Astronomers speculate that the Sun will burn out in about 5 billion years, but for stocks in the solar sector such as Energy Conversion Devices (NASDAQ: ENER), SunPower Corp. (NASDAQ: SPWRA), Suntech Power Holdings (NYSE: STP) and Yingli Green Energy (NYSE: YGE), that burn-out may have already have occurred.
So far in 2010 the performance of stocks in the solar space has been dismal, and with the exception of a few rays of light, it’s been mostly a calamitous year. Just look at the following list of the top solar stocks along with their respective year-to-date performance (as of 8/25/10).
- Energy Conversion Devices (NASDAQ: ENER): -62%
- First Solar (NASDAQ: FSLR): -6%
- MEMC Electronic Materials (NYSE: WFR): -24%
- Real Goods Solar (NASDAQ: RSOL): -30%
- SunPower Corp. (NASDAQ: SPWRA): -58%
- Suntech Power Holdings (NYSE: STP): -54%
- Trina Solar Ltd. (NYSE: TSL): -11%
- Yingli Green Energy (NYSE: YGE): -34%
Now, there are many reasons why solar stocks have failed to shine this year. First off, alternative energy in general is much more of a luxury than a necessity. No country or major utility is going to opt to spend precious capital on costly solar build outs when the cost of proven technologies such as coal, natural gas and oil are so attractive. The slowdown in the global economy, particularly over the past several months, has kept oil and other energy commodities low and that means there is no real price incentive enticing customers toward the sun.
Another factor thwarting solar stocks is the lack of support for so-called feed-in-tariffs from governments around the globe. This week France announced that it would cut its feed-in-tariff subsidies for solar by -12%. Earlier this year, Germany announced cuts to its feed-in-tariff subsidy program. Italy also plans to cut solar subsidies, and last year Spain announced drastic cuts to its solar feed-in-program.
New data from the ChangeWave Alliance Research Network suggests that in the United States, government subsidies will continue accelerating demand for solar products. However, the recent survey of alternative energy industry trends also suggests that by nearly a two-to-one margin, solar industry respondents believe solar prices will continue to decline over the next 12 months. Respondents ranked the “cost of capital and return on investment” as the biggest barriers to rapid adoption of solar power.
The survey did identify First Solar, Suntech Power Holdings and SunPower Corp. as the top three companies expected to enjoy the highest rate of sales growth over the next 12 months. That, however, is likely little consolation to shareholders of these respective companies—especially those who’ve held Suntech Power and SunPower in 2010.
The next big test for solar stocks will be how their respective third-quarter earnings come in. Unless those numbers really start to shine, we could be looking at more gloomy skies ahead for the sector.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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