Ignore 'Experts', Solar Energy Stocks Are Headed Up

 |  Includes: CS, IBM, JPM, PBW, PUW, SHCAY, STP, TRO
by: David Fessler

By the time 2009 is in the books, the record will show that solar energy stocks endured a tough year. Hardly surprising, with many Wall Street analysts (yours truly not among them) lambasting the sector for much of the year.

What’s more, they also expect the carnage to continue into 2010, with losses predicted for as many as half the world’s solar companies.

The analysts’ “thought” process – and I use that term loosely – goes something like this:

  • First, they suggest that a “huge” oversupply of polysilicon (the raw material used to make silicon-based panel assemblies) exists. But this is only partially true, as increasing panel sales are rapidly eating into this oversupply.
  • The analysts’ next miscue is over new thin-film panel technologies. They predict companies producing panels based on the new thin-film designs are doomed because the oversupply of polysilicon will keep poly-based panel prices too low for the thin-film guys to compete.

Talk about a myopic view if there ever was one. I suspect many of these analysts will be eating crow instead of turkey at Thanksgiving next year. Here’s the real story on the solar energy sector…

Note to Experts: Refill Your Glasses

Before I go any further, let me say that some solar energy companies will lose money in 2010. Others won’t make it at all. But that’s normal in any competitive environment.

But the experts need someone to refill their half-empty glasses, so I’ll play the role of bartender.

The truth is that the solar enery sector – particularly thin-film panels – is growing at a rapid pace. It’s one of the reasons why Trony Solar Holdings Company Ltd. (NYSE: TRO) is expected to go public in the next few weeks. Trony is China’s largest manufacturer of thin-film based solar modules.

Its IPO – underwritten by JP Morgan (NYSE: JPM) and Credit Suisse (NYSE: CS) – is expected to raise over $200 million. And it’s oversubscribed, too. That doesn’t sound like an industry in trouble to me.

And it certainly doesn’t sound like an industry that’s doomed to replicate the 1980s, when 400 solar panel manufacturers got whittled down to just five as the market collapsed.

The market for solar photovoltaic panels (those that produce electricity) is increasing rapidly. All the industry needs is a little change in perception…

Solar Energy Execs Sound Off

At the Solar Power International 2009 show in Anaheim last month, solar energy company executives offered their opinions on the state of the industry, and how they view the next few years. It’s well worth listening to these insiders, since they know more about the inner workings of the solar energy business than the analysts.

  • Ron Kenedi, Vice-President of the Solar Energy Solutions Group at Sharp Electronics (Nasdaq: OTCPK:SHCAY), is very positive about 2010:

We’re seeing growth in all segments of solar, starting in the last few months. We’ve seen growth in the residential sector and new ways for projects to be financed. Utility-scale projects are starting and even mainstream solar is starting. All segments of the solar industry are getting stronger.

  • Zhengong Shi, Chairman and CEO of Suntech Power Holdings (NYSE: STP), is so bullish about the prospects for solar in the United States that his firm is building a new manufacturing plant here:

Last year, the Spanish market was almost half of the global market. Apart from the Spanish market, all other markets grew at 50-100%. That’s a positive sign. We’re excited about the U.S. market because the new administration is positive and supports rules for renewable and solar and there is increased awareness in the general public. We see our market share continuing to gain in the U.S.

  • But Jerry Wolfe, CEO of privately held groSolar, really articulated the crux of what’s holding back solar from truly going mainstream. And it’s not necessarily about more technological advances:

The technology is in place and improving every year. We’re finding that residential and commercial buildings are less expensive (with solar panels) than (if powered only by) a utility. People don’t understand that. Our biggest problem is that solar requires a cultural change and acceptance. That’s our biggest hurdle.

Flipping the Solar Energy Switch

Wolfe’s comments remind me of the famous line that IBM Chairman Thomas Watson Sr. allegedly said regarding personal computers in the 1940s:

I think there is a world market for about five computers.

At the time, IBM (NYSE:IBM) was the largest mainframe computer maker in the world.

Clearly, the wrong people to ask about new technology are the incumbent technologists. Ask fossil fuel producers, or the utilities that use fossil fuels about solar power, and there’s no question you’ll get a biased view. Resistance to change and the adjustment(s) that change requires is part of human nature.

We can sum up the one real force that is driving the solar industry, both now and in the future, in one word: innovation. It’s something that the United States has always prided itself on and that hasn’t changed.

Here’s the deal: One year from now, when many solar analysts are stuffed full of crow, the solar industry will still be introducing new products. And many solar companies will be well on their way to continued profitability in this promising sector of the alternative energy space.