As solar companies prepare to converge on Dresden for the 21st European Photovoltaic Solar Energy Conference and Exhibition next week, the volatility of the market is sure to be on many minds.
After all, solar stocks declined 11.8 percent from March to July, according to the London-based research firm New Energy Finance. Not likely to help are oil prices falling below $70 a barrel Tuesday, when concerns that Tropical Storm Ernesto could damage production in the Gulf of Mexico were alleviated.
Lower prices haven’t kept people from uttering the “b” word when referring to solar power; you know, “bubble.” “Valuations are out of whack and in a bubble—in some cases in solar, and in some cases in biofuels,” said John Quealy, a principal at Canaccord Adams, during a panel discussion at the Red Herring East conference in Boston in June (see Cleantech ‘Bubble’ Risks Seen).
New Energy Finance partly blamed “concerns that for some ompanies, particularly in the solar sector, their results did not back up valuations of their shares” for the decline in clean-energy stock prices (see Clean Energy Stocks Decline).
Sure, industry watchers are quick to point to positives. “Investors are being more cautious about which IPOs they back, and I don’t see anything negative in that,” said New Energy Finance CEO Michael Liebreich. He expects clean-energy stocks to begin growing again by the end of the year.
But investors watching their solar stocks lose value might want a little more reassurance. Looking over the news in the last few weeks could help. Here are a few examples of reasons to continue believing in solar:
1) More Government Support: One of the biggest reasons solar skeptics are concerned about the industry is its reliance on government subsidies. The largest of these come from Germany, which pays up to twice the market price for solar power.
In March, even though average government payouts have dropped 5 percent, the market has grown by 40 percent, according to Mr. Liebreich, so the total amount of public spending is growing fast—and is unsustainable (see Solar Energy’s Bright Future). Spain, Italy, and South Korea also have significant incentives.
But news that California Governor Arnold Schwarzenegger signed the Million Solar Roofs bill into law in August, after a similar initiative failed last year, could help assuage concerns that Germany alone keeps the bottom from falling out of the market (see California Solar Bill Fails and Schwarzenegger Signs Solar Law).
The law adds tax credits, increases the amount of excess electricity solar owners can sell back to the grid, and mandates that new home builders offer solar power as an option to buyers starting in 2011. The legislation aims to generate 3,000 megawatts of solar power, equal to the output of five conventional power plants.
The program is expected to make California the third-largest solar market in the world. SunPower CEO Thomas Werner says it’s about the fifth-largest market now. The program will be funded by $2.9 billion in solar incentives that the California Public Utilities Commission approved in January (see California Solar Gets $2.9B). “Now it’s California’s turn to drive the market,” wrote Mr. Liebreich in a report in August.
2) Easing Supply Bottlenecks: Demand has exceeded supply for several years in the solar industry, constraining growth. A big part of the supply bottleneck involves a worldwide shortage of polysilicon, the grade of silicon used to make solar electricity.
But recent news indicates capacity is growing fast as many polysilicon manufacturers add capacity. Among those:
In August, Renewable Energy Corporation (REC) in Norway said it has begun construction of a new polysilicon plant in Washington, which will add about 6,500 metric tons to REC’s current 13,000-metric-ton capacity.
That’s a big vote of confidence from a company that supplies the polysilicon for 20 to 25 percent of the world’s solar cells.
At the end of June, Germany’s Wacker Chemie, another big player, said it would spend $376.7 million to build a new 4,500-metric-ton plant that would bring its total capacity to 14,500 metric tons by the end of 2009.
3) Growing Demand: Of course, some worry that if capacity increases too fast, it could blow right by demand and put the solar industry in a slump. Growing sales could be an antidote to that anxiety.
Mike Rogol, an analyst with CLSA-Asia Pacific Markets, has raised expectations after higher-than-anticipated sales this year. Sales for 2006, estimated only three months ago at “more than $16 billion,” are now estimated to total $19 billion. And Mr. Rogol’s forecast for has gone from “more than $40 billion” in 2010 to $72 billion.
Among the increased sales are two Napa wineries, Hagafen Cellars and Kent Rasmussen Winery, which announced that they have installed 37-kilowatt and 34-kilowatt SunPower solar-electric systems in August, respectively.
The same month, Anderson Valley Brewing Company in California said it installed a 122-kilowatt commercial solar system from Kyocera Solar.
And in June, plans to build a 901-kilowatt solar array at Fetzer Vineyards in California came to light. It will be the largest solar-powered vineyard thus far in the United States, at a price of $6 million to $7 million (see California Winery Goes Solar).
Don’t trust the judgment of alcoholic beverage makers?
In July, Evergreen Solar announced its biggest sale so far when it signed a $200-million, five-year agreement to sell solar cells to SunEdison, a company that finances solar projects (see Q&A: Evergreen’s Mark Farber).
And in April, GE Energy Financial Services, PowerLight, and Catavento said they will build the world’s largest solar plant, an 11-megawatt plant in Portugal(see GE Funds Largest Solar Plant).
Technologies driving prices down could spur sales even more (see Thin Film Solar to Go Large, Cheaper Solar Comes Closer, Applied Materials’ Sunny Plan, Solar Firms’ Profits Shine, Solar’s Going Thin, Fund to Offer Solar ‘Leases’, Solar May Get Cheaper, and Solar Power, the Chinese Way).
Startups have received VC and private equity funding, and IPOs are going strong (see SolFocus Soaks Up $25M, Nanosolar Gets $100M for PV, SunEdison Gets Private Equity, Nano Solar Firm Gets Funding, and Konarka Raises $20M in Funds).
Germany-based Wacker and Norway-based REC raised $1.5 billion and $1.2 billion in IPOs this year. And the top three tech IPOs last year were solar companies—China-based Suntech Power, Germany-based Conergy and Q-Cells (see Big Deals: IPOs).
A Deep Breath
Of course, all this good news doesn’t mean investors should drop their vigilance. Ultimately, not all solar companies will be successful.
“Like any other startup company or technology, there’s going to be some real stuff out there and there’s going to be some hype,” said Larry Dubois, a vice president at SRI, a nonprofit research and development organization. “There’s certainly a frenzy of activity in clean technology, but we’re hoping that’s going to shake out and the good technologies are going to come out front.”
Source : Red Herring