Is It Finally Solar Energy's Year?
Posted: Feb 17, 2012 09:36 AM by Aaron Levitt
Tickers in this Article: BRK-B, CSIQ, FSLR, GE, GTAT, HBC, KWT,
SPWR, TAN, TSL
Long term global energy demand continues to see no bounds. As
emerging markets continue their blistering modernization programs
and economic growth, demand for power continues to surge upwards.
While new drilling techniques, such as hydraulic fracturing and
ultra-deep water rigs, have expanded the world's hydrocarbon
reserves, there is still a finite amount of oil and natural gas on
the planet. To that end, a variety of governments, policy makers
and individuals have been turning towards the renewable energy
space to meet future energy needs.
Despite surging installation growth, solar stocks spent most of the
previous year in the dumps; however, 2012 is shaping up to be a
good one for PV firms. For investors, now could be good year to
finally add the producers to a portfolio.
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Falling Costs and Share Prices
In terms of new installations, the solar industry was on fire last
year. Across the developed world, nations like Germany, the United
States and the U.K. installed a historically high amount of solar
panels. Germany alone installed a record 7.5 gigawatts of panels in
2011. However, as these installations took place, polysilicon
prices begun to collapse. Prices for the vital ingredient for solar
panels have fallen about 90% over the last five years and by the
end of 2011, they stood at 90 cents per watt. That caused the
prices for solar panels to plummet, as well.
This huge price collapse, coupled with rising production, caused
most solar manufacturers' share prices to plunge. Broad measures
for the sector, like the Market Vectors Solar Energy ETF (NYSE:KWT)
fell more than 60% as the glut of panels took hold. (For related
reading, see Hot Solar Stocks To Watch.)
However, the ship maybe finally be turning for the solar producers.
So far in 2012, Bloomberg's Global Leaders Solar Index (BISOLAR)
has risen 30% and some individual solar firms are up more than 50%
year to date. The reason: a sunny outlook. The plunge in module
prices has demand for new solar installations surging. Analysts at
HSBC (NYSE:HBC) estimate that China will add 3 GW worth of solar
power this year, up from 2.14 gigawatts in 2011. The bank also
raised its forecast for the Indian market to 800 MW this year and
to 1.2 gigawatts in 2013. Overall, global solar panel installations
will reach a total 25.5 GW worth of new capacity in 2012 and 27.28
gigawatts in 2014.
Finally, solar is benefiting from a recent surge of private
investment. As various government subsidies fall by the wayside,
large scale investors have been boosting their involvement in the
sector. Berkshire Hathaway's (NYSE:BRK-B) MidAmerican Energy
recently reported that it purchased a utility-scale solar farm in
Southern California for $2 billion. GE (NYSE:GE) also recently
announced that it will begin construction on the largest solar
plant in America.
Investing in Sunshine
Despite the recent run-up in solar stocks, shares of the firms
still remain well below their pre-credit crash peaks. For long
termed investors, especially those with decades to spare, betting
on the solar sector could be a great play for the future. The
previously mentioned Market Vectors fund along with the Guggenheim
Solar (ARCA:TAN) make great broad plays on the sector. The
Guggenheim fund is the larger of the two ETFs and tracks 35
different solar firms including GT Advanced Technologies
(Nasdaq:GTAT) and Canadian Solar (Nasdaq:CSIQ). The fund should
also get the nod from investors due to its global focus.
Perhaps the best way to focus on the solar industry is by choosing
the low cost leaders. First Solar (Nasdaq:FSLR) has seen its share
price fall about 80% during 2011, but still represents on the
largest and lowest cost leaders in the sector. The company recently
set a new world record for cadmium-telluride photovoltaic solar
module efficiency. In addition, First Solar's current project
pipeline/backlog currently stands at an impressive 3.2 GW worth of
capacity. Likewise, Trina Solar (NYSE:TSL) represents another
beaten down low cost leader. (For related reading, see Solar Stocks
The Bottom Line
After experiencing one of the worst years in its history, the solar
energy sector could be having one of its best. New installed
capacity is growing and shares of the producers are rising. For
investors, it maybe finally time to bet on the sector. The previous
ideas, along with Sun Power (Nasdaq:SPWR) make ideal selections to
play the trend.
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At the time of writing, Aaron Levitt did not own shares in any of
the companies mentioned in this article.