Federal Incentives Crucial For Solar Stocks to Remain Competitive

The US Congress voted on Monday December 11 to extend, by 1 year, a 30% tax credit for the solar industry. This federal incentive is essential in allowing solar to be competitive with conventional energy sources.

How have investors reacted to this announcement so far? Let’s have a quick look at 5 high-profile solar stocks to see whether this news has impacted the trading patterns of solar investors. The stocks are: Suntech Power (STP), Energy Conversion Devices (ENER), DayStar Tech (DSTI), Evergreen Solar (ESLR) and SunPower Corp. (SPWR).

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The results are not especially conclusive, to say the least. SunPower and Energy Conversion Devices both had nice pops on the news but, by the end of Thursday, both stocks had shed some of the gain. Evergreen has effectively gone nowhere since mid-August and this did nothing rectify the situation. SunTech actually began correcting half-way through Monday after enjoying a 23% run to the upside over the previous 30 days, probably on profit taking. By the end of Tuesday, Suntech was down 8% on its Friday closing price – its steepest 2-day slump in over a month. Finally, DayStar Tech, unhindered by the announcement, continued its long journey south from its 52-week high of $15.75 to close at $4.27 on Thursday, flirting with its 52-week low of $4.25.

The announcement likely had no lasting effect on solar stocks because the extension is for 1 year. The only 2 companies turning a profit so far are Suntech Power and SunPower, and this is the 1st year SunPower does so. Most investors and project financiers’ time horizons are longer than 1 year, especially for capital-intensive endeavors like solar farms, and it is thus far from clear whether this decision on its own will spur any significant investment in the solar space if there is a risk that the tax credit isn’t renewed in 2007.

To be sure, the prospects for solar being able to compete with other energy sources without government support are improving rapidly. Too many uncertainties, however, remain, and it is highly improbable that this industry will be able to thrive on its own in the next couple of years, thus calls by industry insiders for 5 or even 10-year tax credits.

Disclosure: the author owns Suntech Power.

Comments

[Malkiel:]

Hogwash! You guys need to start reading CNET technology news to gauge the progress of solar technologies without the stock-price obsession. The best plays in solar are companies that haven't gone public yet, and are working on the core infrastructures such as accumulators which will turn solar into a serious competitor with fossil.

2006 Dec 15 11:58 AM

[Charles Mor...:]

Malkiel,

While I agree with you that there are a number of privately-held firms working on interesting solar-related technologies, SeekingAlpha.com is not a tech site - it's an investment site. I read most of the high-profile tech publications out there and find them all very interesting, but in most cases the information is irrelevant from an investment standpoint, especially for retail investors. Call me crazy, but I do like to obsess over how my portfolio behaves on a day-to-day basis, and so does most of this site's readership.

But since you disagree with my approach to this, maybe you can give us a few pointers as to which companies we should be looking out for in the next few years? Do you have any IPOs on your radar screen that we should know about?

2006 Dec 16 02:55 PM

[Riverboat:]

What is an accumulator ?

2006 Dec 16 01:29 AM

[Riverboat:]

Oh, your calling a solar battery a solar accumulator. O.K. Same difference
Solar battery term is 'old school'.

2006 Dec 16 01:39 AM