Is the Sun Shining on Solar?

Going green doesn't just mean using clean energy anymore. In the case of solar power, for example, it means solar investors are putting greenbacks in their pockets as well.

With all three U.S. presidential contenders on record as favoring some sort of cap-and-trade restrictions on carbon emissions, many in the alternative energy industry are eyeing the day when solar electrical generation can compete against fossil fuels on a kilowatt-per-hour basis. Combined with some state initiatives that mandate solar electric production, companies in the solar electric industry are enjoying sunshine times both in sales and stock price.

Take, for example, First Solar, Inc. (NASDAQ: FSLR).

First Solar "manufactures solar modules," says the company, "with an advanced thin film semiconductor process that significantly lowers solar electricity costs." Revenues for the fiscal year 2007 for FSLR were $504 million, up from $135 million in the previous year. That's a 373% sales increase.

And the stock price is following suit. After opening up at a price of $24.50 during its initial offering on November 17, 2006, the company's common stock is now trading at $301.37 as of April 22, 2008.

While the company is comfortably profitable, much of what is driving valuations industrywide are the mandates of some Southwestern states that are requiring some portion of their states' electrical generation to come from solar sources, says the technology publication Wired. As case in point, First Solar's stock trades at a dot-com-like 148 times its 2007 earnings.

"In the near term," writes Alexis Madrigal of Wired, "these deals are being driven by southwestern states' laws, which have built solar requirements into their renewable energy dictums. Nevada, Arizona, New Mexico and Colorado all require between 15 and 20 percent of their power to come from solar sources."

Without these state mandates, solar power might still remain an interesting, but uneconomical alternative to all but the most dedicated environmentalists.

That's because the price per kilowatt hour for solar power electrical generation at the largest scale still hovers around $.21 per kilowatt hour, according to the website Solarbuzz.com. Old-fashioned coal-fired electrical generation only cost an average of $.0821 to $.1648 per kilowatt hour in 2007 depending on region, according to figures compiled by the Energy Information Administration. And competing alternative energy sources - like wind energy - are lower cost in most regions than solar, too. Solar's costs have to still come down substantially for a long-term boom to take hold.

But so far, the initial enthusiasm is driving significant growth in the industry. First Solar isn't the only solar energy company going gangbusters, either. Spire Corp (NASDAQ: SPIR); Energy Conversion Devices (NASDAQ: ENER); Suntech Power Holdings (NYSE: STP); Canadian Solar, Inc (NASDAQ: CSIQ); JA Solar Holdings (NASDAQ: JASO) and Yingli Green Energy Holding Company, LTD (NYSE: YGE) are each recording significant year-over-year quarterly earnings growth of 80% to over 400%.

Even Google is getting in on the act. Google just launched its own solar start-up, called eSolar, which is building a $130 million demonstration plant which will generate a gigawatt of electricity according to Wired.

Threefold Convergence

"You have a convergence of three things that are driving the solar industry," says Ron Pernick, the co-founder and managing director of Clean Edge, the company that helped create the NASDAQ Clean Edge U.S. Index.

"Firstly, you have governmental support. Next, you have improving technology, which is reducing costs to create solar electrons. And finally, you have venture money, which is pouring into the market."

Last year, Pernick says, the value of venture deals in solar energy was over $1 billion. And the number of IPOs in solar energy also helped raise the solar industry's profile.

"Solar photovoltaics (including modules, system components, and installation)," predicts a report by Clean Edge, "will grow from a $20.3 billion industry in 2007 to $74 billion by 2017. Annual installations [in 2007] were just shy of 3 GW (gigawatts) worldwide, up nearly 500 percent from just four years earlier."

And while it's true that on an industrial basis solar can't compete with coal-fired plants, retail or residential production is much more favorable. "At the retail level," concludes Pernick, "solar is at striking distance" of the costs that consumers pay their electric utility.

In April, IndexUniverse.com detailed the launch of a new solar-only exchange-traded index fund, the Claymore/MAC Global Solar Energy Index ETF. More recently, a second ETF - the Market Vectors - Solar Energy ETF - launched. IndexUniverse.com compares the two funds here.

