Bet On Solar's Sell Side For Jobs, Buy Side For Profit

by: Dana Blankenhorn

As I have noted several times here, the big problem for investors in solar right now is that we're on the wrong side of the trade.

Until a fully-amortized solar installation is delivering power for less than the cost of buying it off the grid, which I believe will be the case until the middle of the decade, you want to be on sell side of the channel.

As was true in computers before the PC, the big profits lie in selling the stuff, installing it, trading the power and the credits. The companies making the gear find themselves fighting for that demand while prices drop under their feet. Solar panels, like fruit, rot in a warehouse.

So when Germany's Solarworld (OTCPK:SRWRF) began filing complaints about Chinese “dumping” of panels on the American market, the channel quickly organized as the Coalition for Affordable Solar Energy and began agitating against the Germans (and American companies like First Solar (NASDAQ:FSLR) that are similarly threatened) and for the Chinese.

If you're an investor in the space you're probably appalled. Companies like JA Solar (NASDAQ:JASO) are literally flooding our market with panels. They're responsible for putting players like Solyndra into the wall, costing taxpayers hundreds of millions of dollars. Solarworld, meanwhile, wants to open big plants here, employing thousands of Americans. How can they if imports, priced below cost, are soaking up demand?

The problem, if there is one, is that you can't yet play the channel. Private equity is doing so well in companies like SunRun they don't need to tap the public markets. By the time they do, of course, it will be because of consolidation arising from shrinking margins – the opportunity won't be as good. Getting companies like this into the public markets, however, would help the ETFs, in the space like TAN and KWT, which continue to be hammered (with justification, as our John Spence noted last month.)

Chinese dumping actually benefits companies installing panels and selling power, cutting installed prices 30% this year while retaining profitability.

The folks at the Semiconductor Equipment and Materials International (SEMI) industry group, who support the complaint because Chinese dumping is hurting members like Applied Materials (NASDAQ:AMAT), worry about the case becoming “politicized,” an indication the sell side is feeling the heat.

The lesson here is that not all great opportunities are investable. There will come a time, after crossover, when this becomes a profitable area for investors. Not yet.

Just because you can't make money in something today doesn't mean it's not valuable, or profitable, or important.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.