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A prescient seller of solar years ago, Gordon Johnson is more bearish now than he's ever been -...

A prescient seller of solar years ago, Gordon Johnson is more bearish now than he's ever been - even with most of the stocks trading at fractions of their old values. China alone has far more panel production capacity than the world needs, and it's still adding more thanks to the government propping up these cash-flow burners. U.S. government policy is equally perverse. Top sells: FSLR, YGE, TSL, STP, ASYS.
Comments (47)
  • You're obviously doing this negative stuff to fill your greedy pocket.. Solar and wind are the ONLY answers (to this point) to save our planet from the fossil fuel burners.
    Didn't your mother teach you that if you don't have something good to say, keep your mouth shut?
    5 Jan 2013, 10:16 AM Reply Like
  • You might consider heeding your own advice. The news blurb makes no value judgment on the worth of solar technology, instead it only comments on the likelihood of near term return from an investment in solar panel manufacturers, looking at the general state of the industry and the relative level of supply vs demand. This is an industry where subsidies for panel manufacturers doesn't make the product more competitive (it's already too cheap for its cost), nor drive innovation, rather it just enriches the owners. Subsidies for users might have a better effect, but that's not what's happening, hence the comment on perverse government policy. Your angry, ill thought out response just reflects poorly on you.
    5 Jan 2013, 10:49 AM Reply Like
  • joe
    As this is an investment web site, please take your political garbage to the dump where it belongs.
    5 Jan 2013, 10:54 AM Reply Like
  • Joe that was perhaps one of the biggest comment fails I've seen here at SA.
    5 Jan 2013, 12:08 PM Reply Like
  • Just think how lucky we are to have the entire nation's industrial, social, and fiscal future in the hands of people enlightened like Joe.
    5 Jan 2013, 12:21 PM Reply Like
  • And if you believe that you should definitely want the current subsidies to be banished to the garbage bin - since they basically go into the pockets of the owners of an unprofitable business. Which they likely use to fuel their yachts and sports cars.


    Instead spend that money on pure research and you might have a chance to achieve your dream.
    5 Jan 2013, 08:05 PM Reply Like
  • LOL @wyostocks -- you are one of THE most profilic spewers of politics on this site.


    Or were you only suggesting that "anti-liberal" spewings are welcome?
    5 Jan 2013, 09:01 PM Reply Like
  • Concern for the future of humanity and our planet is not "political". We are all threatened with catastrophic climate change if we don't make major changes whether we are democrat or republican doesn't make any difference.
    6 Jan 2013, 04:03 AM Reply Like
  • Agree with you.
    I bought LDK@0.88
    6 Jan 2013, 07:02 AM Reply Like
  • This portends well for the deficit. The Treasury can simply declare surplus solar panels as currency, denominate each panel at say $1T, give them to the Fed and, voila, deficit neutralized.
    5 Jan 2013, 12:24 PM Reply Like
  • He bases his opinion on his idea that China has more panel production than the world needs. How does he know exactly how many panels the world needs in the future? The future is not a copy of the past.
    5 Jan 2013, 12:35 PM Reply Like
  • The future isn't even here yet.
    5 Jan 2013, 02:56 PM Reply Like
  • Considering that panel prices have fallen so much, the only question that remains is energy storage. The only problem is how to store the energy efficiently so that solar can become a 24/7 power source.
    Once a solution is found, solar panels could be installed in large quantities wherever there is a industrial warehouse or parking structure or they could cover freeways and highways etc etc. the concept of creating electricity would completely change from a local power plant to a universal concept of creating it where its needed or at least much closer to it.
    5 Jan 2013, 01:20 PM Reply Like
  • The solution to storage is the smart grid populated by electric cars (using their onboard grid connected batteries as power, esp. for nighttime when the cars will mostly be parked).


