Solar stocks have clearly been heavily affected by the political fall out following the Solyndra affair - and unfortunately the political debacle only looks likely to get worse. The Hill now reports that the Republicans on the House Energy and Commerce Committee are deeply focused on attempting to prove that the Obama Administration broke the law in restructuring the $535m loan guarantee it had granted to Solyndra.
Clearly, this is largely politically motivated and as such is only likely to remain so as we move deeper into the election season. However, from an investment perspective, the rights and wrongs of the situation are not so important as the simple fact that financing in this arena has now become heavily politicized.
As I have argued in previous articles, this cannot be good. In particular, one of the last areas of support for solar is the 24 GW US utility scale pipeline. This needs to be financed and on historical numbers since each 1 GW requires as much as $4bn in loan guarantees. However, not all projects are reliant on financing support. Nevertheless, the politicization of the required financing funnel is a real concern - for a more detailed discussion of the issues see my previous articles here and here,
This really has become a daily political pantomine and there is little point in going over every cut and thrust of the debate. However, a very clear statement made to the Hill by Rep. Cliff Stearns (R-Fla.), chairman of the House Energy and Commerce Committee’s investigative panel, should be taken as a clear warning to continue to be cautious with regard to this sector. Stearns said, referring to Chu’s decision to approve the restructuring agreement:
Once we establish clearly that DOE broke the law, that will send a very strong message... The next step after that is to see why [Energy Secretary Steven Chu] did it, and [whether it is] tied to the White House and President Obama’s inner circle.
Those quotes speak for themselves - expect more political fireworks.
Over the long term, I have no doubt that significant growth in the solar industry is both likely and necessary if energy policy is to deal in any way with the multitude of pressures which it now faces. However, two clear concerns look likely to continue to cast a shadow over the sector in the immediate future:
The obvious political fall-out from the Solyndra affair, as discussed above
Oversupply and an inventory problem, which will take quite some time to unwind. The recent continued decline in polysilicon, solar wafer and solar module prices is clearly indicative of this continued problem - for more detail see here.
Solar players such as First Solar (FSLR), Sunpower (SPWRA) and SunTech Power (STP) are clearly undervalued. However, given the difficulties created by the issues discussed above, they may well remain undervalued for quite some time. As I have argued in the past, this is a time to keep your powder dry and invest another day.
Disclosure: I have no positions in the stocks discussed.