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Solar's Warm, But Not Hot - Barron's

by: SA Editor Eli Hoffmann July 20, 2008 | about stocks: AKNS / CSIQ / FSLR / JASO / SPWRA / STP / WFR / YGE    
Eli Hoffmann

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Eli Hoffmann

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Given that some day we will run out of oil, solar investors in it for the long ride can probably sit back and relax. Some think the U.S. could be generating 10% of its electricity from the sun within 10-15 years. And Scientific American published a scheme last year for drawing almost 70% of our power using solar by 2050.

For people with shorter attention spans, Barron's Eric Savitz says, the landscape is decidedly cloudier.

Solar's turning point will come when it reaches 'grid parity' - the price at which its production equals or is cheaper than electricity from coal and natural gas. It's a hard to pin-down target, complicated by gyrations in the price of fossil fuels, and a possible deflation in the price of solar-critical polysilicon wafers. 2010-2012 is a possibility.

Another question mark is whether and by how much Germany and particularly Spain will cut back on generous solar subsidies that have made the two the world's largest solar markets. In the U.S. a 30% tax credit could die at year-end.

Merrill Lynch's Mark Heller warns of a potential bubble - noting solar startups raised more money in 2007-8 than internet stocks did in their 1998 heyday.

Here are some of the stocks industry experts are looking at:

  • MEMC (WFR) has made a killing on $450/kg polysilicon wafers. Huge amounts of supply coming on line in 2009 have already hurt the stock. The unknown is how much of that is already priced in.
  • Solar investor Charles Boucher suggests sticking with 'vertically integrated companies' that are not overly exposed to any single element of the solar market. He likes SunPower (SPWR), which makes high-efficiency cells and runs an instillation unit. Also Chinese companies Canadian Solar (CSIQ), Suntech Power (STP) and Yingli (YGE). Akeena (AKNS) is a pure-play bet on U.S. installation that could get hurt if Congress doesn't renew the tax credit.
  • Lehman's Vishal Shah likes First Solar (FSLR) - the biggest solar play. It is not exposed to poly pricing, because it uses cadmium telluride, which produces cheaper electricity than poly prices and will continue to until poly hits $70/kg. JA Solar (JASO) could double its capacity without new funds, he says. He notes the China plays, with big exposure to Spain, could rally 50% if the subsidy cut comes it at the low end.

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This article has 19 comments:

  •  
    Jul 20 03:02 PM
    Interesting that you don't mention, Emcore (EMKR), the leader in Concentrated PhotoVoltaic technology. They offer system solutions now that used up significantly less acreage that thin film or silicon-based solar cells, and their cost is about $.37/watt for the cells in 100MW quantities or about $4/watt at the system level. This is by far the lowest cost of all solar cell technologies available today. With efficiencies expected to increase from 39% to 45% plus in 2 years, you will see the cost closer to $1.80/watt and the kWh cost cheaper than the $.10-.20 being paid today for coal-fired power.
    Reply
  •  
    Jul 20 03:41 PM
    Eli, you don't mention your positions on any of these companies.

    Based on previous articles you've written, I'd gather that you're short as hell on the Industry.

    As for your link to Barrons, I won't be subscribing, so I can't argue any specific points of FUD that they might be passing on. In any case, Barrons has already done a number on their credibility on Solar, since Bill Alpert completely blew it on LDK Solar.
    Reply
  •  
    Jul 20 03:48 PM
    Hi ytterbius,

    Thanks for commenting. I don't normally do disclosure for Barron's summaries, since they're Barron's take on the topic and not my own.

    However, to set the record straight, I have no position in any of the stocks mentioned in the article, nor in the solar industry.
    Reply
  •  
    Jul 20 03:57 PM
    Oh, and BTW:

    Under FSLR, you have the following claim:

    "It is not exposed to poly pricing, because it uses cadmium telluride, which produces cheaper electricity than poly prices and will continue to until poly hits $70/kg."

    If $70/kg is the parity point, then what happens to FSLR is producing their own poly at $35/kg next year? LOL!

    Tellurium will get more expensive, while at the same time Silicon will be getting cheaper, and the efficiency in the use of Silicon will be increasing, not only as Silicon-based thin-film takes off (See AMAT), but as wafer-makers are cutting them thinner, and wasting less in the process.
    Reply
  •  
    Jul 20 03:58 PM
    Sorry "to FSLR is producing their own poly at $35/kg next year?" = "to FSLR, when LDK is producing their own poly at $35/kg next year?"
    Reply
  •  
    Jul 20 04:01 PM
    I don't see any screaming buys but plenty of risk. The subsidies in Spain and Germany impacting revenue must be dependent on the housing market to some degree. And the last time I looked the 20,000-ton gorilla in the room is housing inventories. (The 800 lb gorilla is subject to inflation also) Housesitters tend not to make improvements on property they don't own.

    And just because people are tired of hearing it and the media tired of reporting it doesn't mean that gorilla is moving anytime soon. If fact he's not even awake yet.

    To be sure plenty of risk in EMKR has evaporated. It could sneak back into the $7.73-9. area.

    Reply
  •  
    Jul 20 05:05 PM
    Any energy source that needs subsidies will not make it. Its a loser (same as wind power)
    Reply
  •  
    Jul 20 05:52 PM
    CLH - We're very close to parity right now in some place, like Italy. If the Asian Economies continue to grow and to increase demand for Oil and Coal, then Grid Parity will rise, just as manufacturing costs of Solar (and Wind) are decreasing. This is not to mention Climate Change responses like Cap and Trade, etc. Emitting Carbon is going to get very expensive soon.
    Reply
  •  
    Jul 20 07:06 PM
    Jaso is the place to be............ watch the earnings!!!
    Reply
  •  
    Jul 20 08:05 PM
    Oil is the largest subsidized Industry in the United States...the have failed pretty badly!!!
    Get informed folks! It's not just this Post I am only using it as an Example...CLH please don't take it as an assault.

    www.ucsusa.org/clean_v...