    Also transferring solar to kinetic or heat energy for storage, or multiple other mechanisms, all currently being developed and deployed by multiple private entities.
    5 Jan 2013, 02:36 PM Reply Like
  • ummm, this is last year's story! The China government has doubled, tripled, even quadrupled down on solar for 2013. I can't think of a more clear BUY signal than right now for Chinese solar. However, that said there will be some winners and losers as China will let some of extremely debt laden and inefficient makers fail. Stick with the most solid China solar companies and you'll be in good shape. TSL and JKS are my top picks.
    5 Jan 2013, 01:58 PM Reply Like
  • Watch (SCTY) too. Already popping post-IPO. I expect you'll be surprised. Their installation wattage numbers alone should give a good idea of the expansion of solar in the US.
    5 Jan 2013, 02:38 PM Reply Like
  • Low natural gas prices make solar and wind power uneconomical in the US (also true for coal and nuclear, btw), unless the solar farm owners can negotiate power purchase agreements with the utilities, and charge above market rates for electricity. Wind power is a loser until we greatly improve our ability to store the electricity.
    5 Jan 2013, 02:16 PM Reply Like
  • You would think low LNG prices would hurt large solar installations but actually this is exactly why energy companies are buying solar plants. LNG prices will not last forever, especially when the US allows LNG to be sold overseas. Large scale solar energy plants are a great hedge against future carbon based energy prices.


    With many solar companies moving out of module sales and moving into complete installation sales, investors in solar energy stocks need to think like a utility company, not Gordon Johnson. As the cost of solar comes down it only makes sense to build more plants.


    FSLR is by far the leader and innovator and I would not bet against them.
    5 Jan 2013, 08:30 PM Reply Like
  • Power companies are buying solar because of government subsidies and PPAs. Solar isn't reliable enough to provide baseload power, and isn't cost effective compared to more conventional plants. Those plants Buffet just bought had PPAs signed when electricity rates were higher, so they are valued on those contracts, not on current market rates for electricity. In the current market, and with no PPA, any utility building anything that isnt a combined cycle natural gas plant is throwing money away.
    5 Jan 2013, 09:12 PM Reply Like
  • Care to prove that with some actual numbers?


    In five years when LNG is double the price that solar energy becomes much more valuable. your post is very short sighted thinking. You must be a conservative...
    5 Jan 2013, 09:38 PM Reply Like
  • LNG refers to liquified natural gas, which is different from the price of natural gas in gas form, which is what US power plants would use. Considering that the international LNG prices are 3 or 4 times higher than spot nat gas in the US, perhaps this is where you are confused.


    Read the actual story in Barrons, both those plants Buffet bought had PPA's. A PPA (power purchase agreement) guarantees the owner of a plant a set price for electricity over the life on the contract. Since this rate allows for stability in forecasting the revenues of the plant over the time period of the PPA, you can use a DCF analysis to value the plant. If the rate in the PPA is higher than market rate of electricity, the value of the plant with a PPA is worth more than the value of a plant without a PPA, since the PPA guarantees higher than market revenues and profits.


    The link to the EIA page that shows total cost per megawatt hour is:
    Cost for combined cycle nat gas are $63 vs $152 for photvoltaic solar.


    If you think you can forecast natural gas prices over the next 5 years, you should get a job as a consultant, because I know of several dozen companies that would love that information. I work on valuing and developing power generation facilities for a living, so I know what I'm talking about.


    And if by conservative you mean I don't invest in companies who can only compete based on government subsidies that are expiring around the world, I guess I am conservative.
    5 Jan 2013, 10:16 PM Reply Like
  • Sorry not LNG I was mistaken


    BTW you don't have to say that the PPAs were signed a long time ago on buffets plant, we all know that already. We also don't need lessons on what PPAs are, thank you very much.


    and this is about investing in companies that can't support themselves without government subsidies, it's about whether or not you think solar stocks in general are going to go up or down. It's also about the merits of opinions from people like Gordon Johnson. The same Gordon Johnson that predicted mid 2012 that FSLR stock would essentially be worthless by 2013.


    and yes I can make an educated guess to realize it's highly likely NG prices will be somewhat if not much higher in not too distant future.


