Sun Worship

I've always found it funny how the markets overreact sometimes. It can wipe you out with the most immaterial shred of news and it can turn you into bloody Croesus just on whispers and rumors.

And the past few days have been no exception.

With the media focused on Japan's ongoing nuclear situation; here they come, suddenly in praise of the sun sending solar stocks rising based on… I dunno… That Japan and the rest of the world will be switching to solar power now?

Not in my view.

This interpretation of events just astounds me, while I love the idea of clean energy, fact of the matter is any significant applications of it due to Japan is just highly unlikely. France for instance has been using nuclear power for the greater part of its needs since forever, even after Chernobyl. Merkel suspending the extension of Germany's nuclear plants doesn't mean anything (read: politics) and let's face it, at this point, they all have bigger problems to throw their money at than switching energy sources.

The other argument for solar's rise is that the earthquake has disrupted the polysilicon supply, of which the Japanese manufacture 10% of and this was seen as a boon for the other suppliers.

Well, this does hold some weight. But then again, going forward costs will rise and margins will deteriorate as supply tightens even further. Plus they haven't exactly been selling like hotcakes so it's not exactly a sound thesis. But I've been wrong before.

Are there any solar bulls on WSO?

Curious what your thoughts are on this.

Will this be the advent of solar power?

Am I wrong in thinking that nuclear energy is here to stay?

I wonder how this will play out, so far it looks like drunken sun worship to me.

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Comments (12)

Best Response
Mar 15, 2011 - 9:50pm
alexpasch, what's your opinion? Comment below:

I'm a solar bull but based on valuation. Companies like LDK are trading at 6x forward P/E (10x ttm P/E); that's crazy given the expected long-term growth rates. Some people are saying to sell solar on hype; you wanna talk hype? look at the valuations of these companies in 2007; THAT was hype (and the financials/net income were a lot worse back then than today). These companies were at like 60x P/E before, now a lot of them are at like 10x, and if they hit their guidance, they'll be at like mid single digits P/E next year. Why people would buy NFLX at a 60x P/E (or whatever ridiculous number it is) instead of a solar company at a 10x P/E is beyond me.

I don't think solar will ever be a very large part of the energy pie, but because energy is such a huge industry (keep in mind many of the biggest players are NOT publicly traded; last I checked I couldn't buy stock in Saudi Aramco or any of the other NOCs), there is a ton of money to be made going from 0.1% to 2% of the energy pie. That's a very high growth rate, and although it's very hard to pick winners in the sector, buying a bag of a few of them is probably a very, very good bet.

Solar is also reliant on subsidies now, but if you believe fossil fuel prices will be several times greater by the end of the decade, solar will become competitive without subsidies.

Mar 15, 2011 - 10:05pm
Beef, what's your opinion? Comment below:

@Alex: have made money (and lost money) off of LDK before - still think it's a good long-term play potentially... also your analysis seems spot on. As energy prices increase in the next several years due to the industrialization of rural India/China (as well as greater energy use per capita as middle classes emerge), alternatives will become more viable, and solar, although expensive, is one of the more viable ones. Biofuels tend to suck because they cause food prices to go up (the exception is Brazilian sugar cane ethanol, among others like sorghum, miscanthus, etc, which will be totally worth it with a few more years of research), geothermal only works in random places, electric ultimately comes from coal, we are already using most of the potential hydroelectric power in the country, so that leaves solar in a good relative position. Yes it's expensive but technology improvements and scalability should hopefully make it more efficient.

I left out wind because I don't know enough about it, btw. If anyone wants to chime in on wind I'd love to read what you've got to say.

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Mar 15, 2011 - 10:16pm
PTS, what's your opinion? Comment below:

Wind has some potential but it is very limited. The projects themselves lose money without the insane subsidies and tax equity that go into them. That is for the ones in the best places with the highest NCFs. Once you finish putting the damn things up everywhere there is wind, there is nowhere left. I have a map somewhere but there are very few slivers of land across the country where there is enough wind to make the projects worthwhile, with the exception being a huge area in the dakotas. BUT it costs more to transport it from there to CA or vegas or where ever than it does just to produce it. they are still developing some off shore projects with the things actually on stands in the ocean. multiple times more expensive and maintenance is clearly an issue so those are out without the taxpayers directly footing the entire bill

Mar 15, 2011 - 10:31pm
alexpasch, what's your opinion? Comment below:

The energy density and energy return on energy invested are better for wind than for solar, just that locations are more remote and you have the same intermittency/storage issues as you do with solar. Wind is reliant on subsidies too, but again, fossil fuel prices will be going much higher long-term.

I don't have any positions in wind, though I might buy some Vestas or one of the other companies in the space at some point.

Mar 16, 2011 - 12:07am
Bravo, what's your opinion? Comment below:

I'm a firm believer in green due to saving our planet and all but I just don't see it happening in my lifetime(I'm probably a few years older than most on here), well in America at least. That is one buy and hold investment that may not bank for us, maybe the next generation will be rewarded with profits. When i say banking I mean coca cola money.

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Mar 16, 2011 - 12:23am
oreos, what's your opinion? Comment below:

Wind is a fad. Tidal however is the way forward...

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Mar 16, 2011 - 1:18am
laudrup10, what's your opinion? Comment below:

What about smartgrid companies like Enernoc?

Mar 16, 2011 - 7:47am
pitbul13, what's your opinion? Comment below:

At the moment, nothing beats petrol or nuclear. The fact is: All our energy comes from the sun, but was concentrated into oil. (nuclear is totally different) When using 'renewable' energy, youre essentially using a lower grade of energy. It's highly inefficient. Solar panels have an energy density that is WAAAAAYYY smaller than any fossil fuel.

At the moment, using 'renewable' energy for our everyday needs is kinda like changing your diet for an only-grass diet. Sure you can live off eating only grass, but its going to take a SH*TLOAD of grass to match a steak in terms of energy content.

Solar, wind and tidal have a LONG way to go before they can even match the energy we get from burning fossil fuels and breaking up uranium atoms.

Hope this helps..

Mar 16, 2011 - 8:47am
Jorgé, what's your opinion? Comment below:

How is tidal power nowadays? Always thought that that was one of the better alternatives but I haven't been keeping up with it.

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Mar 16, 2011 - 8:52am
El_Mono, what's your opinion? Comment below:

Solar sucks, its just too expensive, even if you had like 50 usd per co2 eq emission reduction incentive. Wind, on the other hand, is reliable and has become increasingly affordable. Solar parabolic collectors are to me a better choice, specially if molten salt batteries are further developed.

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Mar 16, 2011 - 12:22pm
TechBanking, what's your opinion? Comment below:

I picked up some PWER on Friday. It's as much about very low valuations (it was at 2x EBITDA) for companies in a growing sector as anything else. The nuclear issues in Japan just created a catalyst for people to start looking at this sector again. There are a lot of very cheap companies, even after the recent run-up, out there.

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Mar 16, 2011 - 4:24pm
alexpasch, what's your opinion? Comment below:

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