The future of the solar industry is very exciting, with many companies developing increasingly efficient ways to harness energy from the sun. As the price of crude oil and other hydrocarbons increase, it is not hard to envision a future where it is cheaper to power a community with solar power than with coal or gas. Furthermore, the recent accident at Fukushima has reminded the world that nuclear power can never be rendered completely safe.
Advantages
Consequently, significant money has already been made in the fledgling solar Industry as people grow increasingly interested in buying solar technology. New Hampshire-based GT Solar International Inc., which is a major provider of polysilicon production technology, saw their earnings per share (EPS) increase 366 percent from .03 in 2009's first quarter to .11 in 2011's first quarter, with revenue increasing 237 percent from 57.1 to 135.2. In China, the Jiangsu-based Suntech Power Holdings Co Ltd, which produces solar panels, saw its EPS increase 1100 percent in that same period, from .01 to .11, down from an all-time high of .25 in 2009's forth quarter.
Profits largely stem from government subsidies in the western world, as rich countries pump billions into the development of alternative energy sources. Furthermore, the rise of the carbon credit market has caused many businesses to think twice about the feasibility of using cleaner technology.
Risk
In today's world of economic deficits, however, any business model that relies heavily on government subsidies originating in the west is on shaky ground. Hopefully, more customer bases that aren't dependent on such government subsidies will arise in the future (China has shown great interest in supporting it rising solar industry), but it looks like the next few years may be rocky for the sector's cash flow.
Furthermore, the solar industry is marred by wild speculation, thus causing prices to fluctuate madly for peculiar reasons. On March 1, 2011, Jiashan-based Renesola, which produces solar wafers, saw its stock plunge 17 percent. despite having revealed a record US$119.3 million gross profit for 2010's forth quarter that same day. This was largely due to Italy's announcement that it would cut solar subsidies, as well as Renesola's $310 – $330 million 2011 revenue forecast, which was relatively weak in comparison with analysts' forecast of $342 million.
While such erratic chart moves can be quite irrational, their reasoning is simple; we don't understand solar power despite (or perhaps because of) our fascination with it, thus a large degree of emotional investing comes into play. What seems like a bold, idealistic support of green energy one day may feel like a foolish, idealistic move the next day. The herd effect comes into play- if everyone else is dumping this stock, why am I still holding on? As prices plummet, people are forced to admit to themselves that they don't understand what they are putting their money into.
Brighter Future?
Putting a minor portion of your portfolio into solar power may not be a bad idea, particularly if you're genuinely interested in the technological aspects of the sector. The sun certainly isn't going to go away in the near future (if so we have larger problems), nor is the pressing need for energy reform. However, those adverse to risk should stay away from this sector, as are those hoping to make a profit in the near future. The solar market remains incredibly speculative, thus its massive fluctuations are unlikely to calm down anytime soon.
Disclaimer: Author holds no positions in the aforementioned stocks.
Bennett Murray - Bennett Murray wrote for his first publication in 2006, and has been writing ever since. Murray most recently worked for the Phnom Penh ...
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