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Is the Dark Cloud Over Solar Energy Beginning to Break?

Sitting in DFW Airport, about to make my way back to Europe. I will be offline for a day or so. This seems like a good time for the latest from Money Morning, which as I explained last week will be featured here once a week or so. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story. Personally, I have looked into investing in solar a couple of times, but the stocks always seem extremely pricey. But then that’s also why I never invested in Google. 🙂

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Is the Dark Cloud Over Solar Energy Beginning to Break?

By Jason Simpkins
Managing Editor
Money Morning

By sucking the air out of energy prices and sapping private investment, the financial crisis submarined solar energy last fall. But a silver lining has emerged around the dark cloud that has blanketed the sector for so long.

Oil prices have recovered, climbing over $60 a barrel, the recent stock market rally has lured many investors back off the sidelines, and President Barack Obama’s clean energy agenda has breathed some life back into the browbeaten sector.

Now, solar energy stocks – some that lost more than two-thirds of their value last year – have come roaring back.

After topping $300 a share last spring, shares of First Solar Inc. (Nasdaq: FSLR) plummeted to just $85.28 a share in November. But since then the company has bounced back, soaring 125% to Friday’s close of $191.72 a share. Shares of Trina Solar Ltd. (NYSE: TSL) hit $52 last summer before bottoming out at $5.61 in November. That stock is up more than 260% since Nov. 21.

Global economic growth is far from guaranteed at this early stage, but there’s good reason to believe that when a recovery does get underway, solar stocks will be shooting for the moon.

California’s Gold Standard

While many other solar energy companies have collapsed under the weight of the economic downturn, a small upstart out of California has managed to greatly expand its business.

That company is BrightSource Energy, which last week agreed to what the company’s Chief Executive Officer, John Woolard, called the “the largest solar deal in the world.”

Pacific Gas and Electric Co. agreed to purchase 1,310 megawatts (MW) of solar thermal power from BrightSource Energy for a sum that analysts’ believe tops $3 billion.

BrightSource had already agreed to transmit 900 MW of solar power to PG&E in a deal that analysts valued at $2 billion to $3 billion. The terms of the new deal, which expands upon the original 900MW agreement, will build on top of that figure.

BrightSource plans to build seven solar power plants in the Mojave desert of California that will use mirrors to direct sunlight onto a group of centralized water towers to create steam that will, in turn, power turbines. PG&E estimates that the amount of energy produced by the plants will be sufficient enough to power 530,000 homes.

Earlier this year, BrightSource signed a similar 1,300 MW agreement with Southern California Edison Co. – an indication that, despite economic hardship, the solar energy business is still hot.

But a lot of BrightSource’s recent activity has to do with California’s newly adopted state energy policy. In 2006, California passed a law that required electrical utilities to get 20% of their power from renewable sources by 2010.

However, on November 17, 2008, California Gov. Arnold Schwarzenegger took the state’s green energy mandate further by signing Executive Order S-14-08, which requires that utilities generate 33% of their power through renewable sources by 2020.

Indeed, the state of California has led the country in adopting renewable sources of energy, particularly solar.

Renewable energy accounts for 13.5% of the state’s energy consumption, and for the past three years, the California Energy Commission has been managing $400 million targeted for solar on new residential building construction. That includes an ambitious “Million Solar Roof” initiative that will create 3,000 megawatts of installed photovoltaic capacity by 2018.

But California is more than an energy pioneer. It’s an early indication of where U.S. energy policy is headed.

If President Barack Obama’s administration has its way, mandates similar to those issued in California will be employed across the country over the next 10 years. In fact, they already are.

Solar Shift

Obama announced Tuesday that he is making California’s standard for vehicle fuel efficiency and greenhouse gas emissions the new national standard.

Under Obama’s new proposals, vehicles would be 30% cleaner and more fuel efficient by 2016. And that’s just the beginning.

The President’s budget incorporated $646 billion in revenue from capping global-warming pollution, while allocating $150 billion to renewable energy investment over the next 10 years, making his green-funding initiative the largest such effort in U.S. history.

Among other things, Obama’s recent stimulus package provides a tax credit of up to 30% for home solar installations.

The Obama administration also advocates a policy that would require 25% of U.S. electricity demand be met by renewable energy by 2025. The President has the support of the Democrat-led Congress. U.S. Sen. Jeff Bingaman, (D – N.M.), Chair of the Senate Energy and Natural Resources Committee, is working on legislation that aims to make 20% of U.S. energy demand renewable by 2021.

While a renewable energy policy was largely neglected by the administration of George W. Bush, Obama’s effort can hardly be described as partisan. It is more representative of a shift in political ideology that arose when gas prices soared above $4 per gallon last summer.