    (1) producers are finally realizing that drilling and producing from even fracked wells is not as economically viable as first thought.


    (2) Even the huge behemoth oil and gas companies like Exxon are losing money on NG.


    It's only a matter of time before industry consolidation occurs or production of NG stops expanding, which should drive the prices up.


    (3) because of (1) and (2), it's only a matter of time before more NG is exported, which would also drive prices up.


    Seems logical to me.
    5 Jan 2013, 11:25 PM Reply Like
  • That article about the decline in shale wells is almost three years old, so its hardly an accurate representation of the current market, techniques, or well results. Exxon bought at the top of the market, so of course they are suffering. However, not all shale formations are the same, and places the the liquids rich Marcellus are economical to drill even with gas here. Also Oneok will be completing a gathering system in North Dakota in the coming weeks, allowing gas that is currently being flared to come to market.


    The only export facility approved won't be online until 2015 at the earliest, and even if facilities other than Sabine pass are approved, they wouldn't be completed for 3 years at least. Gas prices will go up, but not for another 3-5 years, as new industrial facilities are built. Even then, with drilling in even the least profitable shales economic at $7, once prices hit $5 massive amounts of new production will come online.


    All of this is slightly off topic. Solar isnt competitive on a stand-alone cost basis with nat gas, coal, or nuclear, and cannot provide the stable baseload capacity the grid needs. Because of those facts, coupled with the fact that solar subsidies are expiring, there is a bearish picture for solar stocks. Everyone can hate on Mr. Johnson all they want, but he did say short FLSR at $150.
    6 Jan 2013, 12:58 AM Reply Like
  • Unlike all the options you mentioned, Solar is the only one that does not work at night.


    I don't know about you, but I generally need my lights on mostly at night, when it's dark.
    6 Jan 2013, 01:34 AM Reply Like
  • Germany, the industrial powerhouse, recently produced a world record of 22GW/hr "equal to 20 nuclear power stations at full capacity - through the midday hours on Friday and Saturday." It "met nearly 50 percent of the nation's midday electricity needs... Germany has nearly as much installed solar power generation capacity as the rest of the world combined."
    6 Jan 2013, 07:58 AM Reply Like
  • Dammit somehow most of my comment got eaten up when I tried to edit/update.


    I was making the point that solar actually makes more sense from a commercial-industrial investment point of view, since after being funded via a one time cap ex, and with the subsidy, the ROI is less than 5 years, at which point it becomes a profit-making unit in the entity. This means the entity becomes more productive and increases its earnings. And this is good because it feeds back into the economy, via better paying jobs, increased domestic economic activity, etc.


    Certainly the subsidy helps, and the subsidy is obtained from the government, and thus the taxpayer. The return is better paying jobs, an increasingly more productive economy, and less export of domestic currency to import energy (something like 30% of our trade deficit is in energy). Reducing our trade deficit is also a great end to this investment. Germany understands this, and it's a reason why it has been so aggressive in subsidizing and promoting solar.


    Most observers view solar only through the prism of utility scale projects and its subsidy, but this is the wrong idea. Utilities don't much like solar because you need to oversize capacity by a helluva lot to account for variations in sunlight. Wind is more reliable when it comes to picking between the two. The dynamics favor commercials buying solar, and it's why I favor (SCTY) over utilities looking to install solar.
    6 Jan 2013, 08:08 AM Reply Like
  • Oneok cancelled Williston basin pipeline plans last week. Not sure if it was ng or not. No guaranteed supplies if I remember right.
    6 Jan 2013, 08:52 AM Reply Like
  • Hi KMI -- you are correct to point out that the economic PERSPECTIVE is different for end users vs. utilities, not least of which is because the end user gets to avoid the utility's markup if they generate themselves. Depending on where/who you are, that can be a (oh) 50% to 100% markup. So the payback is that much quicker, even before the subsidy.


