If you bought First Solar (NASDAQ:FSLR) stock as a way to play the future of solar energy, you’re probably frustrated. Over the last five years First Solar stock is down almost 8%. Sales have been declining and losses are piling up. Operating cash flow has usually been negative. Cash on hand is declining.
Reading First Solar’s numbers, you might think solar energy is a myth. It’s not.
The amount of solar energy in America’s energy grid rose 30% in 2018. It’s on pace for another gain this year, despite the rolling back of financial incentives.
There are now over 2 million solar installations in the U.S., and that’s expected to double over the next five years.
First Solar’s Problem is Deflation
The problem is deflation. The problem is China. First Solar’s share of the global market is down to 3%. The big players are all Chinese companies, like JinkoSolar (NYSE:JKS), privately held JA Solar and Trina Solar, along with Canadian Solar (NASDAQ:CSIQ).
Solar is like open-source software because the biggest benefits go to the users, not the developers.
Solar panel prices keep declining, and solar panels keep getting more efficient. Canadian Solar now has a panel that claims conversion efficiency of nearly 23%. A startup, Solaria, is at 20%. First Solar is also at 22%. Solar efficiency could increase even faster, but the poor financial results for existing players mean research funding is drying up.
Solar must also compete with wind in the renewable energy market, even though they’re complementary, since wind supplies peak at night and solar during the day. Still, wind has been taking the prizes. Wind now represents 6.5% of the U.S. electrical grid. It is below the levelized cost of energy from natural gas.
Then there’s efficiency, which only shows up in consumption statistics. Electricity demand remains stubbornly stable, even with electric cars appearing on many roads, and even with increased demand for air conditioning.
There’s a Growing Thumb on Costs
While renewables still represent less than 10% of the U.S. energy grid, their economic models aren’t based on burning anything. Once a solar panel or wind turbine is in production, it keeps producing. Besides its initial costs, a solar panel or wind turbine just implies maintenance costs. By contrast, oil and natural gas aren’t really energy. They’re commodities that we burn to create energy.
Recent attacks on Saudi oil installations made little difference to the market. The U.S. has 700 million barrels of oil, a nearly two-year supply, in storage. Saudi Arabia has another 190 million barrels. It’s mostly there for oil-storage trade — the practice of purchasing oil at a lower price and holding it in storage until prices increase.
The world, in short, is awash in energy, from all sources. All players are struggling to stay afloat against the continuing threat of deflation.
The Bottom Line on First Solar Stock
President Donald Trump’s administration has done all it can to boost the oil patch and discourage renewables.
Yet every time a solar panel goes on a roof, demand is taken out of the market, permanently. This doesn’t mean solar panel makers are a good investment, as First Solar proves. The market is going to government-supported panel makers in China.
First Solar manufactures its panels in Malaysia, Vietnam and even Ohio. The company is wisely focused on the utility business. Here, big facilities keep costs low. Low costs from scaling mean there’s more business than in the residential market, where each installation requires its own permits.
That doesn’t mean I’m buying First Solar stock. I’m just glad someone is.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.