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Go Short Amid the Latest Solar Default

STP's $541 million bond default just more of the norm

   

How many times must I say it? Even Kevin O’Leary on ABC’s Shark Tank has said it. Civil engineers have said it. A friend of mine who was an engineer on a nuclear sub, and knows all about energy, has said it.

Solar is a farce.

More evidence of this was revealed this week when Suntech Power Holdings (NYSE:STP) defaulted on $541 million in bonds. That’s because solar, among other things, has become commoditized; there is nothing special about solar that any number of companies can’t do. The result is that prices must come down in any commoditized business, margins shrink, cash flow vanishes and bonds default. So while CEO David King is blathering about restructuring the debt payments, and looking at “strategic alternatives,” the company is dead. Anyone could’ve seen this coming, when the company was burning $300 million a year in 2010 and 2011, and lost a billion dollars in 2011.

Losses are the norm at this point for solar. Just look at the stocks. MEMC Electronic Materials (NYSE:WFR)? Huge losses? Power-One Inc. (NASDAQ:PWER) breaking even following modest profits. Trina Solar Limited (NYSE:TSL)? Huge losses. The list goes on and on.

I keep seeing all these Facebook posts with massive arrays of solar panels in Germany or Finland or wherever. “Germany does it! Why can’t we?” is the general thrust of these posts. I always reply the same way: “At. What. Cost.” What follows is the usual bullish nonsense that solar pays for itself and it isn’t bad for the environment, but nobody ever addresses the cost.

The reason solar doesn’t work, and can never work, is because the physics don’t work. Only the tiniest of spectrum frequencies of sunlight are actually convertible to energy by a solar cell. That’s why, even if you have photovoltaic cells sitting in direct sunlight for decades, they might not end up generating enough energy to have recouped your cost. The cells also degrade under UV rays, which are always being received by the cells (courtesy of the sun). So the cells degrade from the first second they are hit by the sun and decline in efficiency until they die.

And if you think you’re saving the environment, you aren’t, because diesel-fueled mining equipment has to mine for silicon. Then that silicon has to be melted — you have to melt rock — to create the cells.

I’m going to short the Market Vectors Solar Energy ETF (NYSE:KWT) in the next few days, because the verdict is now clear.

  • You cannot make money in an industry that is dominated by the Chinese, who as Suntech now illustrates, cannot even make money on solar considering how cheaply they operate. So why would any other company be able to?
  • In 2016, U.S. subsidies are scheduled to end.
  • It’s a commoditized business.
  • It takes 20 years for it to pay for itself.
  • Demand is weakening not only because of the global economy, but because people are starting to realize it doesn’t work.

Don’t get involved, except on the short side.

Lawrence Meyers does not hold a position in any stock mentioned, but intends to short KWT in the next few days. He is president of PDL Capital, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets @ichabodscranium.


Article printed from InvestorPlace Media, http://investorplace.com/2013/03/go-short-amid-the-latest-solar-default/.

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