A recent Gallup Poll showed that the majority of Americans support higher fuel efficiency standards such as those Obama announced Tuesday. In March, 80% of Americans said they favored higher fuel efficiency standards for automobiles.

Currently, just 28 states have renewable energy goals, but with the Obama administration’s effort and a shift in public opinion, it won’t be long before all 50 are enacting their alternative energy mandates.

According to a study by Allianz Global Investors, 78% of investors think green technology could be the “next great American industry,” and 97% of investors believe the development of alternative fuel sources will remain important even if oil prices remain relatively low.

And statistics bear that out. Venture capitalists invested $4.1 billion in alternative energy projects in 2008 – a 54% increase from the year prior, according to a report by PricewaterhousCoopers. What’s more, 45% of that money went to solar projects, compared to 23% in 2007.

“Alternative energy’s rise isn’t going to be smooth, but it’s going to be one of the great new growth industries,” Steven Berexa, managing director of research for RCM Informed, an Allianz subsidiary, told Kiplinger’s Personal Finance magazine.

A Global Industry

In addition to the United States, solar energy is gaining traction around the world.

After subsidizing 2,400 MW of solar projects last year, the Spanish government will subsidize an additional 500 MW this year. Japan aims to create more than 100,000 new jobs in its solar industry as part of an effort to jumpstart its flailing economy. Proposals for solar energy plants are also being considered in the Middle East and northern Africa.

Even BrightSource’s Woolard has attributed some of his company’s success to its overseas operations.

“PG&E looked hard at what we’d done,” Woolard told The San Francisco Chronicle. “They looked at the results from our plant in Israel, and that built a lot of confidence that we were meeting milestones and delivering.”

Most recently, Australia announced plans to build a solar power station that will rival BrightSource’s Southern California operation. The network is expected to produce about 1,000 MW of energy, but won’t be operational until at least 2015.

“We don’t want to be clean energy followers worldwide, we want to be clean energy leaders worldwide,” Prime Minister Kevin Rudd told the Financial Times.

The Australian government hopes renewable energy will account for 20% of the country’s power grid by 2020. Rudd said the government intends to spend about $1 billion (A$1.4 billion) of the $3.6 billion (A$4.7 billion) it has pledged to clean energy initiatives over the next decade.

Like in the United States, the Australian government hopes its alternative energy initiative will be a catalyst for private investment. John Connor, head of the Sydney-based Climate Institute, told the FT that Australia’s clean energy plan will drive an estimated $15.5 billion (A$20 billion) in private investment.

Another country with an ambitious solar agenda is China. A country with notoriously high greenhouse gas emissions, China installed about 50MW of solar capacity last year, more than double the 20 MW in 2007, Renewable Energy World reported.

Beijing plans to expand the installed capacity to 1,800 MW by 2020, as the demand for new solar modules in China could be as high as 232 MW each year from now until 2012.

China is also a good place to find promising solar companies. LDK Solar Co. Ltd. (NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR:YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR: JASO) have all been beaten down by the market, but could post a strong rebound when China’s solar initiative takes full flight.

Many analysts also like the aforementioned First Solar and Trina Solar Ltd., which stand a better shot of withstanding the recession because of their size and experience.

[Editor’s Note: This story is sponsored by Money Morning Investment Director Keith Fitz-Gerald, who is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

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May 27, 2009 - Posted by | guest post, investing, Money Morning, solar power

17 Comments

  1. Notice the theme — solar energy is non-competitive, ie it is a waste of economic resources; the investments all depend on subsidies & mandates, ie political decisions which can (and will) be reversed without notice. Big solar sponsor California is functionally bankrupt. Even Obama acknowledges that the US too is out of money. Yet the solar investment play here depends on continued subsidyies? Risky investment!Until we hear the Political Class talking about about how much to tax Big Sun, this will be a certifiable dead end.

    Comment by Kinuachdrach | May 27, 2009

  2. They are giving solar a carrot rather than coal a stick. It’s politically easier to subsidize green energy than penalize dirty energy.The nuke people aren’t spending their own money either. They want the government to cover their overruns and give them loans.

