Green With Solar Envy

 |  Includes: ASTI, FSLR, TAN
by: Jim Trippon

Renewable resource technology is forever expanding while a gloomy cloud lingers over the Oil & Gas Industry. Some people might question the viability of the "Green Energy" sector, but today we take a step back for an overall look at the globalized industry with a primary interest in solar initiatives.

A Glance Back

In 2007, the solar industry had any incredible breakout year. This was a time when triple-digit gains were not abnormal. Top performers included First Solar (NASDAQ:FSLR), which started of the year with a share price of $28.50 and ended the year with $267.14. For those computing the math in their head, THAT'S RIGHT it's an 873% gain in just one year. (Click to enlarge)

Green With Solar EnvyClick to enlarge

Or you might recall Ascent Solar (NASDAQ:ASTI), whose annual performance reach 785% by the end of 2007. Solar companies were dominating in market performance, but there was a dark period just waiting around the corner that drove investors away. In the first part of 2008, the solar sector started to suffer with profit-taking in the air. Although the sector was able to recover towards the end of March, we all know NOW what was waiting for them in October... the 2008 Financial Crisis.

Green With Solar EnvyClick to enlarge

These were tough times for the solar industry, and most future predictions at the time were bleak, to say the least. The solar sector continued to battle the nay-sayers who claimed solar energy would never be a permanent solution for the depleting oil reserves. The problem is experts need to look past the price comparison between solar and oil and start looking at the economic stability it could create.

The Future of Global Initiatives

Today, experts are pegging the sector to triple by 2019 bringing the solar sector to a $99 billion industry. There are number of different factors that could cause this rise.

  1. Increasing demand:

    Not only is solar demand increasing, but the ever-growing demand for electricity in China is as well. In 2009, China was able to increase their solar power by adding 160MW of additional grid-connected solar photovoltaic (PV) systems to their existing 400MW. Also, Asian Development Bank (ADB) announced on May 6th their launch of a $9 billion solar power plan to develop projects that could generate 3,000MW by 2012.

    China is definitely a good candidate for solar power since they have the adequate availability of desert land for large-scale solar development, a commitment to offset carbon emissions, and as I mentioned earlier the growing demand for electricity. This will open up a whole new market and with global energy demand poised to double by 2030; China won't be the only country trying to satisfy demand.

  2. Oil Peak:

    For those not familiar with this term, it's the period of time in which we reach the maximum rate of extraction and the rate of production begins to decline... simply saying there is no more oil to produce. Now I'm not here to contest how long we have left or whether there are any untapped reserves. I'm here to say that if we start introducing alternatives now we won't be up a creek without a paddle 50 years from now... or however long we have.

    Probably much to your surprise, there is one country in particular who is making significant strides towards implementing solar energy right now... any guesses?... Saudi Arabia!! I know what you're thinking, why is a country whose wealth is derived from oil looking to alternative energy? The answer is quite simple, the preservation of wealth within Saudi Arabia for future generations. Even earlier this month, King Abdullah stated he halted all oil exploration in hopes of leaving wealth for their children. One step that Saudi Arabia is making right now towards solar power is allowing IBM to produce a solar-powered desalination plant.

    These plants are energy-intensive process which makes solar power a clean alternative for Saudi Arabia. Now this isn't directly related to oil but think for a second, if these steps propose a solution for the global water shortages, this would create more a stable economy for Saudi Arabia by eliminating their own water sanitation problems while creating an opportunity to export a clean water supply. How does this factor into the oil peak? Let's say we reach the oil peak and oil is now $250/barrel, if Saudi Arabia is manufacturing solar PV for their internal use they would have the capability to export more crude oil, which as we all know is far more lucrative. Looping back around to King Abdullah's state, I believe the underlying investment in solar energy is not only for desalination centers but also preserving crude oil for the future.

  3. Large-scale projects:

    Asian Development Bank (ADB) is also allocating $70 million to the development of a 73-MW solar power plant in Thailand. The joint venture with Japan-based Mitsubishi will be the largest solar photovoltaic project in the world.

    Egypt has decided to host a Dutch factory that will create the raw materials used to manufacture solar cells. Also, Egypt should have its first solar power plant in production by the end of 2010.

    Africa has a growing appreciation for the importance of advancement in the renewable energy sector, as they have incorporated solar PV systems with wind tribunes to free up crude oil and natural gas for exports.

Solar Investments

Share prices have been abnormally low for the solar sector and with relatively low PE ratios this industry is making me "GREEN" with envy. The Solar Earnings Report is due out the first week in August, so I'll be keeping a close eye on this release. If you're worried about jumping into an individual solar stock right before the earnings report, just keep in mind there are also solar ETFs that could take advantage of this movement as well, while limiting your risky to an individual company.

Disclosure: No positions