Solar Energy Outlook For 2012

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Top Penny Stock Alert of 2011OCNF 4,035.42% – (May 27, 2010, $0.48 – July 26, 2011, $19.85)

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All through 2011, the power of the sun hasn’t exactly been distributing that power for investors in the solar energy sector. A horde of elements have driven the solar energy sector into a nosedive. Bankruptcies, sinking global demand and European somberness measures have had their way with share prices for the photovoltaic (PV) makers and suppliers. Now while the long term potential of the sector may still look appealing, many analysts believe investors are seeing a period of “Darwinism.”

As the solar energy sector continues to progress, comprehensive sector measures like the Market Vectors Solar Energy ETF (ARCA:KWT) have dropped over 60% in 2011.

Market Vectors Solar Energy ETF 12 Month Chart

Challenging Conditions:

The decelerating global economy is putting heavy negative pressures on the solar energy sector. With many global governments drowning in debt and cash-poor, funding has fallen by the wayside. Countless utilities have pushed alternative energy investments to the back burner in favor of plentiful natural gas.

Smaller solar energy project developers likewise have had a tough time finding credit in today’s unyielding market place. Many small scale and local PV projects now sit idle until the borrowing environment gets better. The combination of slack demand and massive oversupply has led to crashing prices and profits for solar panel manufacturers. In just over 12 months, prices for solar panels have dropped from nearly $2 a watt, down to about $1.

Survival of the Fittest:

Three major solar energy producers have already filed for bankruptcy in the U.S. including string ribbon pioneer Evergreen Solar (OTCBB: ESLRQ.PK) and government-backed Solyndra. Recently, MEMC Electronic Materials (NYSE: WFR) warned of restructuring due to challenges with its solar power unit.

With margins continuing to be tightened, Wall Street analysts estimate that the environment will sift out much of the competition and leave just a few strong solar energy producers.

China Still Strong:

Due to the poor operating environment in 2011, the solar energy industry has been split into to two:

  • China
  • Everyone else

Even though China solar energy producers Trina Solar (NYSE: TSL) and Yingli Green Energy (NYSE: YGE) have had a drop in stock price, solar equipment companies have not stopped competing mainly based on price. These companies have profited enormously from government support. That support includes massive low-interest loans and production subsidies within the nation.

The effect of China:

The U.S. Commerce Department has started investigations on whether China solar energy producers are “dumping” PV cells on the world’s market and pushing U.S. manufacturers out of the industry. For now, Chinese solar companies still offer some of the best operating margins in the sector. Wall Street analysts point out cheap automated manufacturers like Suntech (NYSE: STP) and JinkoSolar (NYSE: JKS) as being real future winners.

Warren Buffett’s Influence:

Producers in U.S. got a big break when Warren Buffett’s Berkshire Hathaway (NYSE: BRK-B) utility subsidiary, MidAmerican Energy, decided to purchase First Solar’s (NASDAQ: FSLR) Topaz Solar Farm project for $2 billion. The investment came on the heels of other FSLR PV projects with General Electric (NYSE: GE), NextEra Energy Resources (NYSE: NEE) and Exelon (NYSE: EXC). These deals aid to emphasize that solar energy in the U.S. isn’t dead yet.

Wall Street analysts predict that U.S. focus towards high technology solar offerings, like copper indium gallium selenide (CIGS) modules and high-conversion efficiency solar panels, will be what ultimately saves solar energy producers in the country.

The Bottom Line:

Shares of solar firms have certainly seen better days. (For more, read Top 25 Solar Energy Companies for 2011.)

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