Solar stocks must be sky high at the moment, right? Wrong. If you look at the values of most stocks around election day, they did increase. This peak was short lived however for most solar companies and it was followed by a huge decline.
Just how steep are we talking?
(NASDAQ:AKNS) is a large US-based solar installer for residential and commercial systems in California, New Jersey, New York, and Connecticut. Their stock was valued at nearly $17 per share at the beginning of the year and is now below $2.
(NASDAQ:ASTI) is based in Colorado and produces high efficiency, thin film solar products. They saw stock prices rise to over $25 a share at the beginning of the year, but are currently above $4.
(NASDAQ:ESLR) is an American company that develops and manufactures solar modules and cells primarily to Europe and the United States. It had stock valued at $18 at the beginning of the year and is now below $3.
(NASDAQ:FSLR) is an American company specializing in large-scale solar power plants with thin film solar cells. Their stock prices were $300 in May and are currently a little over $100.
JA Solar Holdings Ltd.
(NASDAQ: JASO) is a Chinese monocrystaline solar cell manufacturer that distributes its product through China, South Korea, the United States, Germany, Sweden, and Spain. Its stock dropped from $27 this spring to less than $4 now.
(NASDAQ: SPWRA) is a manufacturer of solar cells, solar panels, and roof tiles. Stock prices reached as high as $130 at the beginning of the year and are currently around $30.
(NYSE:STP) is the world’s largest producer of solar panels and has four manufacturing centers in China. Stock prices reached $90 in January and are now below $8 a share.
(NASDAQ:YGE) is based in China and manufactures solar ingots, cells and modules. Stock prices were as high as $40 in January, 2008 and now hover around $4.
Why are solar stocks dropping in value?
Falling Value of the Euro
The European solar market grew by 87% to 2157 megawatts of capacity in 2007. Germany and Spain are two of the leading global markets for solar energy due to highly supportive governments. Germany has a very strong feed-in tariff program. Utility companies in Germany are required to pay solar system owners more than the standard retail rate for electricity generated from solar energy. Spain enjoys ideal weather conditions for solar energy, has a solar rebate program, and also reimburses solar system owners generously for electricity fed to the power grid. Europe is a very important market to the solar industry and its influence can have rippling effects on the entire market.
“Just recently the euro depreciated dramatically, more than 23%. So we have to adjust our ASP (average selling price) to support our customers,” said Samuel Yang, Chief Executive Officer of JA Solar. This drop did not reflect favorably in 3rd quarter earnings.
Lehman Brothers Bankruptcy
To top it off, JA Solar, SunPower and Evergreen Solar among other companies saw losses because of their ties to the defunct Lehman Brothers (NYSE:LEH), due to their involvement in convertible bond transactions and stock lending agreements.
“We estimate JASO would realize ~4% dilution on stock and incur a non-cash write off of $7million for the book value of the capped call, and also write off a $100 million investment in a LEH vehicle,” said Jeff Pichel, an analyst for Piper Jafrray.
Regarding Evergreen Solar, Pichel said, “ESLR worse case scenario – lose the $39.5 million premium if the capped call transaction with Lehman is not replaced, as well as dilute share count by 30 million (~25%) without getting anything in return for the dilution.”
Sales Forecasts Decline for Some
Many solar manufacturers ramped up production as demand climbed. A global slowdown caused some companies to reduce production. Many solar projects are financed through loans, which are harder to obtain under current conditions.
The solar industry is accustomed to having demand that is greater than supply, due partially to silicon shortages. The market conditions shifted in many instances and some companies didn’t meet their sales forecasts for the third quarter. Some solar companies have decreased their projected sales for the fourth quarter as a result. This is rare for an industry that has experience unprecedented growth in recent years.
“At this moment the market reaction has been panic,” Yang said.
JA Solar reduced its 2008 revenue forecast to between $849.5 to $878.9 million from the $1.05 to $1.17 billion it had forecast in October, and said its earnings per share would be near break-even. They also cut the 2009 revenue forecast to $1.5 billion to $1.7 billion, which were previously $2.0 billion to $2.2 billion.
Fourth quarter growth margins would drop to a mere 5% to 7%, according to JA Solar, from 23.3% in the second quarter and 21.6% in the third quarter.
SunPower, however, reported strong quarterly earnings in October and even raised the 2008 profit forecast slightly. Net income rose to $22.4 million, or $ .26 per share, from $8.4 million, or $ .10 cents per share, a year ago.
Price of Oil and Natural Gas Declined
The prices of fossil fuels are always in flux due to numerous factors. Natural gas prices were very high in July, 2008 and have declined significantly since then. As is evident from a trip to the gas station, oil prices have also declined considerably since the summer.
The value of renewable energy is frequently tied to the price of fossil fuels. When demand for electricity is high, additional power plants are fired up to produce peak electricity. These additional power plants are most commonly fueled by oil or natural gas because they are easy to start up on short notice, unlike coal or nuclear power plants.
What Does the Future Hold For Solar?
On the Bright Side
Low stock values for solar companies may prove to be a good investment opportunity in the long run as renewable energy sources are likely to have an increased demand in the future.
The United States solar market is expected to have more government support under the Obama administration compared to the Bush administration. Mr. Obama has set a goal to generate 25% of the United States energy from renewable sources by 2025. This is a big goal considering that currently less than 10% is from renewable sources, including hydroelectric power. If this goal is realized, renewable energy sales will soar. To further boost the industry, the renewable energy tax credits that were set to expire at the end of this year were extended and in some cases expanded.
On the Downside
Solar development that depends on financing may see hurdles under the current credit crunch, temporarily slowing the rapid growth the industry has experienced. Because the price of certain fossil fuels such as oil and natural gas have recently declined, it is more difficult to obtain financing in the short-term. Hopefully, price drops won’t take attention off of the finite quantity of fossil fuels that is dwindling at this very moment.
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Photo Credit (lower photo): Kiril Lozanov of Solar Service Inc. of Niles, IL