Until grid parity is achieved, U.S. solar panel makers must be evaluated based on their ability to sell product, not just make it.
Falling natural gas prices, combined with political pressure from fossil fuels at the state level, seem to be delaying this day of reckoning within the U.S. market. Price pressure from China may decrease slightly as the year goes on, but the polysilicon kings still have a huge advantage in labor costs, leaving U.S. producers with little running room in the near term.
Given these market conditions investors have been flocking back to First Solar (NASDAQ:FSLR). They're the domestic leader, they use cadmium-telluride - abbreviated as CdT - rather than polysilicon, and they have shown a way to move capacity, both to power companies and investors, using Renewable Energy Credits or RECs.
The value of a REC varies from place to place, and the aim of the fossil fuel lobbyists is to cut it to zero in as many states as possible. North Carolina, which under a previous Democratic government had a very generous renewable energy program, is now eliminating it under the industry's pressure and control of a new Republican Administration. This has a negative impact on the industry in both the short-and-long term, because what investors most want to see is consistency in public policy, and eliminating consistency is a double win.
First Solar has had a good run since last June, gaining 130% from those lows to its current price of about $27. But that price, in turn, is well short of the February high of over $36, and it seems that the next move is down.
That's because of a deal that FSLR is spinning as a positive, its purchase of a 150 Megawatt solar project in California. The bad news is in the name of one of the sellers, Goldman Sachs (NYSE:GS). If Goldman is getting out of this business, it's very bad news for the business.
FSLR has a buyer for the energy that will result from the project, Sempra Energy (NYSE:SRE) of San Diego, and it gains some panel sales from the deal, as the original plan was to use another company. But this is a deal made from weakness, not strength, and investors need to hope that the weakness is short-lived.
Again, you measure solar stocks now by deal flow. You want to see projects getting built that have a power company taking the electricity and an investor taking ownership of the property and the resulting RECs. The more deal flow, the more positive you can be. Anything that reflects negatively on deal flow is a negative. I think it highly likely that FSLR will now test its previous lows, and while my long-term view for the company is survival, you can get it for less than you'd pay now.