2013 Is the Year of Solar: SunPower Corporation (SPWR), First Solar, Inc. (FSLR)
By in News
Published: February 13, 2013 at 12:32 pm
We're
on the cusp of something huge, and Wall Street is just starting to
figure it out. The most abundant energy source in the history of man has
finally become economically viable and will soon become the most
installed new energy source on the planet. You don't have to dig it up
the ground, it doesn't give off harmful gases, and it can even generate
power from your roof.
What is this magical power source? The sun.
How far we've come
More than a decade ago, Germany decided it was time to make a big bet on
solar. The country heavily subsidized the industry in effort to make it
economically viable long-term. The bet paid off -- if not for Germany,
certainly for the rest of the world.
Today, highly subsidized markets are
giving way to unsubsidized (or less subsidized) markets where solar can
compete on its own with traditional energy sources. The cost to produce a
module has fallen 54% in the past three years, and the cost to produce
solar energy is now less than it cost to buy it from the grid in some
places. Going green isn't just a political game anymore -- it's economic
reality.
You don't believe me?
For solar electricity to be economically viable, it needs to be
less costly than existing power. We should compare it with new, peak
generation, since that is what it offsets, but the industry is held to a
higher standard that requires costs to be less than what you pay to
power a light bulb. Is solar cheaper than your existing power?
Today, in the U.S., the average
residential electricity bill is for $0.12 per kilowatt hour, and in
California the cost is more than $0.15 per kWhr. Based on those costs,
solar is very competitive.
SunPower Corporation (NASDAQ:SPWR) won a contract to build a 100-megwatt power plant at a $0.104-per-kWhr rate last year. This year, First Solar, Inc. (NASDAQ:FSLR)
signed on for a project in New Mexico that will pay a
5.79-cent-per-kWhr rate, or about 8.5 cents per kWhr after incentives.
That's still well below the cost of electricity in the United States.
Where we're going
Now that costs are competitive with the grid, the sky is the limit for
solar. Reduction in panel costs have driven the past decade of overall
cost cuts, but the next step is to reduce the balance of system costs,
including things such as wiring, inverters, permitting, and land. As
these costs come down, so will the cost to install solar from residence
to utility.
Just how big the market can become in
the next decade is anybody's guess, but it will be huge. China plans to
have 40 gigawatts installed by 2015, Saudi Arabia is eyeing 100%
renewable energy and is starting with a $109 billion investment aimed at
installing 40 GW of solar, and the U.S. is likely to be a 10
GW-per-year country by the end of the decade. That's just three
countries; imagine what the rest of the world will install.
The next step for panel manufacturers is
to return to profitability. We're starting to see steps in that
direction from SunPower, and First Solar is already there. When
companies return to profit and the industry sheds the dead weight
dragging down prices, we'll see an explosion in revenue and profits for
the winners, which means rising stock prices. I think there will be at
least three 10-baggers from the industry over the next decade. The hard
part is picking which companies these winners will be.
Page 1 of 2
Who wins?
Here's the hard part. A handful of companies will emerge from the
industry when it's all said and done, but investors can still feel the
scars from plunging stock prices in recent years.
My top pick for more than a year now
has been SunPower. The company makes the most efficient panels in the
industry, and as costs fall, efficiency becomes more important, because
it gives you more power in the same space. Second on my list is First
Solar, the low-efficiency and low-cost company. First Solar has remained
profitable through the hard times, but it is falling behind on
efficiency and may soon become a project company only.
Finally, SolarCity Corp (NASDAQ:SCTY)
is a dominant player in residential and commercial project building,
the major growth venue for the industry in the United States. This isn't
a cheap stock, but it should have a bright future.
I've laid out some key statistics for
solar companies, showing that despite the run solar stocks have been on
recently, there is a lot of room to move higher, because these multiples
are very low for high-tech companies, particularly in the case of
SunPower and First Solar.
| Company | Market Cap | Price/Sales | Price/Book | Forward P/E |
|---|---|---|---|---|
| SunPower | $1.18 billion | 0.47 | 1.13 | 19.8 |
| First Solar | $2.89 billion | 0.95 | 0.81 | 8.3 |
| SolarCity | $1.32 billion | 9.81 | 7.37 | n/a |
Source: Yahoo! Finance.
Who loses?
If there are going to be winners, there will also be losers. Solar
stocks all seem to jump and drop in unison, but some are in fact falling
behind. Three stocks I would stay away from right now are LDK Solar Co., Ltd (ADR) (NYSE:LDK), Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), and Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP).
These companies are nowhere near profitability, and they owe billions
of dollars to state-run Chinese banks. Equity holders will likely be
left in the dust by the time the Chinese solar market shakes out.
The year of solar
Solar stocks have been rising all year, but I think it's just the
beginning. Financial conditions are improving, more financing options
are opening up, and as costs fall, more markets open up to solar. This
is the recipe for the big returns investors are hoping for. I've made my
bet. Who do you think will win the year in solar?
The article 2013 Is the Year of Solar originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium
manages an account that owns shares of SunPower. He also owns shares of
SunPower and has the following options: Long Jan 2015 $7 Calls on
SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15
Calls on SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
No comments:
Post a Comment