Greentech Media: Solar Sector Headed for a Shakeout 12 comments
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I've made my case for the difficulties in investing in the solar sector the next few years until the "great shakeout" [The Long Term in Solar]. In fact, for the fund, my 2 biggest money losers thus far are in fact solar stocks, so sometimes I should listen to my own advice better. While I do believe speculators will be back in these stocks once the market stabilizes and we'll see some tremendous shorter term moves, from what level is the open question.
I do believe many investors have
been looking at the "very long term", in which solar is obviously a
viable alternative, and missing the real potential problems in the
"near to middle term". I also believe many investors simply miss the
sheer number of non public panel makers out in Asia; people newer to
the sector think the 10 or so publicly traded solar makers are the
majority of the industry... unfortunately, for competitive reasons,
there are simply too many players in what is still a limited end
market.... many many private companies.
Further, as many of the
market forces buffet the sector, the open question is will each
incremental dollar of revenue bring less profit, especially for the
vast majority who are tied to polysilicon. An interesting conundrum and
again, as I keep repeating, I found the solar sector much easier to
invest in about a year ago (and I assume it will be much easier in
about 3-4 years after the necessary shakeout), but between now and then
I expect continued extreme volatility and some great trading
opportunities if one can time things properly - always a difficult
thing to do.
Much like the internet, or as I've drawn in comparison in
the past, the global fiber buildout, I think there will be a
boom/bust/echo boom play out in this sector. We are just now at some
stage between the initial boom and coming bust. And those companies who
survive this stage will have a much bigger playing field with far fewer
competitors; so eventually it will be quite an investment with a "lot
less" worries. But this will take years... not months, not quarters, to
fully play out. I expect a lot of blood and as I've written before (at
much higher prices). I expect a few companies that have been speculators'
darlings over the past 6 months to be on the pink sheets or completely
out of business within a few years.
Greentech Media has an article out about the sector
- It's been a rough-and-tumble ride for many public solar companies lately. And the solar industry had best prepare itself for further hardships, according to a panel of Wall Street experts at Greentech Media's Solar Market Outlook conference in New York on Tuesday.
- "There is going to be shakeout in the market," said Jesse Pichel, a senior research analyst at Piper Jaffray, who predicts that a module oversupply will drive prices down.
- According to Pichel, the winners will be the companies with the lowest cost per watt. Right now, the low-cost leaders are First Solar and "a couple of folks in China," he said.
- Pichel also pointed to silicon manufacturers as possible future winners. Even as silicon suppliers rush to add new production capacity, he said some solar companies will be forced to lower their guidance in the middle of the year because there just won't be enough of the precious stuff to go around as companies continue to make more panels.
- And that will keep margins pinched, even if the solar industry hits grid parity, the point when solar is competitive with conventional electricity, he said. "Margins for polysilicon vendors will be 50 percent less," he predicted.
- Stephen O'Rourke, a managing director at Deutsche Bank Securities, expanded on the idea. In his view, a larger supply of silicon at the end of next year will lead to "a flood of polysilicon-based modules" hitting the market. That flood, in turn, will lower prices precipitously, squeezing margins and challenging balance sheets, he said.
- O'Rourke forecast an industry shakeout -- starting with crystalline-silicon-based panels and spreading to thin films -- that could last two or three years. (agree 100%)
- So solar companies need to start jockeying for survival starting now, he said.
- "All the companies out there need to think very, very carefully about how they will position themselves for a shakeout to take advantage of the real opportunity, which is not going to hit for another five or six years," O'Rourke said.
- To be safe, crystalline-silicon-based solar-panel manufacturers need to lower costs until they are able to profitably sell panels for $2 per watt, said panel moderator Travis Bradford, president of the Prometheus Institute and a Greentech Media partner. Thin-film manufacturers need to reach profits with $1.50-per-watt prices, he added.
- If they don't, companies could find themselves trapped with low margins and unable to raise money to expand and reinvest, Bradford said.
- "We've seen over the last couple years a lot of big promises from solar companies that have not delivered," he said "We have seen a lot of polysilicon startups from companies that have zero experience and zero financing in the field. And quite frankly, we have seen a lot of smoke and mirrors regarding public-company polysilicon supply. And it's pretty distressing."
