Don't Spin Good Solar News Into Bad

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Includes: BSRC, FSLR, GE, QCLSF, SPWR
by: Dana Blankenhorn

Solar power is a lot closer to grid parity than people imagine. Yet many reporters and investors want to spin this gold into straw.

The rising price of oil, combined with the plummeting price of polysilicon, means solar cells are literally cheap as chips while the market is being reminded of why we must break oil's grip on our economy.

Trouble is investors don't see a way to profit from this, other than going short companies like Sunpower (SPWRA), which makes solar gear, or Q-Cells (OTCPK:QCLSF), which makes the polysilicon.

The buy side of this business, companies like Sungevity, SolarCity, Tioga Energy, SunTech, SunRun and Clean Power Finance, which install panels and/opr help folks afford the gear, is still privately-held. These companies are getting enough capital from private equity to stay closely held. They are making money, yet they are not giving you a taste, so it's not surprising you as a public investor might feel dissed.

But that's the way the market works right now. The best deals stay private until their owners feel a need to tap the public markets. The world is awash in private capital which is helping fuel the buy side of the solar industry.

So stories like this, about polysilicon panels falling 93% in price, get headlines like "solar glut worsens." Thus unparalleled success is being sold as an unmitigated failure.

What will happen next? There will be companies that can take advantage of cheap polysilicon for some time into the future, like BioSolar (OTCQB:BSRC), which plans to produce a backing for solar systems that increases efficiency at low cost. There will be companies operating with other materials, like GE (NYSE:GE) and First Solar (NASDAQ:FSLR), that have to be hurt by the falling price of a competitor's raw material when they use different stuff and can't take advantage.

But in the long run we get back to a point I made yesterday. What happens in technology, when there is oversupply, when prices plummet, is that the new prices become a ceiling, not a floor. This is good news because they concentrate the minds of everyone in the space on the need to squeeze out costs, which expands sales, and which expands profits once you have a true mass market.

High oil prices bring that day closer, just as lower commodity prices bring it closer.

Disclosure: I am long GE.

Additional disclosure: Last time I mentioned my holding of GE I misstated things slightly. I only own 200 shares, not 300.