    Comment by robert | May 27, 2009

  3. Kinauxhfrach said:”Big solar sponsor California is functionally bankrupt.”I suppose……….”Big solar sponsor Germany is also functionally bankrupt.”Big solar sponsor Spain is also functionally bankrupt.”Big solar sponsor Japan is also functionally bankrupt.”Big solar sponsor China is also functionally bankrupt………..John

    Comment by Anonymous | May 27, 2009

  4. Kinuachdrach said:”Notice the theme — solar energy is non-competitive, ie it is a waste of economic resources;” ——————————-Response:The B-2 bomber is not an economical proposition at 2.2 Billion bucks a pop. Aircraft carriers and jet airplanes with with their huge costs in manpower and material are not “economically viable propositions”. We build them for another reason, We are embracing re-newables not because they are less expensive. We are spending tax dollars, handing out rebates and subsidising re-newables for many of the same reasons we support so-called “wasteful” military spending.(i.e.) National Defense and energy security.John

    Comment by Anonymous | May 27, 2009

  5. “We are spending tax dollars, handing out rebates and subsidising re-newables for many of the same reasons we support so-called “wasteful” military spending. (i.e.) National Defense and energy security.”Well, if we want energy security, we had better get Congress to mandate that the sun shall never set — because all your subsidies get you nothing at midnight.If we wanted energy security, we would be building nuclear power plants right & left. Instead, the Political Class is borrowing money to subsidise rich investors in inefficient technology which yields only trivial energy supplies compared to demand. Makes no sense at all.

    Comment by Kinuachdrach | May 28, 2009

  6. “Indeed, the state of California has led the country in adopting renewable sources of energy, particularly solar. “Well no actually. Maybe a long time ago but never solar. Solar is a scam. It has never delivered anything more than press releases. The posted article is more of the dame. First we have a 900 MWe, now we have a 1300 MWe press release. Of the 500 MWe of new renewable energy CPUC bragged about 430 MWe was out of state. The most recent solar projects have been in Nevada and Arizona. Being an old guy, Willie Mays is famous for hitting home runs and Tye Cobb for stilling second. We remember what is done with excellence.We those in California talk about 12% renewable energy. Biomass and geothermal is where it comes from. For those who want to celebrate the failure of the California’s wind and solar industry to produce electricity, let me point out that is not leadership the rest of us want to immolate.

    Comment by Kit P | May 28, 2009

  7. I wouldn’t worry about them building solar plants in California:”Feinstein: Don’t Spoil Our Desert With Solar Panels”AP March 21, 2009:California’s Mojave Desert may seem ideally suited for solar energy production, but concern over what several proposed projects might do to the aesthetics of the region and its tortoise population is setting up a potential clash between conservationists and companies seeking to develop renewable energy. Nineteen companies have submitted applications to build solar or wind facilities on a parcel of 500,000 desert acres, but Sen. Dianne Feinstein said Friday such development would violate the spirit of what conservationists had intended when they donated much of the land to the public. Feinstein said Friday she intends to push legislation that would turn the land into a national monument, which would allow for existing uses to continue while preventing future development.* * *”Environmental Concerns Threaten Solar Power Expansion in California Desert” AP April 18, 2009:A westward dash to power electricity-hungry cities by cashing in on the desert’s most abundant resource — sunshine — is clashing with efforts to protect the tiny pupfish and desert tortoise and stinginess over the region’s rarest resource: water. Water is the cooling agent for what traditionally has been the most cost-efficient type of large-scale solar plants. To some solar companies answering Washington’s push for renewable energy on vast government lands, it’s also an environmental thorn. The unusual collision pits natural resources protections against President Barack Obama’s plans to produce more environmentally friendly energy.***”It is not in the public interest for BLM to approve plans of development for water-cooled solar energy projects in the arid basins of southern Nevada, some of which are already over-appropriated,” Jon Jarvis, director of the Park Service’s Pacific West Region, wrote to the BLM director in Nevada. Jarvis’ e-mail from February, obtained by The Associated Press, noted that the rare pupfish’s dwindling numbers prompted Nevada to ban new groundwater allocations within 25 miles of the pool.***==================================My Children will be old and this mess will be stuck in environmental reviews and litigation. Fortunately, or unfortunately, we as a society are no longer capable of undertaking projects of this size.

    Comment by Fat Man | May 28, 2009

  8. I am a little disappointed that we have in RR’s otherwise excellent blog a “sponsored story” from someone who is purporting to sell an accurate way to predict stock and commodity movements. Yeah sure, I have a magic black box too, that predicts stock movements. Tell it to the million-dollar programmers at Lehman Bros. who got it all wrong or Long-Term Capital Management, or any number of other busts. I fear this association may taint an otherwise smell-free blogsite.

    Comment by Benjamin Cole | May 28, 2009

  9. Thank you very much for given article on this great topic…….

    Comment by Solar Power | May 28, 2009

  10. “Fortunately, or unfortunately, we as a society are no longer capable of undertaking projects of this size.”It is more of a temporary incapacity. The current generation of “leaders” are like trust fund kids, living off the wealth that their grandfathers bequeathed them. Compare, for example, the current generation of Kennedys with Old Joe — who built the family fortune by ruthlessness.Someday, maybe sooner than we think, the Chinese will stop buying Treasury bills and the Saudis will stop accepting dollars for oil. The trust fund will have been spent. And then we will get have to get serious again.When we do get serious, we will be looking for very large scale 24/7 energy sources which can be fueled largely from domestic sources. There will be no money for subsidizing inefficient toys.Are solar energy companies a good stock investment? Only for those who can time the market perfectly.