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This article has 12 comments:
What are your thoughts about some of the smaller solar panel manufacturers, wholesalers and retailers such as ICP Solar Technologies (ICPR)?
Just curious.
There earnings are this evening at 6PM Eastern.
I want to stay in, but it's taken a hit over the last 1-2 weeks. Do you think this may be another STP scenario where they lose 60 % of their value. or as I do they come in w/ good numbers??
Stay or sell
Here's an article from Scientific American, describing how we could have 65% solar grid by 2050 and nearly 100% solar by 2100. The public money spent over about 20 years to achieve this is about 1/4 what we now give oil companies in subsidies, and about 1/40 the total hidden costs of oil.
Scientific America Solar Grand Plan
sciam.com/article.cfm?...
I know of seven solar thermal companies already operating in the U.S. Green Wombat website has several articles about what is already happening in California.
blogs.business2.com/gr...
Here's what one of these companies, Ausra has to say.
"Solar thermal power plants such as Ausra's generate electricity by driving steam turbines with sunshine. Ausra's solar concentrators boil water with focused sunlight, and produce electricity at prices directly competitive with gas- and coal-fired electric power."
"Solar is one the most land-efficient sources of clean power we have, using a fraction of the area needed by hydro or wind projects of comparable output. All of America's needs for electric power – the entire US grid, night and day – can be generated with Ausra's current technology using a square parcel of land 92 miles on a side. For comparison, this is less than 1% of America's deserts, less land than currently in use in the U.S. for coal mines."
"Solar thermal power plants can store energy during daylight hours and generate power when it's needed. Ausra's power plants collect the sun's energy as heat; Ausra is developing thermal energy storage systems which can store enough heat to run the power plant for up to 20 hours during dark or cloudy periods."
Fox news recently had some talking head saying that solar power couldn't propell a small sailboat, never mind make a real contribution to America's energy needs. This statement (propaganda) was never questioned by FOX.
There is too much disinformation about what is possibe and what is really good for our economy. Imagine what eliminating that $800 billion in hidden costs of oil would do for our economy.
Hello, have you given any thought to what will happen to *demand* when the cost of carbon-based grid electricity exceeds that of home-generated? Obviously not.
rkreske - I've been a bit surprised by the weakness in LDK. I do consider them an arms merchant so as more panel makers come online I thought they would benefit; but perhaps the accounting 'scandal' has cast a long pall over the name. Earnings tonight were fine - but 26-31% gross margin for 08 is such a wide net, it is hard to accurately forecast where exactly their 08 eps will be
everyone else - I consider solar to be very similar to what happened to fiber optic buildout. That is while I believe in the long term, in any shorter term time frame (1-3 years) too much supply can be built vs demand. So while demand in the very long term can be tremendous that doesnt mean there wont be times of oversupply (potential massive oversupply) in nearer term; which will lead to competition. One could argue thats silly but I heard the same arguements in late 90s about the buildout of fiber ... we will need it all because the internet is just beginning. Well people were right; we did need it all but its a matter of timing. It was not all needed in 2000, 2001, 2002 so many companies went out of business after overbuilding. I expect the same in this sector. (keep in mind there are many many private companies, not just the public ones we see each day)
Since when does one write off a whole industry--especially one that many people believe will grow at a compound annual growth rate of 50% or more--just because there are potential problems (on which there is no consensus, but rather a large degree of disagreement) coming down the pike?
The analogy to the dot-com era is highly questionable, given that several of the solars are making money and trading at PE's of 10-15 despite growth rates expected to exceed 100% this year, whereas many of the dot-com companies that crashed never made a penny.
There certainly are some companies in the solar space that I strongly believe are overpriced and will stumble, but does that mean that no company in this space is worth buying?
Jack Yetiv
if you have a few bucks to risk on a somewhat speculative play, consider WWAT. Solar power and cleaner water- what's not to like? Note that insiders have bought an average of almost 7 million shares per year for the last 3 years. If nothing else, a small player like that could be a takeover target. But what the hell do I know?