News from the alternative energy sector has caused a partial stampede by investors back into solar stocks. But one question remains: Has the industry turned a corner?
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The Chinese government recently announced that it would provide a subsidy of 20 yuan ($2.92) per watt to companies that integrate photovoltaic (PV) applications into building projects, with a minimum of 50KWp (kilowatts-peak) per project.
Demand for solar power has been slammed by the recession, the drop in oil prices and restricted credit. According to Gartner, which compiles an annual outlook on the industry, the long-term prospects for demand remain solid. Gartner predicts that
revenue will reach $34 billion by 2013, which is an annual growth rate of 17%. Revenue in 2008 totaled $16 billion.
The solar energy sector also stands to benefit from loan subsidies distributed by the Recovery and Reinvestment Act of 2009, which became law in February 2009. The bill provides $6 billion in loan guarantees for renewable energy power generation and transmission projects. The Obama Administration provided a loan guarantee of $535 million for Solyndra, a private company located in California, to construct a solar panel fabrication facility. While these funds certainly will help the growth of the solar industry, it appears that this loan guarantee was devised under a law passed in 2005 - and not from the stimulus program. (Read Top 10 Green Industries to learn more about investment in renewable energy.)
Publicly traded companies have experienced the deleterious effects of the decline in demand and the drop in product prices. In its recent quarter, LDK Solar (NYSE:LDK) reported a write-off of $216.7 million against the cost of inventories due to the rapid fall in the price of solar wafers. The write-off led to negative gross margins for the quarter.
First Solar (Nasdaq:FSLR), down only 52% from its 52-week high, arguably has fared the best during the recession. Most investors ascribe this bear market performance to First Solar's balance sheet. At the end of 2008, the company had $716 million in cash, compared to debt of only $198 million.
Other early signs of a resumption in business involve Suntech Power (NYSE:STP), which stated during its conference call, that "the order flow is beginning to pick up... [and the company] has around 700-megawatts of orders for 2009."
SunPower (Nasdaq:SPWRA) reported revenue of $401 million for the quarter and GAAP earnings of 35 cents per share. The company provided wide-range revenue guidance of $1.6 billion to $2 billion in for 2009, which reflects the uncertain environment in the industry. However, if the company generates revenue at the low end of the projection, its growth would surpass 2008 revenue numbers by $1.43 billion.
Solar stocks, the former "momentum stars" of early 2008, have seen fortunes hit rock bottom as the recession hit, which caused momentum investors to desert in droves. Investors who are bullish for solar power over the long-term may want to use this selloff to stake a position in the group. (To learn more about solar stocks, read our related article Spotlight On The Solar Industry.)