Solar Energy: What You Need to Know

How much do you really know about investing in solar-focused companies and funds?

The following are key insights from on the potential opportunities and risks in solar energy investing.

From Three Solar Players Push Envelope With New U.S. Plants:

Konarka Technologies Inc. said Tuesday it has opened a plant that could produce up to 1 gigawatt per year of its organic photovoltaic "power plastic" material by the start of next decade.

Konarka is one of a handful of companies exploring thin-film solar cells that use organic materials. Organic materials are carbon-based substances that are used instead of silicon, cadmium, copper and other minerals that can be found in commercial solar cells today.

But whether the Lowell, Mass.-based company will find buyers for that much organic photovoltaic material remains to be seen, given that it still isn't as efficient at converting sunlight into electricity as its inorganic thin-film competition, analysts said.

Read the full version of Three Solar Players Push Envelope With New U.S. Plants.

Cramer: Solar's Cooling Off (Video, Oct. 8)

Jim Cramer thinks Goldman Sachs made the right call in downgrading solar names.

To watch the video, click the player below:

Plus, don't miss this video on TV: Solar Energy: Can You Afford It? (Sept. 30: Julia Hamm of the Solar Electric Power Association tells Debra Borchardt that solar is striving to become more affordable for the residential market.).

From Suntech Breaks Into Solar-Power Financing:

Suntech Power Holdings Co. ( STP) said Thursday Oct. 2 it is entering the solar-power financing and management business by buying EI Solutions, a solar integrator and installer.

Suntech, which makes solar cells and panels, also said it has formed a joint venture with MMA Renewable Ventures, which finances, owns and operates commercial solar projects.

The new venture, called Gemini Solar Development Co., plans to finance, develop and operate large solar power plants of 10 megawatts or more. Kristina Peterson, Suntech's director of structured finance, will become Gemini's president.

Gemini Solar is a 50-50 joint venture based in San Francisco, McLanahan said. Lining up a partner also makes sense at a time when the financial market turmoil means fewer banks will be available to offer loans for building solar and other renewable energy projects.

Read the full version of Suntech Breaks Into Solar-Power Financing.

From Green Energy Sector Gets Boost From Senate:

The U.S. Senate on Tuesday Sept. 23 approved about $18 billion of renewable-energy tax credits after repeated failed attempts to do so this year.

The 93-2 vote cleared a major hurdle for extending a set of tax credits for businesses and residents investing in renewable energy, from building and operating power plants to installing small wind turbines on residential properties.

Solar, wind and other renewable-energy investors and executives have been anxiously waiting on Congress to extend a set of investment-tax credits that would offset 30 percent of the cost of a solar project.

"We know with certainty that the extension of these credits sends out a green ripple effect: solar projects on hold can now move forward, America creates new green-collar jobs with over 214,000 in California alone, and businesses and homeowners can count on lower energy bills in a time of economic hardship," said Barry Cinnamon, CEO of Akeena Solar ( AKNS), in a statement.

Read the full version of Green Energy Sector Gets Boost From Senate.

From Senate Sends Energy Tax Credits Back to House:

The Senate was unhappy with the House of Representatives version, however, and had refused to consider it.

The House's Monday Sept. 29 rejection of the $700 billion plan to prop up the ailing financial market -- prompted by bankruptcy filings and sales of troubled U.S. investment banks and mortgage lenders -- gave the Senate an opportunity to push for its own renewable-energy bill again.

Senate majority leader Harry Reid, D-Nev., announced Tuesday night that the Senate would tweak the House's version of the financial-market bailout package and vote on it, but only along with the renewable-energy tax credits

Read the full version of Senate Sends Energy Tax Credits Back to House. (Update: Congress Finally Gives Solar Industry 'Policy Certainty')

From Solar's Outlook Gets a Bit Sunnier:

The key industry players badly need to assure investors that they will not simply be a flash in the pan. The House still needs to sign off on the bill as well. It is also worth noting that the $18 billion package is completely offset by the reduction in benefits to the oil and gas industry.

