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Solar power has lost its chic, as the reality of the marketplace, pushed by the recession, hits the sector. Yet, with higher oil prices in the mix, you have to wonder if the death toll for solar may not be a contrarian buy signal.
According to The Wall Street Journal "The global recession and tight credit conditions have cast a chill on the solar-power industry after years of breakneck growth, and could usher in long-term changes in the industry." Reuters chimed in with its own gloomy lead, noting: "A lack of project funding threatens to undermine the solar industry's already fragile growth prospects, two of the sector's biggest players said on Tuesday, reporting profits that missed market forecasts."
Reuters added: "Q-Cells, the world's largest maker of solar cells, slashed its 2009 sales outlook for the third time since December, while German peer Solon, a solar module maker, posted a bigger-than-expected first-quarter net loss."
Spain and Germany, the number 2 and 1 solar markets, respectively, have slashed government subsidies for solar power generation leading to a pullback in capital spending and expansion of capacity in the industry.
Chart Courtesy of StockCharts.com
Yet, the Wilderhill Clean Energy index (ECO) where many green stocks, including solar shares reside has kept up with the stock market bounce since March, climbing 60% over the last two months, suggesting that some money has moved back into the green stocks. To be sure, the advance is slowing as the rest of the market has begun to slow, which suggests that much of the rally may have been driven by program trading focused on ETFs, such as the Powershares Wilderhill ETF (NYSE: PUW).
Chart Courtesy of StockCharts.com
So, for investors, it's time to ask a key question. Is this the point at which prices drop to a level where solar power becomes more affordable, and thus more pervasive. In other words, as solar chips become cheaper, is a boom ahead?
We suspect that much depends on oil prices and in the ability of the solar industry to market to homeowners in huge markets such as the U.S. and China. If consumers, who seem to be interested in solar power, can buy affordable, relatively easy to install systems, it is quite possible that the industry could recover.
Some of this phenomenon may already be in the pipeline as "the U.S., Japan and China provide more support for renewable energy either as part of their economic-stimulus plans or to combat global warming. But those subsidies are unlikely to translate into an uptick in solar-cell orders until next year at the earliest." An initial target of 350 new wells in the Venustiano Carranza area already has been nearly met, said Vicente Valencia, the 29-year-old mayor. In all, as many as 800 wells will be drilled near the town in the coming years, he said."
Yet, it's not all that easy to build solar power generation facilities on a large scale. According to The Journal: "Utilities and other developers are also finding it harder to get loans or raise investment capital for big solar projects," with funding falling by nearly 50%.
Conclusion
The price of oil is back on the rise, with the $60 area looming ahead. As tensions in the Middle East rise, solar may actually get a boost.
There are two key players to watch. One is Iran, and the other is Israel. As this morning's news suggests, Iran is on pins and needles, worried about an Israeli attack on its nuclear facilities. Iran has made it clear that it will block the Strait of Hormuz if it feels threatened.
Global oil production has decreased to some degree, as OPEC has stuck to its quota cuts more than it has before. And the global economy is showing signs that it wants to improve.
That means that the world is vulnerable to yet another oil shock. If you add the rising uncertainty in Pakistan and Iraq, then you have a potential set of problems that, given the right mix, could lift oil prices to the point where solar power once again becomes attractive.
The problem for solar, though, is the lag time. If oil prices shoot up in the next few weeks, it could take months, even years for the world to have enough solar power in place to make a difference. The flip side, though, is that the political problems that can lead to $100 oil in a few weeks have not gone away, and once again seem to be heating up.
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