Give Solar Time to Get Its Groove Back
Amanda is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Without a doubt, 2011 was a bittersweet year for the solar industry. Solar energy installations in the U.S. increased nearly 40% in the third quarter over Q2, adding more than 200 megawatts of solar power capacity--more than was added in all of 2009. Large-scale projects boomed and the residential market heated up, thanks to government tax incentives. Prices of panels began to fall, making solar even more attractive to homeowners.
But trouble was brewing beneath this sunny exterior, and it bubbled to the surface in late summer with the bankruptcies of Solyndra, Evergreen Solar, and Spectrawatt. Solar companies such as Energy Conversion Devices (NASDAQ: ENER) and SunPower (NASDAQ: SPWR) began laying off employees and cutting back--and, in the case of ECD, restructuring debt. Last week, one of the biggest movers and shakers in the industry, First Solar (NASDAQ: FSLR), released a second revised earnings projection that sent its stock price spiraling downward. Lastly, the Section 1603 Treasury Program, responsible for those attractive tax incentives for solar installations, creeps ever closer to its expiration date of December 31. To some, it may appear that solar's heyday is over.
What appears to be the demise of an entire industry, however, is more likely a necessary market correction. During the two years that 1603 funds were available, many smaller solar-related businesses sprang up to take advantage of the taxpayer-subsidized bounty. At the same time, older, more stable companies also fed at the trough, perhaps becoming a bit more bloated than they would have been without the federal subsidies. As they lobby for an extension, which seems a lost cause at this point, these entities are also realizing that it is time to tighten their belts for the lean times ahead. Not all will make it, but the ones that survive the shakeout will become the powerhouses that move the industry forward.
Solar power isn't going away, and the subsidies here and abroad helped make that happen. New, more efficient systems replaced older, inefficient ones, solar farms began creating electricity on top of brownfields and residential installations are now commonplace. Research and development is ongoing, with experimental solar applications that promise to cut the cost of solar power while doubling its efficiency. Alternate funding sources are already beginning to fill the void being left by the federal program and a recent study shows that grid parity, necessary for solar to become competitive with fossil-based fuels, has already arrived in many parts of the U.S.
How long will the correction take? That's hard to say, but I wouldn't expect a lot of stability to return to the industry until the end of 2012. After all, big players like Trina Solar (NYSE: TSL), JA Solar (NASDAQ: JASO) and Canadian Solar (NASDAQ: CSIQ) have seen their share prices sink over the past year, and it will take some time to reverse that trend. Meantime, watchful waiting is the order of the day. Don't lurk in the shadows too long, though, or you may miss out on adding some strong players to your green energy portfolio at rock-bottom prices.
Fool blogger Amanda Alix does not own shares in any of the companies mentioned in this article.