Shares in the group have soared and plunged, depending on broader sentiment, as these stocks carry very high betas. Yet institutions have largely placed their bets on First Solar ( FSLR), which is the only stock in the group closer to its 52-week high than its 52-week low, and which is valued at a lush 13.3 times projected 2008 sales on an enterprise value basis.

Notably... the China-based solar plays... sport the lowest valuations, in large part because of the absolute decimation of the broader Chinese market.

But investors need to stay focused on the fact that industry growth can stay above 25% for the next three to five years, as the legislative backdrop is likely to become yet more favorable. Both presidential candidates have expressed a great deal of support for an expansion in credits and subsidies for alternative energy.

Read the full version of Solar's Outlook Gets a Bit Sunnier ( RealMoney access required).

From Despite Financial Crisis, Clean Energy Firms Seek Capital:

Until it filed for bankruptcy protection last week, Lehman Brothers had been a popular underwriter for companies raising funds, by issuing shares or borrowing money. The investment bank's collapse prompted statements from companies such as SunPower ( SPWR) Evergreen Solar ( ESLR) explaining the financial impact of Lehman's fall.

Investors said the market's turmoil will likely suppress any appetite for initial public offerings for now. Solar- and wind-energy companies also will likely find it difficult to raise money in the near future to build power plants or factories.

Some companies don't want to wait until the markets stabilize. LDK Solar ( LDK), for example, announced last week that it intended to raise $200 million.

Read the full version of Despite Financial Crisis, Clean Energy Firms Seek Capital. (Related: On Aug. 29, the Associated Press reported that China-based LDK Solar projected its 2009 revenue to be between $2.8 billion and $3 billion.)

From For Solar Stocks, Cash Flow Is King:

Many of the publicly traded solar companies have built up substantial debt already, making banks even more reluctant to extend them new loans. SunPower, for example, had $225 million in long-term debt at the end of the June quarter, while Evergreen had $108 million.

Maybe solar companies can raise capital through the debt market, relying on convertible bonds to fuel their growth. But as with stock offerings, one has to wonder how exactly this is going to work.

We're down to two independent bulge-bracket firms Goldman Sachs ( GS) and Morgan Stanley ( MS) -- and they may not be as bulletproof as we thought. They also face the daunting task of peddling bonds to a market that is suspicious of even the top-rated companies, let alone smaller, younger companies with a lot of risk built into their business model. And that is what we have with solar.

Because for all the promise of growth facing solar energy, it has an awful lot of threats.

Read the full version of For Solar Stocks, Cash Flow Is King ( RealMoney access required).

Sliding Oil Won't Sink Solar (Video, Sept. 19)

Falling oil prices are dragging down solar stocks, but Tom Zarella, CEO of GT Solar ( SOLR), says the alternative energy business will weather the storm.

To watch the video, click the player below:

Plus, don't miss this recent solar-focused video on TV: China Watch Mail Bag: Solar Sense (Sept. 20: One viewer is particularly interested in Solarfun Power ( SOLF), China Sunergy ( CSUN) and Yingli Green Sunergy ( YGE). Staff writer Chuck Marvin gives his pick of the litter, plus some other solar picks he likes a little bit more.)

From Analysts Pick 2009's Solar Winners: Suntech:

"The year 2009 could start to show signs of bifurcation between long-term winners and the companies with a 'me-too' strategy in the solar sector," wrote Lazard Capital Markets analyst Sanjay Shrestha of Lazard Capital Markets in a research note Friday Sept. 5.

Jeff Osborne, an analyst at Thomas Weisel Parners, has already aired his pick of winners.

"We see Suntech ( STP) (high volume, low cost), SunPower (high performance and vertical integration), and First Solar (low cost, high volume) weathering the storm well," Osborne wrote in a research note.

Read the full version of Analysts Pick 2009's Solar Winners: Suntech.

From Thin-Film Solar Set to Take Market Share:

"The thin-film photovoltaics sector is going to make a major impact on the overall growth of the PV industry in the next five years," wrote authors Sorin Grama and Travis Bradford, both of the Prometheus Institute. "It will change the economics to customers, trigger a more competitive landscape for all solar-energy technologies and force capital markets to assess and adapt yet again to a changing solar landscape."

