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Thursday, March 12, 2009

Green Investor at; How Will Solar PV Businesses Benefit From The New Incentives?

Green Investor at; How Will Solar PV Businesses Benefit From The New Incentives?

Potential Impact on Solar Stocks First Solar (FSLR), Sunpower (SPWRA), Evergreen Solar (ESLR), Spire (SPIR), SunTech (STP) and XsunX (OTCBB:XSNX)

March 12, 2009, Point Roberts, WA -Green Investor at reports on how Solar PV businesses may benefit from the new incentives.

Green Investor at Paulo J. Nery

Solar stocks have taken a major beating in the past few months. The Claymore MAC Global Solar Energy Index ETF (TAN) has fallen 78% in the past six months. Most listed solar companies have fallen from 50% to 87% over that period. Since all renewable energy stocks are intrinsically tied to oil prices I am tempted to lay the blame on the oil markets which have fallen hard. The US Oil Index (USO) is down a mere 67% in the same period, though, only a few weeks ago it hit a low of 22.80, and that was 72% down from the same baseline. So perhaps they’re in the same ballpark.

Price declines for solar stocks over the past 6 months:
· First Solar (FSLR) down 51%
· Sunpower (SPWRA) down 73%
· Evergreen Solar (ESLR) down 86%
· Spire (SPIR) down 53%
· SunTech (STP) down 87%

At the same time, prices of solar modules have fallen which could hurt some manufacturer margins. One of the causes of this fall was Spain’s reduction of its solar subsidies. But this could be good news for buyers of solar modules who can now start picking up some bargains, possibly lifting demand again. As the market adage goes, “there’s no cure for low prices like low prices.”

A bright spark however, is the newly passed economic stimulus bill which should start boosting demand once again. With the extension of the Federal 30% tax credit and the removal of the $2000 cap, home owners will see the price of solar PV get much more affordable. For instance, last year a homeowner buying a 3 kilowatt system costing $28,500 might have paid $19,000 after the tax incentives, but this year it will cost about $13,000 based on California’s incentives and the newly uncapped Federal tax credit. Of course the incentive requires you to have a tax liability to offset, and rising unemployment may well diminish the residential market.

And, for commercial developers of solar facilities the new bill has provisions that would allow them to take the 30% tax credit as a grant instead.

The President’s “New Energy For America” plan calls for 10% of US electricity to come from renewable sources by 2012, then 25 per cent by 2025. That’s a doubling in just three years. The President has pledged to spend $15 billion per year over the next 10 years to stimulate private clean energy investments in solar power, wind power, biofuels and more efficient vehicles.

The new plans also call for:
* $30 billion for improving energy efficiency, which includes smart grid and battery technology
* $29 billion for modernizing roads and bridges
* $18 billion for clean water, flood control, and environmental restoration investments
* $8.4 billion for investments in transit, and $8 billion for investment in high-speed rail
* $7 billion for extending broadband services to underserved communities across the country

Another factor slowing down solar project development is tight credit. The economic downturn has certainly put pressure on clean energy funding, like everything else. But according to a recent survey conducted by New Energy Finance, out of the 106 institutional investors that took part in the study, about 50 percent plan to increase their exposure to the clean energy sector. These institutional investors like pension, banking and insurance funds hold $1 trillion in managed assets. One leading Swiss private bank, Bank Sarasin, told Reuters last week that they saw renewed opportunity in the US. Matthias Fawer, vice president of sustainable investment at the bank said, "Now with the stimulus package and the slowdown in Europe, especially in the Spanish solar market, we are moving to U.S. stocks." Yet another investor, Mitsubishi Corp. said on March 5th, that it plans to invest more in renewable energy, particularly solar power projects. It will invest in solar panels, solar parks and stocks.

So could this represent a bottom for the sector? And if so how should one pick the right companies to invest in?

First, the company's liquidity position and balance sheet need to be strong enough to carry it through this downturn. Look at sales growth and cash less any short-term debt for a measure of how much a company has to operate for the coming year. Today any companies that show growth can be considered strong. Also look for market leaders and companies with unique value propositions to set them apart.

Some of the companies best positioned to ride out the challenges of this year are the big market leading companies with adequate cash in hand. US manufacturer First Solar (FSLR) is one of these companies. Notice how their stock price collapse is far less than any of the other solar companies. First Solar also benefits because its panels are made from cheaper cadmium telluride rather than silicon. Also look at the other second generation solar companies I mentioned in my article of Jan 6, 2009. But even First Solar said last week that it would begin reducing prices on some of its panels to keep its competitive edge when it enters new markets.

Other well positioned companies include SunPower Corp, (SPWRA) because its highly-efficient modules command a price premium. Now that SunPower also installs the systems they have the maneuverability to adjust their margins between the different parts of the business.

Also look at Energy Conversion Devices (ENER), makers of Uni-Solar amorphous silicone panels. They were the innovators of lightweight flexible roll out modules that can be directly adhered to roof tops, also known as building integrated PV.

Suntech (STP) too has bought into the installation and finance business since its acquisition last October of El Solutions, and its joint venture with MMA Renewable Ventures called Gemini Solar Development. Gemini plans to finance, develop and operate solar power plants of 10 megawatts or more.

XsunX (OTCBB:XSNX) is another thin film innovator using amorphous silicon who, while at an earlier stage, shows promise. The company’s dual layer amorphous thin film design is cheaper to make and out performs other technologies in most climates. In a recent comparative study the company’s module design was shown to deliver the lowest levelized cost of all solar photovoltaic cell technologies. They have so far gained sales contracts for 19 MW deliverable through 2010. And they recently announced a prudent decision to reduce the capacity of their planned manufacturing facility in Oregon to approximately 13 MW which closely matches their commitments and saves the company roughly 25 million.

Despite the general weakness of the solar power sector, many analysts are saying there is great growth potential - just not very soon given the overcapacity, weak economy and difficulty in gaining funding. However, I’m looking for the escalating grass roots demand to lower greenhouse gas emissions and shift away from foreign fossil fuels to drive solar stocks along with other clean tech stocks higher once more. And the bounce could be very strong when it comes.

Paulo J. Nery

Disclosure: Paulo Nery does not currently own shares of any of the companies named above.
Disclaimer: Nothing in the above article in no way constitutes a recommendation to buy or invest in these or any other stocks. You should always seek professional financial advice when planning your investments or trading in the stock markets.

Featured Showcase Solar Stock:

XsunX Inc. : (OTCBB: XSNX) in Aliso Viejo, Calif., XsunX is developing amorphous silicon thin film photovoltaic (TFPV) solar cell manufacturing processes to produce TFPV solar modules. To deliver its products the Company has begun to build a multi- megawatt TFPV solar module production facility in the United States to meet the growing demand for solar cell products used in large scale commercial projects, utility power fields, and other on-grid applications. Employing a phased roll out of production capacity, it plans to grow manufacturing capacities to over 100 megawatts by 2010. More info on XsunX, Inc. can be found on our media profile at: or

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