    Additionally, the end user doesn't have a cost that utilities do with solar/wind -- the power electronics needed to deal with intermittent power's effect on a large and complex distribution network.


    But that said (I try hard to be intellectually honest about things), the paybacks are usually positive, but usually quite long without the subsidy. Long enough that they wouldn't do it without the subsidy. That of course depends on a lot of individual factors, but it is generally true.


    OTOH, another consideration is that solar panels held up quite well during Sandy. Resilience of supply is worth something.


    Definitely agree that the value is in the development, financing, and sales mark-up's. And yeah, for utility-scale stuff, capturing that above-market rate on a PPA. So the downstream businesses are the place to be in solar/wind.
    6 Jan 2013, 08:54 AM Reply Like
  • " but usually quite long without the subsidy. "


    This one is interesting. I'd suggest that younger growing entities with long timelines are more apt to accept a lengthy turnaround. The subsidy reducing the time needed to earn a return makes more entities willing to avail themselves of it.


    For example, house flippers usually use the lowest cost products in a renovation. A lot of the time, that low cost product will last some 5-10 years; perhaps longer. They would also likely not need to throw in solar to make their flip profitable. Buyers who do the reno themselves and have timeframes of 10+ years or more, will usually go for higher quality and more expensive products.


    I've had folks who work for me specifically ask me that question "well, how long do you want it to last?" My answer is always "so my children don't have to deal with it in their lifetimes"


    You can see the difference in perspective right there, but to elaborate further:


    An owner of a profitable commercial entity looking to do business for the next 30 years is more likely to invest in a non-subsidized solar system with a ROI of 15+ yrs.


    An owner of a profitable commercial entity looking to retire in the next 10 years is less likely, unless s/he can derive value added benefit from the investment (it makes for a higher price).


    Once the ROI go down to 5 years from 15, the probability that the second person would choose to invest in same increases.
    6 Jan 2013, 09:25 AM Reply Like
  • KMI most of the fuel we import is oil, which we use mainly for refining into fuel for surface transportation, not for power generation. Europe has different costs and sources for fuel, and higher fuel costs relative to the US means higher electricity costs, so solar is more cost effective there. Solar can certainly make sense for the consumer to put on their home or individual business, once the tax credits, depreciation, and price of electricity are taken into account, but all circumstances are different. If the market truly is vastly oversupplied, and prices for the panels continue to plummet, I'm sure more and more people will install the panels.


    John that was a proposed oil pipeline, not the gas gathering system.
    6 Jan 2013, 10:36 AM Reply Like
  • Hi KMI. On commercial entities, from my own personal experience from multiple different B2B businesses throughout my sordid career (haha), I've come to believe in the following rules of thumb for selling ANYTHING to a commercial entity:


    * Payback < 3 years: just about a no brainer (if they believe your offering says what you claim it does)
    * Payback 3-5 years: more difficult sale, but doable
    * Payback 5-10 years: far more difficult sale, has to involve some combination of a) involve big absolute dollar savings, b) be central to their business, and/or c) have a big "option value" (e.g., if your baseline is too conservative, potentially very large payoffs)
    * Payback beyond 10 years: same as above, only far more difficult and need far more attractive picture on that combination of payoffs


    I think unsubsidized commercial solar is generally not there YET, but CAN get there in next few years. The good news is that it doesn't solely rely on geniuses coming up with technical breakthru's -- it can get there via breakthru's on the downstream side in business models, financing models, and scale/experience efficiencies.
    6 Jan 2013, 11:20 AM Reply Like
  • Mr Maher,


    "but all circumstances are different"


    They are. But I don't know what precisely you are getting at, other than confirming my point that commercial and industrial entities benefit greatly from solar installations. And should foreseeably continue to do so.
    6 Jan 2013, 05:30 PM Reply Like
  • Tricky,


    I recently did some NG conversions from oil and my payback was 1-2 years, it's jaw dropping how badly oil is priced right now.


