It was very convenient of Solar Trust of America to file for bankruptcy Tuesday morning. It gives even more credibility to this article, which I had already planned, on why solar stocks will all fail one day. It’s especially noteworthy because Solar Trust is … er … was building the largest solar plant in the world. And for those who are curious, it could indeed cost us taxpayers $2.1 billion — the amount of loan guarantees handed out under the Obama “Stimulus” package. Will they never learn?
I’m sure solar advocates and other green energy proponents believe solar would have a chance if only enough money were thrown at it. Folks, I hate to break the news, but solar has had money thrown at it for a very long time. There’s a reason the technology has been around for decades, yet it produces only a tiny percentage of U.S. energy.
It’s simply too expensive. It requires government subsidies just to get individuals and businesses to even consider installing it. A friend of mine is the CEO of a large company, and he did his due diligence. He reported back that even with the subsidies, it would take years for the investment to even pay for itself. It’s the same conclusion I reach every time I look at the inflated prices of hybrid vehicles.
Even Energy Secretary Stephen Chu has said the technology would have to improve five-fold for solar to be competitive.
Europe has already figured this out. Italy and Spain have cut back government subsidies. Germany looks ready to follow suit. The Czech Republic actually canceled loan guarantees and even slapped retroactive taxes on existing solar plants.
European financial stability is in question, so these austerity measures are attacking programs that have obviously yielded little. Then we can add in the fact that the global economic recovery is anemic at best, so lenders are going to continue to be restrictive with capital, which could put the squeeze on solar companies.
Solar is going to come crashing down all around us. If you own solar stocks, you should get out now. You may even want to consider shorting some of these stocks.
First Solar (NASDAQ:FSLR) had a couple of very good years, but 2011 was a disaster. It went from a $600 million profit to a loss of $40 million, with negative free cash flow of an eye-popping $766 million. Expenses went through the roof. It took on enormous amounts of new debt. It’s down 33% year-to-date, and closed 7.8% lower on Tuesday. Short FSLR.
Advanced Energy Industries (NASDAQ:AEIS) saw net income fall in 2011 over 2010, just after reporting a loss in 2009. Barely positive free cash flow. No debt, and $117 million in cash means Advanced Energy may just eek out for a few years. It’s up so far in 2012 by 18%, but closed 2.6% lower on Tuesday.
LDK Solar (NYE:LDK) might have a shot, but it’s been burning through cash and hasn’t been free-cash-flow positive in years. Sunpower (NASDAQ:SPWR) had a $600 million loss in 2011, with negative free cash flow of $250 million.
You’ve probably noted that almost all of these stocks now trade in the single digits. You can guess why. If I were you, I’d bank on oil. Those stocks actually go up, and stay up, over the long haul.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.