GT Solar's Bright Light

The economy seems to be picking up, and the solar industry really seems to be shining. As an example, in early September, First Solar (FSLR - commentary - Trade Now) announced a memorandum of understanding with the Chinese government to build a 2-gigawatt solar power plant in Ordos City, Inner Mongolia, China. Deals are getting done in the solar industry today, no matter the state of the economy.

One might think that solar is useful only in sun-drenched places like Arizona, but cloud-wreathed Germany has become an unlikely leader in solar deployments. In fact, according to The New York Times, Germany "has by far the largest market for photovoltaic systems, which convert sunlight into electricity, with roughly half of the world's total installations." And yet solar, says The Times, still generates just 0.6% of Germany's total electricity, about one-tenth that of wind. Solar generates less than 1% of the U.S.'s energy, too. Whatever the saturation point might be for solar, it does not seem to be anywhere near it at this time. There is plenty of room for growth.

"U.S. Solar Market Trends 2008," a study issued by the Interstate Renewable Energy Council in July 2009, reports that though growth in solar installations is expected to have slowed in 2009, "the market should return to high growth rates in 2010." It goes on to say, "The long-term extension of the federal Investment Tax Credit (ITC), new rules that allow utilities to take advantage of the ITC, and the establishment of a grant program alternative to the commercial ITC will all help solar installations."

Deals and government incentives can turn even cloudy days into sun-drenched ones, but be forewarned: The alternative energy market, including that of solar, has been promising in the past, only to nearly fade away when it came time to really perform. At least as far back as the Carter Administration in the late 1970s, when the U.S. economy was reeling from two oil-price shocks that decade, the alternative energy industry was viewed as the next big thing. Thirty years on, that promise has yet to be fulfilled.

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At the time of publication, Reese was long GT Solar in both his personal and client accounts, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of two investing books, including The Guru Investor: How to Beat the Market Using History's Best Investment Strategies (Wiley). Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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