The U.S. solar industry has experienced emotional ups and downs in the last two years that might exhaust even stronger industries. When Solyndra went bankrupt and became a symbol for government waste, many pundits postulated that it was the end of the world as we knew it for solar. Then Warren Buffett bought First Solar’s Topaz 550-megawatt photovoltaic solar farm and spirits cheered. Now, only a couple of months later, moods have sunk as California solar-power developer BrightSource announced last week it will not be able to pursue its planned IPO because of “adverse market conditions.”
“At the end of the day, the message here is there’s too much negativity around solar,” Sheeraz Haji, CEO of the Cleantech Group told the San Francisco Chronicle. “The mood in the solar-power industry now is “doom and gloom, except for those who refuse to accept that there’s something to be gloomy about,” Paula Mints, a solar-market analyst at Navigant Consulting in Palo Alto added in the Wall Street Journal. But is there really a reason here for this negativity? I don’t think so.
Here are five reasons why the U.S. solar industry shouldn’t feel upset about BrightSource’s canceled IPO:
1. None of the fundamentals have changed
There are couple of fundamental elements that shape the present and future of the American solar industry, such as cheap natural gas prices, diminishing federal support, growing competition from China, and falling panel prices. BrightSource’s announcement hasn’t revealed any new findings. If anything has changed, it is the expectations of BrightSource’s executives who apparently were too optimistic about the market, only to realize now that “the continued market and economic volatility are not optimal conditions for an IPO.”
2. Wall Street just doesn’t believe in solar for now
The way the stock market feels about solar, which some believe to be reflected in the cancellation, is nothing new to those who follow solar stocks. Stocks of solar companies such as First Solar, SunPower and Yingli Green Energy have fallen significantly in the last year or so. If anything, the canceled IPO is just another confirmation (if anyone needed one) that Wall Street, with its short-term set of mind, might not be the best platform to raise capital right now for a sector that doesn’t seem to be able to provide satisfactory results in the short-term.
At the same time, it is also interesting to see the dichotomy between investments in solar/cleantech outside Wall-Street and the performance of cleantech stocks. While the NEX index, which tracks the performance of 97 clean energy shares worldwide, fell 40 percent in 2011, Bloomberg reported on a record $260 billion in clean energy investment in 2011, including a 36 percent surge in total investment in solar power to $136.6 billion. Still, it is yet to be seen if this dichotomy will prevail in 2012, or if private investors, following the disappearing stimulus funds, will be adopting Wall Street’s attitude. Then, there might be a reason for a bit of moody feelings, but not yet.
3. It actually might be the right decision
Would analysts and industry insiders prefer to see the IPO taking place and a couple of weeks later the BrightSource stock going down because Wall-Street just doesn’t believe in solar now? I guess not. As BrightSource mentioned in its announcement, it is “in a strong financial position and has the support of world-class investors and partners.” BrightSource is the recipient of a $1.6 billion federal loan guarantee and its list of investors include NRG and Google, so BrightSource will be fine for now even without an IPO.
4. Internal competition between PV and solar thermal
BrightSource is a solar thermal company and the economics of solar thermal technology are looking a little bit less attractive now with a 75 percent fall in solar panel prices over the past three years. “BrightSource does have a good project pipeline,” Shayle Kann, managing director of GTM Research told the San Francisco Chronicle. “The real risk for them is how much more of a pipeline can they build? Are they going to be winning more PPAs in the future? BrightSource is probably running head-to-head against those PV projects.” This ‘internal’ fight between PV and solar should be addressed as an opportunity and a driver of innovation, not as a reason for concern. If anything, both solar resources should be concerned about natural gas, but as we mentioned this is old news.
5. This is not Solyndra
While Solyndra used federal and private money to build a factory for making its unique thin-film solar modules, BrightSource is building power plants. The money it received from the government went to its flagship Ivanpah project in California, which has signed long-term contracts with PG&E and Southern California Edison to purchase electric power for more than 20 years. In other words, not only is BrightSource is not going down, but the chances that its decision will have any political consequences are pretty slim. It’s more likely that this cancellation will be forgotten until the next storm of news shakes the ever-fragile solar industry.