NEVs blog

It’s understandable there are a lot of players active in the small California residential / commercial (R/C)solar market.  The California Energy Commission (CEC) dataset has over 80 names.  From 2007 until 2010 year-to-date, the  CEC reports $3.0 billion in installations and $604 million in incentive payments.  Costs may be drifing down but are still a lofty $8,217/kW for the average 5.0 kW install.

So far in 2010 cells from the top eight companies have been placed in over 75% of the installs.  The market leader, SunPower (SPWRA), is now closely followed by Sharp with both companies having approximately 19% of the market.  The next six companies, Suntech (STP), Evergreen (ESLR), Kyocera, BP Solar, Sanyo, and REC (REC.OL) are closely grouped with 6-8% market share.

But even with the California R/C market topping 61,000 kW in 2009, this only represents a small fraction of the 12,300 MW produced worldwide in 2009.  If the five key market conditions I previously identified, namely:

1. continuation of federal and state  incentives which drive down the cost of installs significantly (California incentives will grow to around $600 million per year in California by 2015, this is real money) ,
2. continuation of current tariff practices that allow offsetting average rates, net metering, and exemption from standby charges,
3. continued high energy costs allocated to the residential sector in the California IOUs
4. no run up, and potential drops, in the cost of solar, and
5. no major increases in financing costs for solar systems,

continue, it looks like there is plenty of production capacity worldwide to supply any level of growth in California’s small systems market.

Disclosurer:  the author doesn’t own shares in any of the companies mentioned in this post (except in index funds).

How epic has this correction been?  The answer is worse than the 1987 programmatic crash (S&P -32%) but not as bad, to date, as the 1973 oil crisis (S&P -48%) or the dot-com bubble (S&P -49%).   For an excellent graphic of these events and the current housing bubble (S&P -45%) visit here. 

But for sustainable energy the correction has been even more severe.   Our graph from the October 7, 2007 S&P 500 peak to now shows the changes to the four sectors we have been tracking since the S&P peak.   At their minimums the four indices were down between 65 – 80%.

The month of October was particularly bad for sustainable energy where 100% of the companies in our indices had negative returns.

So what am I optimistic about?  Simple, I’m optimistic the sustainable energy industry will continue to exist and at some point prices get so low that the stocks represent attactive buys.  I think this is particularly true for solar as the statistics below show for 10 of the US traded companies I track in the Camino SOLAR idex (detail here).

SOLAR growth rates would have to slow dramatically to make the companies overpriced at current levels.   Even if their earnings growth slows by a factor of 4 these ten companies would still be fairly priced.  And I don’t see many reasons to expect such a slowing.  Modules prices are expected to fall which should boast sales and improve customer ROI.  Retail electric prices are virtually unaffected by oil prices in many economies so the basic economic benefit of solar isn’t going away.   Subsidies are locked in in the US.  Financing should be available with the massive governmental pushes to create liquidity while lowering rates.   And the technology continues to improve further driving down costs and improving solar’s competitive position. 

There may be other bargins in the sustainable energy sector but the solar sector is a good place to start with plenty of potential investment targets.

Mark has positions in JASO, SOL, CSIQ, STP, SOLF, and LDK

Author: Mark Henwood

Emerging markets, EAFA, and the US market (S&P 500) were little changed on the week, commodities (DJP) rose 2.8%.  Sustainable energy stocks created some excitement but overall were mixed:

Solar raced ahead for the week rising 9.5% driven by a variety of positive developments.  Three of the index components China Sunergy (CSUN), Suntech Power Holdings (STP), and Rensola (SOLA.L) all rose over 25% for the week.

On the cost side silicon supplies are expected to increase in 2009 resulting, according to Suntech Power Holdings (STP), in a potential price drop of up to 20%.  This may allow margins to increase while lowering the cost of the final product. 

Demand continues to be strong with expectations that Italy, Germany, and other countries will offset any reduction in the Spanish market.  Demand seems to also be growing for larger scale plants with announcements for a 10MW plant by Yingli (YGE) and an 800 MW project by Pacfic Gas and Electric in Calornia. Note that this one project is larger than the annual production capacity of most solar companies. Solar companies are also executing well with China Sunergy (CSUN) leading the way with an earnings suprise this week of 125% which drove its 29.%5 increase for the week.  The triple play of expected lowering of costs, strong demand, and good financial execution created over USD 9 billion in increased market cap. 

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks.