by Dan Jennings
The economic downturn and the austerity measures it has generated could hit alternative energy stocks hard. Bloomberg Business Week reported that spending on green energy projects around the world fell by 28% in the first quarter of 2012. The major cause of this appears to be government austerity measures and reduced corporate spending brought on by the economic downturn.
The biggest victims of this slump will obviously be solar panel makers such as First Solar (NASDAQ:FSLR), SunPower (NASDAQ:SPWR), Kyocera (NYSE:KYO), and Canadian Solar (NASDAQ:CSIQ). Their biggest customers are governments and corporations that benefit from tax credits or direct subsidies. Expect to see major share value drops for solar makers for the foreseeable future.
In Europe, Spain ended renewable energy subsidies in January. Support for solar power in Germany, which is one of the biggest customers for solar technology, is also being curtailed. Cutbacks are also planned in the United Kingdom, which is a major market for wind power.
The future is even gloomier with the Greek-debt crisis causing Europe's economy to contract. It is doubtful that governments will have much to invest on alternative energy on the continent for the foreseeable future. Sales of some products, including cars, have fallen by as much as 20% in Europe, which will translate into drops in tax revenue and further government cutbacks. Expect alternative energy to be one of the first things on the chopping block.
This means that future growth for solar panel makers in Europe is going to be extremely limited. These companies are going to have to look elsewhere for growth, most likely to developing countries such as Saudi Arabia. The problem with that strategy is those countries' economies are heavily dependent on commodities prices. Those commodities prices have been falling, so those nations may not have the money to invest in the new technology.
Expect to see little or no growth in alternative stocks' prices for the foreseeable future. The market for their products is contracting and will continue to contract for quite a while. The only thing that could help solar panel makers would be a major economic rebound, which is not likely.
Germany Now Leader in Solar Power
There's good news and bad news for solar panel makers from Germany. That nation's federal government has announced that the country was able to generate at least half of its electricity by alternative methods, such as solar power, for one weekend. Press reports claim that Germany is now generating 22 gigawatts (22,000 megawatts) of electricity an hour with solar. This means that solar is really capable of generating enough electricity to meet demand and even power technologically advanced nations.
This is obviously good news for solar energy stocks such as Westinghouse Solar (OTCQB:WEST), CBD Energy Limited (NYSE:CBD), and China Sunergy Limited (NASDAQ:CSUN) because it proves the viability of solar power. The Germans' ability to harness solar should convince other countries, including wealthy developing nations, to take solar seriously and put money into it.
Countries such as Chile, which is facing major electricity shortages that could cripple its key industry;, copper mining, will definitely take notice of this. Chile is facing serious political unrest because of the opposition to traditional methods of electric generation, such as hydropower and coal fired plants, would be a logical customer for such solar power. Chile's national copper company, Codelco, which is planning a massive expansion, would seem to be a logical customer for companies like First Solar and Canadian Solar.
The bad news is that there could be little or no additional market for solar technology left in Germany. That means solar panel makers will end up scrambling for less and less business unless they can develop new markets, and fast. First Solar, which has done a lot of business in Germany through Belectric, could see a major decline in its sales if the German market is really maxed out.
One company that could be badly hurt by the end of Germany's solar boom could be Belectric. The Bavaria-based firm claims that it has become the first company to install enough photovoltaic solar panels to generate 1 gigawatt of electricity. Belectric, which installs roof panels and solar power stations, appears to be privately held, but it does use a number of publicly traded suppliers, including Sharp and First Solar.
Belectric's success should definitely boost First Solar's stock value and help the entire industry. It help proves that solar can generate large amounts of electricity and meet demand. The success with Belectric could help First Solar prove that it can meet demand for developing countries, such as Chile and Saudi Arabia.
High Prices for Electricity in New York City could boost Solar Stocks
Wholesale electricity prices, the rate that utilities pay for electricity in New York City, soared as high as high as $1,647.33 a megawatt hour over the Memorial Day weekend, Bloomberg reported. Electricity normally sells for around $50 a megawatt hour when it is sold on the New York state electric grid.
The reason for the prices was the greatly-increased demand for power created by the extremely high temperatures over the weekend. Electricity moved through the grid is traded on a spot market, and w. What that means is that traders buy juice today for tomorrow's use.
New York City's power utility, Consolidated Edison AKA Con Ed, claimed that its customers' electric bills would not be affected by these rate spikes. Basic economics would seem to dictate otherwise. If these high temperatures and high rates for electricity continue for any length of time, Con Ed will have to pass those price increases onto customers.
That will get both commercial and residential customers interested in alternative sources of power, such as rooftop solar panels. That will translate into more business and higher stock values for companies like First Solar.
This summer could be a very good one for rooftop solar panel sales if record heat continues. Home owners and businesses fed up with high electric bills and power outages will be looking for alternative ways to keep on the air conditioning. on. One of them is clearly photovoltaic solar panels.
The interesting question is whether any boost in demand from higher summer sales at solar marketers, such as Solar City, would really boost profits for solar panel makers. The overproduction rate at solar panel makers is over 50%, according to some reports, so any summer spike in demand could make little or no difference. Several hot summers in a row though could translate into increased sales and stock prices.
Higher Temperatures Could Lead to Calls for Large Scale Solar Power Generation in New York and Northeast
An even bigger benefit would be new orders for solar power stations from utilities that need to increase their production. The German example proves that it is possible to use solar panels to generate electricity on a massive scale, so. So solar is now a viable alternative to coal, natural gas, and nuclear as a means of generating electricity.
There will obviously be some political pressure on Con Ed to boost its production. Since New York is a Democratic state and presumably friendly towards solar energy, that could translate into government subsidies for new large scale solar arrays there. That could lead to additional sales for companies like First Solar, Canadian Solar, and Kyocera and boost their stock values. It could also help the industry survive a decreased demand for its products in Europe.
So, it looks like solar panel makers should start hoping for a really warm summer in major American cities. It could be the different between high stock prices or a massive sell off for their shares.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.