Chile Will Provide Growth for the Solar Industry
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Changes in China and the removal of some German subsides has created major challenges for the solar industry. Yet, solar power's coming of age points to sustained growth in Chile, which will enable greater energy security and growth. The Chilean government is not bullish on solar energy to the same degree that the Chinese government was in the 2000s. Nevertheless, the government-owned Fundacion Chile is already involved in the Chilean solar industry and ready to help increase growth.
The Chilean Situation
Chile has huge energy needs, a growing economy, and a small domestic supply of power. The lack of domestic supply creates instabilities for the nation, as recent difficulties in Argentina have forced Chile to develop expensive LNG facilities to compensate for the lack of Argentinian natural gas. Nuclear energy is not a practical option; Chile is very seismically active, and as the recent Japanese experience shows earthquakes and nuclear energy do not mix well. Hydro electricity plays a major role for the nation, but these supplies are far away from the northern mining sector.
Chile has a fragmented electricity grid, which makes it even more difficult for supplies in the southern part of the nation to reach the miners in the north. The development of sustainable electricity generation close to mining interests is critical for the development of the nation.
The development of large solar energy facilities in the Atacama Desert will give mining interests the energy they need without expensive LNG import facilities. As this article shows Chile's Atacama Desert can provide a substantial amount of electricity, given the efficiency rates of today's commercialized panels. The desert experiences very little cloud cover and a large amount of sunlight. Even without feed-in tariffs, solar energy projects are already developing. The political and economic situation is ripe for the development of Chilean solar energy.
Where to Invest
In order to take advantage of growth in Chile, one of the best things to do is look at solar manufactures with staying power. Betting on long term growth in the solar industry requires companies with sales and little debt. Given the sharp fluctuations in the solar industry a high debt load is crippling, as it can easily force a company to go into bankruptcy.
First Solar (NASDAQ: FSLR) is one of the best options. It has a total debt to equity ratio of .15. Although it has had some difficulties lately, the most recent quarter shows that it has regained its positive EBIT. With an operating income of $110.98 million in the latest quarter it is definitely one of the strongest solar manufacturers.
SUNPOWER CORP COM USD0.001 CLASS'B' (NASDAQ: SPWR) is a second-class option. Its total debt to equity ratio is higher, at .72, and its income statement does not appear to be as positive as First Solar’s. It has lost money during all 4 previous quarters, and income from continued operations is negative $84 million during the last quarter. The lack of improvement in operating income gives reason for concern.
Companies with a higher debt loads like Canadian Solar (NASDAQ: CSIQ) and Yingli Green Energy (NYSE: YGE) present more risk. Yingli has a very high total debt to equity ratio of 3.79 and it has posted an EBIT loss for the past four quarters. Canadian Solar has faced a similar fate, as its total debt to equity ratio of 2.47 is also very high. It also posted EBIT losses over the past 4 quarters, though the losses have started to decline.
Given the large amount of debt held by these companies I cannot recommend them as the safest options. Out of all of the companies I’ve mentioned, Yingli has faced the greatest loss from continued operations ($90.19 million). This company fails to inspire confidence its future.
In order take advantage of the long term growth in solar it is best to shy away from those companies with high debt loads. First Solar has a very low debt load and is already active in Chile's Atacama desert. This company is one of the best ways to invest in the solar industry. As Chile continues to grow, its energy needs will only increase. The fragmented nature of the electricity grid and the high expense of LNG facilities gives solar energy a natural advantage in this growing emerging market.
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