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Solar sector’s wild ride part II

October 5th, 2008 · No Comments

What a curious day it was Friday. The rally that everyone was supposed to sell into just after the passage in the House of the bank bailout bill never materialized. People started to sell right away in sheer fear of being caught out as the biggest fool. The Solar sector’s trading pattern was even more weird. Finally they got the tax extentions, and what happens, as soon as they pass, the sector sells off big-time.

Including legislation on the extensions of tax credits for alternative energy in the bank bailout bill was a bit of a gamble, but it paid off. Well, sort off.

  • After months of failed attempts in Congress to extend crucial renewable energy tax credits, the end-game came with lightning speed Friday afternoon: The House of Representatives passed the green incentives attached to the financial bailout package approved by the Senate Wednesday night and President Bush promptly signed the legislation into law.
  • There were goodies for wind, geothermal and alternative fuels, but the big winner by far was the solar industry. “It feels like we should be popping the champagne,” said a Silicon Valley solar exec Green Wombat met for lunch minutes after Bush put pen to paper. [Fortune]

No champagne yet, the solar stocks sold off heavily on the news (although with the general market). This must have surprised quite a few, and it certainly surprised us. Even companies which depend more than most on the US markets didn’t get a lift:

  • Analysts at American Technology Research say Sunpower and First Solar, which was up 6.3%, were likely to reap benefits because they “have several contracts in place contingent upon an extension, and we believe both companies would see a significant jump in demand beyond those contracts as a result of a long-term extension.” [Wallstreet Journal]

Fist Solar, for instance, sold off more than 8% after the bill passed. We were turning more positive on these shares as they became less expensive, but logic seems the first victim in this market and FSLR, despite being the king of solar stocks in therms of business performance, is still quite expensive.

An often heard reason for the sell-off is that financing should be a lot harder for solar companies in the present, unprecedented financial conditions. However, there is quite a bit of evidence that this argument is being overplayed:

  • In another sign that the financial crisis is not slowing the solar industry, Suntech, the giant Chinese solar module maker, made a big move into the United States market on Thursday. The company announced a joint venure with green energy financier MMA Renewable Ventures to build solar power plants and said it would acquire California-based solar installer EI Solutions.
  • Founded in 2001, Suntech (STP) recently overtook its Japanese and German rivals to become the world’s largest solar cell producer. The company has focused on the lucrative European market and only opened a U.S. outpost, in San Francisco, last year.  The joint venture with MMA Renewable Ventures (MMA) – called Gemini Solar – will build photovoltaic power plants bigger than 10 megawatts.
  • Most solar panels are produced for commercial and residential rooftops, but in recent months utilities have been signing deals for massive megawatt photovoltaic power plants. Silicon Valley’s SunPower (SPWRA) is building a 250-megawatt PV power station for PG&E (PCG) while Bay Area startup OptiSolar inked a contract with the San Francisco-based utility for a 550-megawatt thin-film solar power plant. First Solar (FSLR), a Tempe, Ariz.-based thin-film company, has contracts with Southern California Edision (EIX) and Sempre to build smaller-scale solar power plants.
  • Suntech’s purchase of EI Solutions gives it entree into the growing market for commercial rooftop solar systems. EI has installed large solar arrays for Google, Disney, Sony and other corporations.
  • “Suntech views the long-term prospects for the U.S. solar market as excellent and growing,” said Suntech CEO  Zhengrong Shi in a statement.
  • Other overseas investors seem to share that sentiment, credit crunch or not.  On Wednesday, Canadian, Australian and British investors lead a $60.6 million round of funding for Silicon Valley solar power plant builder Ausra. “So far the equity market for renewable energy has not been affected by the financial crisis,” Ausra CEO Bob Fishman told Green Wombat. [greenwombat]

Some of the share prices of solar companies are already quite mad. The company we have written a lot about on these pages, Trina Solar (TSL) is almost back to it’s IPO price of $18.5 of two years ago, notwithstanding the fact that the company has more than tripled in the meantime (both top and bottom line).

After all the misery of all the previous failed attempts to get the tax incentives extended, this should be very good for the sector.

  • That it took the biggest financial crisis since the Great Depression to save billions of dollars of renewable projects in the pipeline for the sake of political expediency does not bode well for a national alternative energy policy. But the bottom line is that the legislation passed Friday sets the stage for a potential solar boom.
  • * The 30% solar investment tax credit has been extended to 2016, giving solar startups, utilities and financiers the certainty they need for the years’ long slog it takes to get large-scale power plants and other projects online. The extension is particularly important to those Big Solar projects that need to arrange project financing in the next year or so.
  • * The $2,000 tax credit limit for residential solar systems has been lifted, meaning that homeowners can get a 30% tax credit on the solar panels they install after Dec. 31. That will save a bundle – especially for those who live in states with generous state rebates – and goose demand for solar panel makers and installers like SunPower (SPWRA) and First Solar (FSLR). (If you buy a $24,000 3-kilowatt solar array in California – big enough to power the average home –  you can claim a $7,200 federal tax credit. Add in the state solar rebate and the cost of the system is cut in half.)
  • * Utilities like PG&E (PCG), Southern California Edison (EIX) and FPL (FPL) can now themselves claim the 30% investment tax credit for large-scale solar power projects. That should encourage those well-capitalized utilities to build their own solar power plants rather than just sign power purchase agreements with startups like Ausra and BrightSource Energy.
  • The brakes are off,” says Danny Kennedy, co-founder of Sungevity, a Berkeley, Calif., solar installer that uses imaging technology to remotely size and design solar arrays. “In just six months since our launch we’ve sold about a hundred systems. With an uncapped tax credit for homeowners going solar, we expect business to boom.”
  • While elated sound bites from solar executives have been flooding the inbox all afternoon – along with invites to celebratory after-work drinks – solar stocks took a drubbing (along with the rest of the still-spooked market) after initially soaring on the news.
  • SunPower ended the trading day down 5% while First Solar shares dropped 8%. The bright spot was China’s Suntech (STP), which on Thursday announced a joint venture with financier MMA Renewable Ventures to build solar power plants as well as the acquisition of California-based solar panel installer EI Solutions.
  • Congress didn’t treat the wind industry so generously. The production tax credit for generating renewable energy was extended by just one year, guaranteeing the industry’s will continue to live year by year (at least through 2009). But given that 30% of all new power generation built in the United States in 2007 was wind, and that the amount of wind power installed by the end of 2008 is expected to rise 60% over the record set last year, the wind biz should do just fine. [Fortune]

Tags: Solar sector