    Unfortunately I don't see NG jumping in price and creating more demand than what's already out there, so that's kinda tough.


    Overall though I agree with what you put up there, and have noticed a lot of the solar systems are approaching that < 3 year limit with the subsidies. I'm actually really impressed with what SCTY sells at on a per watt basis to outright purchasers (non PPA).
    6 Jan 2013, 05:37 PM Reply Like
  • kmi -- what do you mean you "did NG conversions from oil"?
    6 Jan 2013, 06:03 PM Reply Like
  • That the size of a roof, the direction the roof faces, geographic location, subsidies, all contribute to how beneficial an individual solar installation would be. NJ has different state incentives than PA, and California has different incentive than Nevada, so even among geographic regions, the state incentives matter. Similarly, depending on your region, it may be optimal to have the panels face a certain direction, and if your roof is not at that direction, you are out of luck. I've also heard that certain installers won't put panels on roofs that are more than 15 years old, so if you have an older roof, they won't put panels on the house.
    6 Jan 2013, 06:09 PM Reply Like
  • what do you mean you "did NG conversions from oil"?




    The real bang for my buck is actually in solar hot water in large commercial/investment properties where heat/hot water is the Landlord's responsibility.


    Btw - I'm in NY. And the guy I like most for solar hot water in large commercial properties has his primary business in PA, so this isn't Florida or Arizona with their favorable solar qualities.


    "I've also heard that certain installers won't put panels on roofs that are more than 15 years old"


    Makes sense since most roofs are guaranteed for 15 years (flat/rubber/asphalt) by the installer; obviously other kinds of roofs have other issues, slate, porcelain, metal.


    In terms of subsidies, the big one is the 30% flat federal subsidy against your tax liability. All the state, county, city, utility stuff is small potatoes by comparison, although it can add up to quite a bit.
    6 Jan 2013, 06:17 PM Reply Like
  • Out of curiosity what sort of properties are you putting those solar hot water systems in? Apartments buildings? Office space? The company I work for does a good deal of work appraising properties in the NY/NJ area, so if you're seeing good returns making that kind of investment, I'd be interested to see how it could be applied across different property types.
    6 Jan 2013, 08:20 PM Reply Like
  • I think GJ wants to say "SELL to me". His sell list is my long list... Except he forgot SPWR.... And "no" I am not selling, sorry.


    :-) BTW, thank you Buffett
    5 Jan 2013, 02:20 PM Reply Like
  • I calculate China spent $16 trillion on gross capital formation from 2002-2011 and will spend $45 trillion from 2012-2021... $15 trillion more than the US may spend over the next 10 years.


    Surely, solar will be getting a piece of that kind of investment. I personally want to go solar within 3 years, largely for the independence and as a hedge again whatever.
    5 Jan 2013, 02:41 PM Reply Like
  • You need to do your research, yes China has more production capacity than the world needs right now but they are not supporting expansion of production capacity at the moment, that stopped 6 to 9 months ago. The current depression in prices is brought about by inventory reduction forced by government in order for the remaining players to be continued to be support by CDB.


    China Gov is now letting smaller players go to the wall and told CDB to only support a select list of the larger players. There are a couple of expansion projects still in construction (Renesola's new 10,000mt silicon plant) but they are the exception not the rule. The market will stabilise this year but that's still a year away.


