The Troubling State Of Solar Energy Stocks

Chris Lau, KAPITALL Contributor: Solar energy investing was the sector that found great appeal – until it did not. Between 2007 and 2008, prices for solar panel materials were rising. When the infamous financial crisis hit by late 2008, many solar energy company stocks plunged. A massive financial stimulus by 2009 helped keep speculative companies in play, but by 2011, many countries canceled subsidies and fees in tariffs. In the United States, Solyndra went bankrupt and the Department of Energy was pressured to become stricter with the amount of loans they issued to clean energy companies. [More Analysis by Chris Lau:  Google Reader Shutdown Creates Opportunities for These 3 Companies]

The solar energy sector resumed its collapsed, and by 2012, any investor holding solar energy stocks would have lost money. Two major issues plague the sector: excess supply and weak demand. China hoped to have a sustainable solar energy market, but there are simply too many firms operating at a loss and producing too much solar products.

Trade War in 2012

Major import tariffs on Chinese solar products were preceded by smaller import duties up to 4.73% earlier in 2012. Then in May, the U.S. Department of Commerce ruled in favor of placing punitive tariffs on Chinese solar imports, ranging from 31-250%, depending on the firm.

Technological Advances

Different materials have been developed to increase efficiency, one of which is the high-end mono crystalline silicon (molicon) at 22% efficiency. It hasn't captured much market share though, due to the high costs of production. The less expensive multi crystalline silicon (polysilicon) maintains the majority of the market share.

More Bankruptcy Needed

Unfortunately, the industry needs more bankruptcies of weak unprofitable firms, if solar companies want a future. China allowed Suntech to declare a bankruptcy in March 2013. It was previously thought that China would do whatever was necessary to allow weak firms to continue operating. Suntech missed a payment of $541 million in convertible bonds in mid-March, 2013. The company had $2 billion in debt that will be restructured through bankruptcy proceedings.

Other Chinese Solar Stocks include: [Read descriptions for all companies mentioned]

1. ReneSola Ltd. ( SOL): Engages in the manufacture and sale of solar wafers and solar power products. 

2. Yingli Green Energy Holding Co. Ltd. ( YGE): Engages in the design, development, manufacture, marketing, sale, and installation of photovoltaic (PV) products in the People's Republic of China and internationally. 

3. JA Solar Holdings Co., Ltd. ( JASO): Engages in the design, development, manufacture, and sale of photovoltaic solar cells and solar products, which convert sunlight into electricity in the People's Republic of China.   The company reported quarterly results in March, 2013 that missed estimates. Gross margins were -4.6%. The company expects shipments to drop from the previous quarter.

Solar Power Leaders

Yingli is one of the top 4 panel makers. Other companies that might interest investors (by financial health or large market capitalization) include:

4. First Solar, Inc. ( FSLR): Manufactures and sells solar modules using a thin-film semiconductor technology.  First Solar restructured its business successfully, concentrating only on large, profitable contracts. In February, management forecast weak second-half results. The company is also targeting a book-to-bill ratio of 1. In 2012, the ratio was 0.8.

5. SunPower Corporation ( SPWR): A vertically integrated solar products and services company that designs, manufactures and delivers solar electric systems worldwide for residential, commercial and utility-scale power plant customers.

Other Solar Power Companies

6. Trina Solar Limited ( TSL): An integrated solar-power products manufacturer based in China with a global distribution network covering Europe, North America and Asia. 

7. LDK Solar Co., Ltd. ( LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects.  The Company's products include Polysilicon, Solar Wafers, Solar Cells, Solar Modules and Solar Farm Projects.

8. JinkoSolar Holding Co., Ltd. ( JKS): Engages in the manufacture and sale of solar power products in China and internationally.  JKS has built a vertically integrated solar product value chain from recovered silicon materials to solar modules. Its principal products are silicon wafers, solar cells and solar modules.

More Charts:

Interactive Chart: Use the Turbo Chart to compare the stock performance of SPWR and FSLR against the performance of the S&P 500 Index (SPX):

Written by Chris Lau, KAPITALL Contributor

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