Read the full version of Thin-Film Solar Set to Take Market Share.

From TSC Ratings' Updates: Pactiv:

LDK Solar has been upgraded from sell to hold. LDK Solar, through its subsidiaries, engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People's Republic of China and internationally.

LDK's very impressive revenue growth greatly exceeded the industry average of 11.5%. Since the same quarter one year prior, revenue leaped by 345.9%. Growth in the company's revenue appears to have helped boost the earnings per share.

The gross profit margin for LDK is currently lower than what is desirable, coming in at 25.40%.

Read the full article.

From Energy Bill a Step Back for Clean Power, Foes Say:

The California ballot measure calls for utilities -- both investor- and government-owned -- to get at least 20 percent of their electricity from renewable sources by 2010. The quota would increase to 40 percent by 2020 and 50 percent by 2025.

Currently, state law requires only investor-owned utilities to meet a 20 percent level by 2010. State regulators also are considering a 33 percent requirement by 2020 as part of the effort to implement a comprehensive plan to reduce greenhouse-gas emissions.

The 20 percent mandate has prompted utilities such as PG&E ( PCG) and SCE to sign large contracts to buy solar and wind energy over the past year. Last week, SCE said it had agreed to buy up to 909 megawatts of electricity from a wind farm in Oregon, to be built and operated by New York City-based Caithness Energy.

Government mandates that force utilities to buy renewable energy through long-term contracts at prices higher than conventional power aren't new. Those policies have made countries such as Germany and Spain booming markets for solar companies, for example.

But those regulations don't exclude small power plants. In fact, many homeowners and farmers in Germany have installed solar panels on their roofs and properties in order to profit from the policy.

Read the full article.

China Watch Mail Bag: Solar vs. Wind (Video, Aug. 23)

Alternative energy is all the rage, but how do you know whether to invest in solar power or wind? Get the lowdown from energy reporter Chuck Marvin.

To watch the video, click the player below:

Plus, don't miss these related videos on TV: China Watch: If You Go Solar, Go SunPower (Aug. 22: Marvin says if you go solar, SunPower's ( SPWR) your best bet.) and China Watch: S&P's Top Two Tech Trends (Aug. 13: Standard and Poor's equity analyst Scott Kessler says solar power and online gaming are the two hot spots to bank on right now in China.)

From Cypress Soars on Solar Power Deal:

Shares of Cypress Semiconductor ( CY) soared on Friday Aug. 15, spurred by the company's announcement to buyback a large chunk of its convertible debt and by a blockbuster deal by Cypress's majority-owned solar power subsidiary.

On Thursday, Pacific Gas & Electric announced it had signed contracts to buy electricity from a pair of yet-to-be-built photovoltaic power plants, which would reportedly represent the largest such commercial installation of photovoltaic technology. PG&E signed the deal with subsidiaries of Optisolar, a private firm, and with SunPower, a former unit of Cypress Semiconductor.

Read the full article.

From Solar Plays Starting to Shine, Part 1:

Over the past two years, solar stocks have blossomed from idealistic but unprofitable speculative plays into revenue growth powerhouses. While we curse crude oil prices and their effect on the economy and gasoline prices, solar investors can only smile and thank these high prices for making solar power economically viable.

Years ago, when these solar names were just starting to gain traction, there wasn't much on the fundamental side for investors to compare. Most companies were focused on improving their efficiency profiles, trying to improve the percentage of solar energy that their panels could convert into electrical power. It made sense at the time, because investors were buying into compelling stories rather than companies with attractive fundamentals and useful valuation metrics.

With the exponential increase in demand for solar panels that has occurred alongside rising prices for traditional energy sources, we can now focus on recent quarterly revenue, earnings and margins. I have included a number of charts on five of the most interesting solar names.

Read the full article.

From Five Hot Solar Plays: The Fundamentals:

Looking at valuation on a price/sales basis, you can see how wide the range is among these names. I used consensus estimates for full-year 2008 and 2009 for these calculations. Remember, historical data is useful for painting the backdrop, but when doing valuation on a stock, we need to use forward estimates.

