead whether clouds will or will not be a factor. We know damn well what role clouds will play an hour or more before.
    
    We make those types of adjustments all the time in reaction to the load side. We know the day before if it is going to be hot or cold and get our ducks lined up. We know at what time big plants are going to start up and what time shopping malls are going to shut down.
    
    We build our utility systems to handle the peak-peak hot afternoon of summer and idle a bunch of that capacity when demand is low.
    
    All we need is an attitude adjustment.
    
    OK, enough about your “top guy”.
    
    Now, your situation. Yes, it might take you 14 years to recover your investment. That would be a 5.1% return on investment which is not bad when you look at other low risk investments (bonds, Treasuries). And the number of years is likely less. Did you calculate in an inflation factor for the electricity you won’t be buying over those 14 years?
    
    At 3% inflation you hit $14k in savings in just under 12 years. At 6% it’s slightly more than 10 years.
    
    Personal storage, I wish. I’m about due for a new set of batteries and they are not cheap. We need affordable ultracapacitors so we could make a once in a lifetime purchase and pass them on in our wills.
http://www.facebook.com/people/Kenneth-Bell/503938785 Kenneth Bell

Stock markets are complex. When experts claim to know, we believe them because it makes our life easier, not because they are right.

For me, I don’t buy solar right now for two reasons.
First, because solar prices are crashing. I know, that only leads to more installations, but it also affects profit margins, and I sense a coming bloodbath where panels are sold at a deep loss in order to gain market share. OK, it worked for Amazon, but it didn’t work for plenty of other companies. Maybe I would pick lucky, but I doubt it.

The second reason is there is a reasonable chance of a major breakthrough in the next couple years. Maybe it will be a company I never heard of. Whoever makes a super-big breakthrough could leave all the other companies high and dry.

So, lower prices and innovation end up being the bad guys.
Palegolas

They probably think Fukushima will soon be forgotten and then things are back to normal. The reason why sun power is so “bad” is that once it’s out there, they’re self sufficient. The nightmare of any stock maestro. It’s not like with oil, you just need to buy more and more. Once evil and greed is filtered out it’ll be better..
- Anonymous
  
  “The reason why sun power is so “bad” is that once it’s out there, they’re self sufficient.” Great point. The Fukushima thing may be true too, but I hope/don’t think many people think nukes are going to come back.
- Anonymous
  
  There seems to be a ‘great conspiracy’ lurking within your comment.
  
  No doubt fossil fuels interests are working to limit the growth/acceptance of renewables, but investors are vast in number and mostly motivated by the money they make. They are generally not allied with any specific industry group.
  
  As much as anything this is most likely about unrecognized opportunity. Solar is a tiny sector compared to other industries. A little bit of fossil fuel FUD could easily cause investors to not spend much time looking deeper for opportunity. Low prices, themselves, could be working as a signal to avoid the sectors. (“Nobody’s paying much for these stocks, must be something wrong with them.”)
  
  With the Fool making the strong statement they have made I wouldn’t be surprised to see prices jump up. Individuals are constantly looking for undervalued stock. That’s how Peter Lynch made his incredible gains in the early days of the Magellan Fund, finding undervalued stock like L’eggs (pantyhose in a plastic egg) that other investors hadn’t noticed.
Darkmage3

If a company thinks its stock is undervalued then it should start purchasing its own shares back.
- Anonymous
  
  If they think that’s the best way to spend cash on hand.
  
  In the case of PV companies I suspect they see huge growth ahead and are putting their cash (and everything they can borrow) into increasing capacity.
Anonymous

I think ramping up feed-in tariffs should fix the problem.
Anonymous

The solar price is under pressure from a number of factors–

1) Increased production in China
2) Competition from low-priced natural gas
3) A renewed downdraft in the economy
4) Lack of feed-in tariffs
- Anonymous
  
  Good arguments
Noalternative

wallstreet are a bunch of reactionary republicans and libertarians.
- Anonymous
  
  Lol
tibi stibi

my idea:

the industry is changing fast. so the company’s setup now will make panels which will be old in a year. so its a risky bussiness. besides i must agree with dan china will take over.
- Anonymous
  
  thank you.
  
  makes sense.
  
  on China, i would not be surprised if it took over as well, but the current 5-year projection (in a recent, well-done analysis) puts the U.S. as the most attractive investment market for solar (though, doubt many traders are aware of that)
http://twitter.com/amicusergoest Dan Callahan

I’d look first to market fundamentals as to why solar stocks are undervalued. Two ideas come to mind:
– the industry as a whole is growing, but the received wisdom is that China, Taiwan and Korea have made it a priority to dominate in this space, meaning an eventual industry shake-out, continued price competition, and marginal costs rapidly approaching marginal revenues.
– except for some portions of the solar industry (concentrated photovoltaic), solar has to be adopted by the masses to be successful. The path from producing a solar panel to seeing it purchased and installed by millions of homeowners or small businesses is a complicated one.

Dan
- Anonymous
  
  Thanks for the comments..