    So all in all I agree FLSR do look a little shaky as the fundamentals of the business (cd-te cell tech in competition to silicon cell) is suffering a cost disadvantage at the moment. This may recover in the future as they have an efficiency improvement road map which will improve comparative cost structure against silicon but in the short term profits will come from the project development business.
    5 Jan 2013, 11:41 PM Reply Like
  • Do any of you guys have any FIRSTHAND knowledge? Answer: no. If you did you would know that the cost of installed solar is already where it needs to be. The adoption of solar will continue to grow every day, week, month and year ahead because it is already CHEAPER than buying it from a utility company. Every day someone smart realizes this and we install solar for them. And I'm in a state that doesn't have a RPS of massive subsidies in the form of SRECs or FITs or big state tax breaks. If you are smart you look at solar for what it is: a viable technology, not a political issue. As for the big companies who produce the panels making money? There will be a few left when the dust settles and they will be very profitable as more and more people realize it is CHEAPER than burning coal or gas or whatever fuel that currently exists. There you have it: FACTS!
    6 Jan 2013, 01:13 AM Reply Like
  • I agree most of the problem in solar stocks are the panel makers. The problem is in most discussions of solar, folks discuss everything but that.


    The cost of solar energy, specifically to commercials-industrials, and the ROI on investing in a system, is what I focus on. I don't care about utility scale projects, and I don't care about panel makers.
    6 Jan 2013, 08:16 AM Reply Like
  • I was a solar bear but I've seen the light.


    (TAN) will hit $25 by Columbus Day.
    6 Jan 2013, 05:30 AM Reply Like
  • It's quite the read going over some of the comments Gordon Johnsons opinion generated on the beginning of 2013. Gordon Johnson is the type of investor who likes to believe in some sort of "investing purity" where we are concerned only with profits because thats what we are here to do etc etc. A lot of people on SA share that sentiment it seems. In the long run it is quite obvious how wrong that perspective is with fundamental issues that we as a planet are facing. Of course its a profit and loss issue, there is no doubt but there is also a undercurrent which is moving things while personal opinions are flying way to high many times. I am guilty of that, no doubt, but Gordon Johnson has been missing the boat so many times regarding solar that it is unfathomable to me how the TV world still listens to him. It shows how out of touch TV has become. The last major call of his was to short the solar sector before 2013 Q2 reports.... well we all know how that ended for him. If he has made a single trade based on his public opinion he would have to be bankrupt.


    Now he recommends once again to short chinese solar with reasons mumbled below his breath. "the chinese no longer support solar debt..." huh? they just increased that install target! "Solar plants are based on debt and interest rates are going up... therefore solar plants are unlikely to be built..." everything is based on debt Gordon not just solar plants, how do you build a nuclear plant?
    He talks like a day trader, yeah of course there could easily be a down swing if Q3 results aren't stellar but for how long before the general long term trend picks it up again and realizes that all in all the results actually were quite good and is getting better most likely in the future.


    Besides... a week ago he suggested to buy chinese solar companies. It looks to me that he was long YGE and it didn't pan out in the short run as he had expected and now he is reversing once again. Big Mistake, no way this guy is following his own advise except for day trades affected by the moments when he may sway the market just after his "wise announcements".
    14 Nov 2013, 10:52 AM Reply Like
  • Funny, I was just rereading old solar stories in light of the stellar year for the sector. Keep in mind, however, that we're still at a fraction of the 07/08 go-go highs.


    Obviously someone will prosper, likely YGE. But I don't have a good track record picking winners in a tough sector.
    14 Nov 2013, 08:08 PM Reply Like
  • I agree, I think there is still upside potential, possibly more than in 07/08 because of the current, larger market. Nobody can predict the future but the probability for JKS for example to be a viable longterm short within 2014 are extremely slim. He does separate TSL and YGE etc and didn't mention JKS but he does talk about "chinese solars" .
    Funny enough he doesn't include canadian solar, does he not know that Canadian solar is a Chinese solar company as well?
    15 Nov 2013, 04:37 PM Reply Like
  • Yes, Canadian Solar. So funny. In my first adventure into solar investing back in like 06, that was my pick because I was uncomfortable investing in Chinese stocks!
    15 Nov 2013, 06:38 PM Reply Like
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