Solar Investors Feel The Heat

Includes: FSLR, JASO, KWT, TAN
by: Mark Henwood

The solar sector defines investment risk. Not only has Energy Conversion Devices gone under, investors in another high-visibility solar developer have been saddled with a 72% loss over the last week. In a massive shift that has to shake confidence in the company, Germany’s Solar Millennium AG (OTC:SMLNF) announced on Thursday said it will convert the first 500 megawatts of its 1,000mw Blythe solar power plant in the Mojave desert to PV. It will decide what technology to use for the second half of the project at a later date. It has not revealed the charge it will need to take due to the shift.

It’s not just these companies. The two solar sector-specific ETFs, Market Vectors Solar Energy (NYSEARCA:KWT) and Guggenheim Solar (NYSEARCA:TAN), have lost 36.8% and 33.2% respectively this year. This is about double the loss broad-based market indices have suffered, and led the losses across all the clean-energy ETFs and mutual funds. In fact, these losses have depressed the size of the sector-specific ETFs for wind, solar, and smart grid to where only TAN has a market cap greater than $100 million. The other four ETFs' market caps are below a rule of thumb $70 million threshold required for the ETF sponsor to make money. So I wouldn’t be surprised to see some of these ETFs shut down, like the clean transportation ETF did last December.

That said, solar companies may be great technologists with good products. With falling panel prices, it looks like PV is on track to wipe out solar thermal projects and is making progress on being grid competitive. Of course, in the US with natural gas prices constrained by the technological breakthrough that brought about shale gas, the bar for solar PV is being raised. Whether solar can reach parity -- and without the support of creative ratemaking that turns $4/mmBtu gas into 20 cents/kWh power in the summer -- is still not answered. But if so, solar companies with depressed stock prices may turn into good investments.

Disclosures: None