Both offer global exposure to clean energy companies, with significant weights in the U.S., Germany and China. It just goes to prove that the sun never really sets on the solar industry. Nor (so far, at least) on the greenbacks investors place there.

 

Comments

[Bob the Bear:]

ENER has a patent application dated April 17, 2008 that promises to reduce the cost of solar power to less than fossil fuel. This not only makes it economic for electric but also reduces the cost of purifying water( another giant use ) . This is quite an advancement in technology. It is accomplished by increasing the thin film line speed by as much as 10X's

2008 Apr 28 08:21 AM

[Solar Guy:]

If you examine the true, unsubsidized costs of solar versus the traditional sources of energy we're already at grid parity. See Jack Yetiv's article on this subject at
seekingalpha.com/artic....

2008 Apr 28 09:19 AM

[Nick Gogerty:]

Spain and Germany are the real solar end points with high feed in tarriffs. The US policy considering the potentially expiring 30% ITC (investment tax credit) is not interesting. The RPS (renewable portfolio standards) are mostly toothless.

Energy is a global game and in PV, other than raw Poly manufacture, the US is a bit player for now.

CSP (concentrated solar power) is coal cost competitive in environments with high insolation.

2008 Apr 28 09:54 AM

[surfgrrl:]

Comparing the cost of coal-fired electric generation to solar (or other non-polluting, renewable electric generation) without factoring in the ultimate, inevitable cost of repairing environmental damage the coal-fired plants will cause is inaccurate. The clean-up costs (not to mention the costs of global warming, health effects of breathing polluted air,etc.) may eventually be reflected in a carbon -trading scheme, and therefore make the comparison easier- but for now, you are comparing a heavily-subsidized industry (coal) with a barely subsidized one-
U.S. policy-makers need to wake up and see the train wreck we are headed for, and start emulating the European model of subsidizing a cleaner future, that also eventually will cost us all a lot less. (remember, with renewables, the fuel to power the plants is FREE .Forever. )

2008 Apr 28 11:15 AM

[Adam Axler:]

Wow, you made out better than I did using 07' P/Es for your article!
seekingalpha.com/artic...

"Firstly, you have governmental support. Next, you have improving technology, which is reducing costs to create solar electrons. And finally, you have venture money, which is pouring into the market."

All 3 components of a bubbling sector as per itulip.

2008 Apr 28 11:41 AM

[frflyer:]

Solar thermal plants can now generate electricity at 8-12 cents per kwh. That means grid parity now!

And photovoltaics are at grid parity at least at the cutting edge of technology.

"Nanosolar’s founder and chief executive, Martin Roscheisen, claims to be the first solar panel manufacturer to be able to profitably sell solar panels for less than $1 a watt. That is the price at which solar energy becomes less expensive than coal.
With a $1-per-watt panel,” he said, “it is possible to build $2-per-watt systems.
According to the Energy Department, building a new coal plant costs about $2.1 a watt, plus the cost of fuel and emissions, he said." www.grinzo.com/energy/.../

and these are head to head comparisons, not considering the hidden costs that others mentioned here.

Solar and wind are also much quicker to get up and running than either coal or nuclear power plants.

2008 Apr 28 12:50 PM

[fran:]

when the major utilities and other big $ investors get into solar in significant ways, we'll know SOLAR has arrived. FPL ENERGY llc is the only biggee i know of[they've been in CSP in Mohave and have more planned in FLA, CAL over next 6-8 years] spending significant funds. lot more talk only from others.

anyone aware of other big use/application?

2008 Apr 28 01:37 PM

[gebby:]

i am tired of commentators who think solar is a bubble. go away!

2008 Apr 29 09:18 PM

[salp:]

Look into sunv, sunovia energy, solar play with very interesting products and several contracts signed.

2008 May 04 10:05 PM

[User 167029:]

You better believe. Earnings just in for YGE

ir.yinglisolar.com/e/o...

61.5% increase in earnings over last quater!!!

2008 May 15 07:14 AM

[cohen40:]

Department of Energy picks Sunovia Solar as part of pre-incubator Solar America Initiative. Lots of growth potential with CPV solar panels with infrared technology...

Jun 09 06:08 AM