This past Friday, while the market was barreling north, thanks to the obligatory positive remarks made by Ben Bernanke (who didn't see that one coming?), an analyst from Jefferies & Co. issued downgrades on a number of solar stocks.
Needless to say, the sheep followed, and most solar stocks ended the day in the red.
While there are certainly issues still plaguing the solar market, one reason given for these downgrades is a bit questionable. That reason being, "end markets are not ready to support the levels of volume production being planned for 2010."
Essentially, in an effort to counter lower average selling prices, many solar companies are dependent upon heavy volume. But to assume that end markets are not ready to support levels of future volume production is not a safe assumption to make. At least not with so much stimulus money and muscle backing increased solar integration in both China and the United States.
Granted, since much of this solar support has either just started or is set to start shortly, it's difficult to quantify. The fact is technically, the effect of this government support is still an "unknown."
Sure, we can predict how it'll affect the market. . . But when you make a prediction, isn't that really like making a guess? And when it comes to making investment decisions, who wants to just guess when you have current, objective data right in front of your face?
Yes, $117 million of the stimulus has been set aside for solar. But most of that money hasn't even started to funnel through the system yet. So, do we disregard that funding, although we know it's a lock ― but just hasn't traveled from point A to point B yet?
Or do we figure into the equation the result of this funding, before it actually gets to where it needs to go? Moreover, do we figure into the equation the tax credit extensions that take us through 2016, or an increased demand coming as a result of lower pricing?
Based on how this market has unfolded over the past five years, this can actually be a tough call to make.
What If?
We've never been comfortable with completely disregarding the "what ifs." After all, the "what ifs" are what made most Green Chip investors get into the renewable energy market to begin with.
What if oil prices climb above $60 a barrel?
Done!
What if climate change becomes a launching pad for the integration of renewable energy?
Done!
What if we deplete all of our fossil fuel resources?
Between now and 2025, it is likely we will see the peak of every single one of our finite fuel resources.
The point is, when it comes to renewable energy, you can't always disregard those "what ifs" and expect to make any money.
Especially when you throw China's energy mess into the mix.
What if China. . .
Let's look at the numbers.
According to the State Grid Corp. of China (the largest electric power transmission and distribution company in the world):
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China's power demand is expected to more than double from 3.4 trillion kilowatt-hours in 2008 to approximately 7.7 trillion kilowatt-hours in 2020.
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Installed power generating capacity is expected to increase from 793 gigawatts in 2008 to 1,600 gigawatts in 2020.
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Installed capacity of clean energy will account for about 35% of the total installed capacity in 2020. Today, it represents about 10 percent if you include nuclear, about 8 percent if you exclude nuclear.
So how is China going to facilitate a 25% growth in clean energy capacity?
Well, some of this will come from China's new solar initiatives. These include:
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The Ministry of Finance and Ministry of Science and Technology's Golden Sun solar subsidy
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National Development and Reform Committee's (NDRC) feed-in tariff
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Ministry of Finance and Ministry of Science and Technology's Building Integrated Photovoltaics subsidy
About a month ago, guidance was given on the Golden Sun subsidy. It will be capped at 640 MW, which works out to 20 MW per Chinese province.
Separate from that is the NDRC's feed-in tariff. And while the specifics aren't due out until Q4, it's expected the tariff will cover 1.5 GW of solar installations through 2011.
Then there's the 20RMB-per-watt subsidy for building integrated photovoltaics, which is expected to cover 500 MW through 2011.
In total, these subsidies will cover 2.6 GW of new solar through 2011.
This kind of stuff is not irrelevant, and in our opinion, should not be disregarded when analyzing the ability of end markets to support levels of volume production planned for 2010.
The fact is pricing will continue to fall, production will continue to increase (instigated by government support and continued through increased consumer demand, as a result of decreasing prices), and the long-term sustainability of the solar industry will be validated through technological innovations and the holy grail of grid parity ― which many believe is only about six to seven years away.
This is the future, my friends. And those who disregard solar because of random downgrades and herd mentality will miss out on one of the greatest investment opportunities of the 21st century.
To a new way of life, and a new generation of wealth. .
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