Politicians Add to Solar's Growing Pains

Good ol' Jay Leno once said that "politics is just show business for ugly people". And thanks to the politicians the sexy solar sector just got ugly. Solar investors have been driving up valuations as if solar was going to take over the world tomorrow, and these investors have now been forced to wake up to reality and smell the coffee. Why? “Poli” - a Latin word meaning “many,” and "tics" - meaning “bloodsucking creatures”. That's why.

According to the Solar Energy Industries Association [SEIA], a national trade group for the solar industry, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid were moving forward with energy legislation without a tax title that extends the Solar Investment Tax Credits (who said that politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel?) With mounting political pressure, the Democratic leadership has been considering ways to slim down the energy package to help assure passage in both houses. The bottom line: If the credits aren’t extended it could slow the adoption of solar generation by utilities.

A spokesman for Pelosi said that no decision has been made to drop any provision of the bill, but traders used the announcement as an excuse to dump solar stocks. On the day of the SEIA announcement, SunPower (SPWR) dropped 11%, First Solar (FSLR) fell 10% and MEMC Electronic Materials (WFR) traded lower by 4%.

The bulls are quick to point out that the U.S. accounts for less than 10% of the solar-products market, and they will most likely see the pullback in solar stocks as an attractive buying opportunity. But these bulls can't see the forest for the trees. There are bigger forces at work here; if an industry's growth depends on politicians instead of supply/demand fundamentals, we should regard its lofty valuations with the same distrust we reserve for politicians. To read my other articles on this topic click here, here and here.

There is no doubt in my mind that solar power will one day be a viable energy source. However, in the near term the industry still has to go through some growing pains. One stocks to highlight: JA Solar (JASO) (Last trade $54.85) does not currently sell into the United States, and their recent guidance looks far too conservative.

Disclosure: I do not own any of the stocks mentioned above. I do not own a solar panel.

Comments

[11301:]

Hey,idiot,Fslr doesn't sell in the U.S. either. More research please.

2007 Nov 21 01:24 PM

[FoxyForex:]

Maybe you should do your research User11301: uk.reuters.com/article...

2007 Nov 21 06:20 PM

[11301:]

'Possibly' 'Next year' They can't make enough product with the plants they have now for existing contracts. You don't build a plant in a day.

2007 Nov 21 07:18 PM

[Mark Anthony:]

First Solar (FSLR) has a tellurium problem, a huge tellurium problem that is fatal. They will be going out of business in a few years. See my article:

www.seekingalpha.com/a...

The fact of the matter is the whole world produces only 215 tons of tellurium per year, rapidly increasing demand from other applications quickly eat up all the supply and bid up price. Tellurium price went from below $4 to above $100 in a few years. Can you say there is no shortage if the price see multi-folds raise like that! And that was BEFORE any significant demand from CdTe solar panels kick in. The shortage could only become worse. If there is a tellurium rush from investors, then FSLR could be knocked out of business in a few months.

2007 Nov 21 04:41 PM

[GH:]

Mark Anthony is a self-admitted FSLR short who has posted links on numerous forums trying to get hits on his article. He has fantasies of getting rich on tellurium, but is misinformed about its production, and chooses not to understand that while currently years of cheap supply are available just as a copper processing byproduct, tellurium could be directly mined to meet increased demand.

FSLR's CFO has stated in a public forum that FSLR has identified availability of terrawatt quantities of suitable tellurium.

2007 Nov 23 12:27 PM