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Are Solar Stocks Going Dark?

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Green energy is supposed to be tomorrow’s answer to our dependence on foreign energy sources, mainly oil. This, along with wind power and to a smaller extent, natural gas are what the Federal Government believes is the answer for a country who currently consumes 20 billion barrels of oil each day.

Although these green energy alternatives are in their infancy, the plans to move America away from fossil fuels doesn’t seem to be gaining a lot of momentum and that’s especially true in the solar space. What’s causing some of the biggest solar companies to merge with other companies? Why are some of the sector’s bellwether companies seeing their stock prices fall as much as 80%? Part of the answer has a tone familiar to Americans who follow Washington.

First Solar

Take First Solar for example. First Solar (FSLR) is a Phoenix Arizona based company who manufactures photovoltaic solar cells. They were the first to break the $1 barrier where the cost to produce one watt of energy is less than $1. First Solar is widely considered to be the biggest player in the American solar energy space.

If that’s the case, their stock has probably taken the trajectory of stocks like Apple who have continually risen throughout the recent past. In fact, the opposite is true. First Solar reached its peak in May of 2008 when the price was just over $311 per share. In September of 2011, First Solar traded at only $101.

Sunpower

Another company, Sunpower Corporation (SPWR) started producing solar cells in the 1970s and refer to themselves as the global leader in solar power. Also in the business of photovoltaic solar cells, their stock hit its 5 year peak in December of 2007 at $128. Now in September of 2001, Sunpower trades at just over $14.

What’s wrong with these companies? If you ask them, they will undoubtedly tell you that it’s a function of the slow economy but the same economy has allowed companies in other industries to thrive. The problem largely comes from China. Companies outside of the United States have found ways to make these photovoltaic solar cells at a fraction of the price of many American companies. Also, even with government subsidies, solar energy has a large upfront cost making it much more expensive to produce than energy produced at coal plants.

Is it possible that these companies became too content with being in an industry that was highly subsidized by world governments and didn’t work to get their prices down? As government incentives have either drastically diminished or been completely non-renewed by world leaders, the solar industry has gone with them.

Government Complication

And finally, no story would be complete without some government complication. In one case, the Federal Government has provided more than $500 million in funding in the form of ultra low interest advances to Solyndra, a solar company who was losing 84 cents for every one dollar of sales. When asked by a Congressional committee to appear and explain how the low interest cash advance provided by the government was being used. Solyndra’s CEO stated that he had a scheduling conflict and couldn’t make it. Since this time, Solyndra has filed for Chapter 11 bankruptcy. The chances of the American taxpayers getting their $500 million back seem exceeding low now.

Bottom Line

Whether or not the solar industry has a bright future remains in doubt. Very little has been done to move away from America’s dependence on foreign oil and the green energy alternatives are struggling to gain a foothold in an industry that is dominated by rich oil tycoons.

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Author:Graham