    Comment by Kinuachdrach | May 28, 2009

  11. Kinu–Ol’ Joe built the wealth by rum-running during Prohibition. But, we did have giants. Carnegie and the steel mills. Interestingly, Carnegie believed that no wealth at all should be inherited. I guess he shared your view that trust funds and inherited wealth weaken the spirit.The modern-day Republican Party, of course, totally subscribes to the idea of inherited wealth and trust fund babies, and would eliminate the estate tax completely.For myself, I like the idea of family-run businesses, and generations working together to build wealth long-term.

    Comment by benny "rear gas" cole | May 28, 2009

  12. “Ol’ Joe built the wealth by rum-running during Prohibition.”So they say. He also made a lot of money in stock manipulation — so much so that FDR made Ol' Joe the first Chairman of the SEC, in the spirit that the best gamekeeper would be a (now extremely wealthy) poacher.Of course, Ol' Joe never walked away leaving a woman trapped underwater in his car to die. Nor did he spend the later years of his life fighting tooth n'nail against a wind farm off the coast of his palatial estate, while claiming that the rest of us needed all the "renewable" energy we could pay for. Professor Charles Handy mentioned in some of his books the idea of the "Sigmoid Curve". Every venture starts with a period of investment. Then eventually the successful ones turn the corner and start to pay off — the fun times. But ultimately the growth levels off, and the venture turns round again into decline & decay. Applies to the Roman Empire, the Kennedy clan, and anything else one cares to name. So he hypothesizes.

    Comment by Kinuachdrach | May 28, 2009

  13. Certainly we see decay in families where there has been inherited wealth. The Bush family comes to mind also. However, in SE Asia, Chinese families carefully built wealth through generations, and seem to not fall prey to softness.Maybe they do, and I just don’t see it. Or maybe they will now with Western influences growing. It is a fascinating topic. You try to do right by your sons, set them up–and lo and behold, you have raised a bunch of soft weenies. Draft dodgers, coke-heads, drunk drivers etc. Guys who don’t fight in real wars, and then play dress-up in flight suits.We are a long, long way from Teddy Roosevelt.

    Comment by benny "reargas" cole | May 28, 2009

  14. "If we wanted energy security, we would be building nuclear power plants right & left." —————–Kin,Strictly from the standpoint of national security, the U.S. is "energy independent" in regard to our electrical needs. We can make electricity with Nukes, coal, nat. gas, hydro, etc. We have enough resources into the foreseeable future to do so.The problem is in the transportation sector where we are importing large amounts of oil to support our transportation infrastructure.I ignote the shrill chirpings from the "eco-primativists" who apparently want all of us to go back to tee-pees, make arrowheads and hunt buffallo. They hate modern industrial society and find fault with evety energy source you might imagine including the re-newables. To them" Solar power plants are a blight on the Mojave Desert. They disturb the scenery. Windmills chop up birds, And we can't have hydro because an "obscure species of fish" will be eliminated in the process.I simply dis-regard them as they type out their venom on computers run by a "dirty" electrical grid, and drive their "eco-chic" Prius (powered by "dirty" gasoline) to Sierra Club meetings.To them, anybody who rides a jet airplane is a "planet killer"John

    Comment by Anonymous | May 28, 2009

  15. NG is being substituted for coal in some regions. Truth is stranger than fiction. The Implications of Lower Natural Gas Prices for the Electric Generation Mix in the Southeasthttp://www.eia.doe.gov/emeu/steo/pub/special/pdf/2009_sp_02.pdf “Transportation costs for western Powder River Basin (PRB) coal and increasedglobal demand for eastern Appalachian coal had forced delivered coal priceshigher in the SA and ESC regions compared with those in the rest of the UnitedStates over the last year.”

    Comment by Kit P | May 29, 2009

  16. PG & E,Southern Cal Edison are great at signing up for energy purchases when someone else is on the hook for capital and EPC. they've both done that multple times, pursueing ways to meet state renewable mandates. they aren't liable for anything but purchase, if success. the CSP provider is start up. God bless start ups–time will tell.the article is full of gov't legislation and other political rheoric[ethanol anyone?]. again time will tell. i'll watch projects generated by PAY TO PLAY companies[IBERDROLLA, FPL, ACCIONA, etc] to see what real profitable businesses do and hope the newbies are also successful. hopeful pandering is for the political class–we know how good that record is!FRAN

    Comment by Anonymous | May 29, 2009

  17. I think the future is in solar and wind power, but the cost for production is going to have to go down.

    Comment by Alternative Energy | June 11, 2009


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