The lesson here is that price/sales appears to be of limited use in valuing these solar plays. If nothing else, we can see how the thin-film names ( First Solar ( FSLR) and Energy Conversion Devices ( ENER)) are well ahead of their polysilicon peers in terms of earnings and higher price/sales multiple. The numbers also suggest that Trina ( TSL) is extremely cheap, but I'm still doubtful that this metric is useful in making decisions over whether any of these names should be bought here.

Since I'm not satisfied with the valuations generated by price/sales, let's move on to the tried-and-true price/earnings ratios.

Read the full article.

From Cramer: My Top Solar Play for 2009 (Video, Aug. 6):

Cramer: "There's two solar industries. There's a solar industry of the individual and I don't want to invest in that at all... First Solar is an industrial company... They are not one-to-one... They use large available pieces of real estate... and they put their film solar panels on top of those and then sell the electricity... They're going to win a series of very big contracts... There's no future for that one-to-one market. It's going to be industrial. And only First Solar right now is playing it. When I say only, there are others coming on, which is other reason why First Solar's multiple could shrink eventually."

To watch the video, click the player below:

Plus, don't miss Cramer: First Solar Is the Bomb (Apr. 16) on TV.

From Cramer's 'Mad Money' Recap for July 31:

"Wind and solar stocks are transcending the weakness in oil," said Jim Cramer, indicating that the strength in these sectors is genuine, and will continue even if oil hits his ultimate target of below $120 a barrel.

In the solar industry, Cramer reiterated his buy on First Solar, a company he called the best of breed in the solar industry. The company recently posted earnings of 85 cents a share, blowing away estimates of 58 cents a share, a 47% upside surprise.

He said First Solar is not a maker of residential rooftop solar panels, but a provider of large-scale industrial solar facilities.

Read the full article. Plus, don't miss Cramer's 'Mad Money Recap': Green Stocks Hit Pay Dirt (Apr. 21) and Cramer's 'Mad Money' Recap: First Solar's Bright Future (Apr. 3).

From New Solar ETF Helps Spread Sector's Risk:

The fund Claymore/MAC Global Solar Energy Index ETF ( TAN) really is global: China is the largest country represented in the fund, at 29.91%, followed by Germany at 29.01% and the U.S. at 26.33%. Still, ex-U.S., TAN invests in only five countries.

The methodology for index construction is to select from companies that "specialize in providing solar energy products and services," subject them to common liquidity screens and then weight them by market capitalization (actually a modified market-cap weighting so that no one company has too great a weighting).

The fund has a weighted average market cap of $5.8 billion, a P/E of 44, 25 holdings and a cap on the expense ratio of 0.65%.

Read the full article. Plus, don't miss this video on TV: ETF Spotlights Chinese Solar Stocks (May 8: Almost a third of the companies in the new 'TAN' solar exchange-traded fund are based in China. Christian Magoon, president of Claymore Securities, explains why China and Solar technologies are a moneymaking combination.).

Fund Manager Warms to Solar Energy ETF (Video, May 1)

Jan Van Eck, principal at Van Eck Global, explains why the new Market Vectors Solar Energy exchange-traded fund ( KWT) is the purest way to play the still-hot solar energy sector.

To watch the full video, click the player below:

Plus, don't miss this video on the TV: Solar Stocks Will Shine Again (Mar. 11: Alternative energy stocks have turned cold even as oil prices have risen. Bozena Jankowska, portfolio manager for the Allianz RCM Global EcoTrends Fund, explains why solar and wind shares will soon be making a comeback.)

Go Solar for Through-the-Roof Savings (Video, Aug. 4)

Farnoosh Torabi reports on the financial benefits of installing solar panels on one's home.

To watch the video, click the player below:

Plus, don't miss Going Solar Because It's Cool (Aug. 5: Solar panels are becoming the latest must-have in neighborhoods.) on TV and Learn the Financial Perks of Going Solar on MainStreet.

To stay up to date on solar and other industries within the energy sector, visit's Energy/Commodities section.

This article was written by a staff member of

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