If you're looking to invest in solar stocks, here's a quick summary on the health of the market in it's current state - 2012.
By watching the Bloomberg video below you can tell a few things:
1. This is a market powered by govermnet subidies on both sides: supply and demand.
The manufacturers get money from the governments where their production facilities are located - China to be more specific. And demand (households and investors) gets money from their governments as an incentive to install solar panels.
2. When a market is dependent on external factors like in this case, it means it's somewhat artificially created. And it's fragile.
If government changes priorities and decides that funds must go elsewhere then the market crashes. And that's a risk for a stock investor.
3. Germany and Europe in general are a big buyers of solar panels. But that's coz governmental grants are allocated to home residents and investors for this particular green energy sector.
So at this point, if you invest in solar stocks, you are, supposedly, at the mercy of at least two governments: Chinese and German.
Why are people buying iPads and cars instead of solar panels?
This is where it gets interesting.
If you look at Apple, they're selling tons of their products to a market that actually WANTS (not necessarily needs) their stuff. That market is healthy. It runs by itself based on supply and demand. No government interference.
When people think about buying a new car or a plasma TV, they actually don't think too much about it and they just take out their credit card.
But when it comes to solar panels, people look for grants and never consider buying them with their own money or by going into debt (as they would for a car). And that's silly, since the PV panels have intrinsic value - they produce electricity with minimal to none maintenance.
So what I'm saying is people lack financial education and are inclined towards consumption instead of investments. And that's very convenient for merchants.
A car is an expense: monthly loan installment, gas, insurance. Unless you own a transportation business, a car is a liability.
Solar panels on the other hand are an asset.
Until this will be a clear distinction for the large public, demand can't grow naturally. People need to be educated about profitably managing their financial resources in order to actually express their desire for solar panels, without incentives.
To invest in stocks or in solar farms?
The way I see it, is this:
In the long run, investing in stocks will be a good choice coz technology will enable cheaper PV modules and people will become educated about this opportunity. Demand will grow across the globe.
For short term gains with stocks, you have to pay close attention to governments incentives. If new countries start offering grants, then your stock will rise. If governments cease to offer money to households and investors, then the markets crash and you'll lose money on your stock.
A more certain route for profit would be investing in actual solar energy farms. You can keep them for 25 years and sell energy to the grid or you can sell turn key solar sites to other investors (more or less like real estate developments were sold in 2005).
Check out the sunniest countries for your solar site investment.
Books on solar power and solar stock investments
- Investing in Solar Stocks - What You Need to Know to Make Money in the Global Renewable Energy Market
- Solar Revolution - The Economic Transformation of the Global Energy Industry
Over to you
- What's your bet on solar stocks?
- Do you think investing in solar sites is a better alternative?
If your connection is slow, here's the transcript of the video:
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This is Street Smart, I'm Adam Johnson.
Time for the next big trade where we uncover Wall Street's boldest predictions and bring on an analyst to defend the call. So, last week Deutsche Bank analyst Vishal Shah was bullish on solar stocks even as they rally big into the start of the year.
But this week, he's changed his view, worrying the rally could be coming to an end. Now, in a note this week he says - quote: a negative German policy outcome could likely act as a neoterm overhang for the stocks. We're talking about the cutback of German subsidies.
So, here now to defend the call is Vishal Shah of Deutsche Bank. And I gotta ask you Vishal, are these companies...or should say how healthy are these companies if you remove the subsidies?
Well, given what we know so far about these companies, they're not gonna make money without subsidies. But that being said we are starting...
So they're money losers without a subsidy. They're just plain money losers.
Well, right now, as we see it, a lot of the demand is coming from subsidies in Europe. But we are putting solar in rooftops and you're trying to replace, you know..., the electricity that you're generating from home and you're paying 15 - 16 cents per kW/hour for electricity.
If you replace that electricity some of these companies are still gonna make money. I don think that... In the current framework that we have right now in the US and in the European markets if we remove subsidies they lose money, there will be no demand.
But over time, as you move...
Who can make money? Which companies can actually make money here? In this sector.
Well, I think a lot of companies in China that have the best cost structures as well as the efficiency, you know... They are now at a point where they can start competing with home retail electricity prices.
Can you give some examples of these Chinese companies.
Trina Solar, Yingli, SunTech. Some of those companies have the cost structure to compete with retail electricity prices in Europe and in US.
Well, when we talked about electricity we talked about natural gas in relation ship there. Now, natural gas prices have been falling. Some say they're gonna fall much further from here. Does that pose a potential competitive threat?
I don't think I would have thought that but as I was reading through some solar industry research today, it seems like it could.
Yes, it would. And I think what you're seeing already is the base of new solar development in the US by the large utilities that slowed down for that reason. That being said, you could still see a lot of new growth in markets like California where, you know, residential customers are replacing they're very high electricity bills where you're paying 35 - 40 cents per kW/hour with solar panels.
Can the US cannot make up for the Germans? I mean, in terms of these subsidies.
I think we will, over time, see new markets like US, China, India, some of the emerging markets where there's a real need for power demand. And that will make up for the demand destruction in Europe.
Okay. Vishal Shah - Deutsche Bank, thanks for joining us. It sounds like if you're gonna play solar, the only way to do it is by buying some of the Chinese companies. Thnaks Vishal!
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