Solar power has the potential to catch on and become a viable alternative energy on a global scale in the coming years. As the United States population continues to grow, so too, will our exponentially increasing consumption of energy. In many European nations, solar power is already widely accepted, and has been getting a boost from government subsidies. In the U.S., the Department Of Energy is putting its Solar Energy Technologies Program into play. This initiative focuses on developing cost-effective solar energy technologies that offer the greatest potential benefit to our nation and the world. At the same time, the creation of jobs would be another plus stemming from the development of our domestic solar business.
That program has four main components: Photovoltaics, Concentrating Solar Power (CSP), Systems Integration, and Market Transformation. The first component is designed to aid in the funding of research and development of photovoltaic solar cells, with a focus on reducing the cost of production, which would make this technology more economically viable. The CSP segment will utilize partnerships with solar companies, universities, and national laboratories to reduce system and storage costs for the solar market. Systems Integration will address the technical barriers associated with a wide-scale deployment of solar technologies with a focus on updating the national power grid and developing smarter technologies. Finally, the Market Transformation portion of the program will work with cities, states, and utilities to help drive widespread acceptance of these technologies as well as to reduce the associated costs.
Recently, Tennessee, California, and Minnesota have approved new solar projects. Out West, the Genesis Solar Energy Project and Imperial Valley Solar Project were announced. Combined, these initiatives are anticipated to generate approximately 960 megawatts of electricity. Since late August, the California Energy Commission has authorized licenses on roughly 2,830 megawatts of power projects. Similar developments are under way in other states.
Laundromats, breweries, data storage facilities, restaurants, and manufacturing facilities would all stand to benefit from the acceptance of solar power. These businesses utilize a significant amount of energy through their day-to-day operations. As alternative energy sources become more viable, they will surely stand to benefit from cheaper energy costs assuming they choose to embrace the new technology.
Another factor that should help with the demand for alternative energies is the somewhat consistent rise in commodity prices. Many alternative energy plays became less attractive when oil and natural gas prices fell over the past year. However, that trend appeared to bottom out a few months back. The trend has been positive for a little while now. Prices for both commodities are still trading below the highs seen a couple of years ago, but they have already started to rebound, and sooner or later, they could potentially reach new heights. If and when that occurs, investor interest in alternative plays will surely follow suit.
With the recent rise in oil prices, demand for renewable energy sources has started to climb. This can be seen in the Claymore/MAC Global Solar Index (TAN), one industry benchmark, which has been on a steady uptrend since the end of August. However, at this point, many of the prospective investments that we like in this sector are trading above their respective 50- and 200-day moving averages. From a technical analysis standpoint, we think they are poised for a pullback, which could make for an attractive entry point into this space. Currently we like First Solar Incorporated (FSLR) and GT Solar International Incorporated (SOLR), although we think the best way to invest here would be to wait for a correction in the stock prices. Other companies in this sector that may be poised for a move in the coming months are Sunpower Corp. (SPWRA) and Suntech Power (STP). Both stocks have weakened recently, likely due to reduced focus on smaller alternative energy plays after the decline in commodity prices. Companies like First Solar, a market leader in this space, have been able to perform well, as many investors looking for exposure here, have stayed with the big names. But, should the sector start to pick up steam in the next year or so, we would not be surprised to see stocks like Sunpower or Suntech begin to rise. Both are currently trading near their 50-day moving averages and have already experienced a correction, much like those we may yet see in other solar equities.
On the downside, many factors will play into the performance of these stocks. Potential pitfalls could stem from a slowdown in the global macroeconomy. Also, at its current phase of development, many solar companies rely on government subsidies to offset rising costs, and if those concessions are lifted, profits would be hurt. Furthermore, many U.S. manufacturers of solar cells, solar systems, and other necessary components do a great deal of business abroad. The current weakness in the U.S. dollar has been weighing on both the top and bottom lines when bringing those greenbacks home.
All told, though, from a contrarian standpoint, we think that some of the companies in this sector may make for attractive investments over the coming years. And we feel the best time to add them to a portfolio would be after they have been battered down, at that time, investors should patiently wait for renewed interest in the group.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.