Solar Stocks in 2011 had a very rough year with 2 solar ETFs falling by more than 50% as the industry went into massive oversupply leading to crashing solar panel prices, revenue, profits, margins and anything else you can think of.
Many of the industry stalwarts that had been around since the inception of the solar industry like Solon and Evergreen Solar bit the dust. Even the much hyped solar startup Solyndra is bankrupt while others like Miasole and Nanosolar could soon share the same fate.
Even now, big companies like LDK and Sunpower are only operational because of government or parent company largess. And the carnage would have been much greater if a free market operated in the global solar industry, while the fossil fuel industries maintained their generous subsidies. Instead the solar industry is a mish mash of free markets, government subsidies, feed in tariffs , irrational support, etc. This makes investing in the industry really challenging even though the industry has grown by an astounding 200% in the last 2 years in terms of volume, and prices have come down by around 70%.
While below is a list of all the solar stocks, most are dead investments as few solar companies will see 2013 given that the oversupply of polysilicon will stay here throughout the year and more companies get weeded out.
So what are the criteria for staying alive in 2012
- Government Support in Some Form – Most of the Tier 1 Chinese Solar Companies will fall into this bracket. However given that there are so many, you would have to look at the biggest like Suntech, LDK and Yingli for survival in any case. LDK, in my opinion, is a bankrupt company. The only reason it continues to produce solar panels is because of Chinese government support.
- Low Cost – Though it seems like an obvious idea, there are still companies existing which have high costs like Q-Cells and REC. You just can’t invest in them given that low cost is a necessary, though not solely a sufficient condition to survive
- Branding – Very necessary to get financing for solar projects as without a brand you are not bankable and will have to sell at a 10% discount in a market which is already selling at below cost
- Efficiency and R&D Dollars – If you sell a low efficiency multicrystalline solar panel, then you are toast given that the market is now only looking at higher efficiency stuff given that choice the buyers now have. You also need to spend sufficient R&D dollars to get ahead of the competition in reducing costs and increasing efficiency. Smaller solar companies are at a disadvantage here.
- Low Debt – Not necessary if you are LDK and have a Sugar Daddy like the Chinese Development Bank, but very important for every other solar company. Trina Solar shines in this respect, Suntech does not.
I have only given hints and conditions of which solar stocks to buy in 2012. For those who are saying this industry is not a good investment, they are wrong. Because a time will come when most of the weaker players are out and the winners will take all .
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