    On Jul 20 05:05 PM CLH wrote:

    > Any energy source that needs subsidies will not make it. Its a loser
    > (same as wind power)
    Reply
  •  
    Jul 20 09:01 PM
    Rhino, I agree...few people see it this way but what other industry has dictated the US foreign policy for the last 40 years if not longer. And how much is the war costing us in Iraq. I don't think we have invaded any country for Solar...the sun shines everywhere.
    Reply
  •  
    Jul 20 11:24 PM
    CLH to see how much oil costs us in subsidies and other hiddden costs, go here:
    www.setamericafree.org...
    Their estimate is $84 billion/year for oil and gas industry tax credits and subsidies. Add over $100 billion annually for military potection of oil shipments and hundreds of billions in other hidden costs like health care, environmental degradation, damage to infrastucture, builings etc from polution, for a whopping $800 billion in total hidden costs. If you paid for all that at the pump, gasoline would now be $12 a gallon.

    And then add several hundreds of $billions in contributions to our trade deficit. (It was over $300 billion at $60 a barrel.)
    And then factor in the loss of life, both Americans and Iraqis, as a result of the war.
    Congress is debating whether to give $6 billion for solar wind and geothermal combined. Less than one tenth what the oil companies get. The top five oil companies netted $123 billion last year.
    Here is a reasonable proposal for energy;
    www.setamericafree.org...
    A Blueprint For U.S. Energy Security
    which can be implemented now, with current technology.

    The internet and high speed information highway was subsidized over 35 years or so, spending more public money than we would spend if we followed the suggestions of another proposal, published by
    Scientific American- A Solar Grand Plan
    www.sciam.com/article....
    Reply
  •  
    Jul 21 09:12 AM
    eric savitz always finds investing in solar cloudy. what about investing in the rest of the market? is it cloudy also? big vested interests are threatened by solar power. you dont have to go to war for solar. the defense industry, utitlities, the military industrial complex is all threatened. eric savitz works for these people.
    Reply
  •  
    Jul 21 09:51 AM
    Rhino, frflyer and others - - -

    If we continue the current activity, the direct cost over the next 30 years will be $24 trillion paid to foreign oil sources. This number assumes today's oil price, today's energy consumption and today's domestic oil production, all of which are likely to move in directions that would increase our expenditures for imported oil. The hidden costs cited by frflyer add up to another $24 trillion, again using today's costs which are almost certain to increase.

    The bottom line: in the next thirty years our current energy policy has a cost ($48 trillion) far exceeding the projections of national debt over much longer time (50 years) and is much larger than the estimated unfunded liability for Medicare and Social Security combined ($40.8 trillion according to the Government Accountability Office Long-term Fiscasl Outlook, Jan. 2008).

    You don't even need to look at subjective environmental damage issues regarding quality of life to see the needed direction for future energy production. Continuing what we have been doing is literally the path to burning tens of trillions of dollars.

    Too many people are looking at a few trees and completely missing the forest.
    Reply
  •  
    Jul 21 11:53 AM
    I happened to go to my congressman's website yesterday. He wrote in his Issues/energy section that congress is taking away the subsidies given to oil, and putting that money into alternative energy. And then he went on to first talk about solar energy and how much he is in favor of working hard to get us going on that source. Now this is a conservative Democrat in the western NC area, not some tree hugging, bleeding heart, way to the left liberal, sort of like myself. Though he does love our mountains. What I'm saying is that it seems to me that if a conservative Democrat is so much in favor of helping subsidize solar, then I would think that there will be much support in Congress elsewhere.

    I am hoping that this will help offset Germany and Spain's diminished enthusiasm for helping this vital industry.

    And that idea that any industry that has to be subsidized will not make it, is just ludicrous and certainly without any historical proof.

    Eli, you are my favorite writer, but I hope you are wrong about solar! If you are, I won't hold it against you, but I'll just be happy for the environment and for our energy independence.
    Reply
  •  
    Jul 21 11:59 AM
    Thank you for your response to my post. Oil is going to be dead as the dinosaurs as when it was created! We here a lot of talk about Nuclear, how in the world can we ignore the Largest Nuclear Energy source in our Solar System...THE SUN! Nobody Owns it, it needs no investment to build...It's already there for the taking for anyone. Solar is in it's infancy, I know great strides will be made in the coming years in Solar Energy. I see the future, and that is in alternative energy. As T. Boone Pickens puts it, our energy crisis needs to be treated as a war. Here is an Oilman who can see the future and is doing something about our energy needs, in investment in wind power, and is a huge advocate of Solar Power. The day will come when oil will be obsolete as an energy source and the country's that are sitting on the large deposits can drink it!


    On Jul 20 09:01 PM akapital wrote:

    > Rhino, I agree...few people see it this way but what other industry
    > has dictated the US foreign policy for the last 40 years if not longer.
    > And how much is the war costing us in Iraq. I don't think we have
    > invaded any country for Solar...the sun shines everywhere.
    Reply
  •  
    Jul 21 01:28 PM
    Flyer, yes these points are not widely circulated in msm and have low visibility but are crucial to making informed decisions re the true cost of oil.
    Reply
  •  
    Jul 21 02:06 PM
    the fact is that solar is being installed right now in the U.S. in FLORIDA and CAL.
    Reply
  •  
    Jul 21 02:22 PM
    Subsidies to renewable energy, including solar, is one thing that congress agrees on.
    Reply
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