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Solar Industry has been caught in a vicious downturn since the first quarter of 2011 as subsidies have been slashed, oversupply has exacerbated, price have crashed and major economic powers have initiated solar trade wars with each other.
There is not a single company that has seen its stock price increase during this downturn, with the overall industry churning out billions of dollars in losses almost every quarter. Thousands of solar companies have gone bankrupt during this period as the capital has dried up. Despite this, the global solar demand has kept increasing and has reached 100 GW in 2012, with 30 GW being installed in 2012 itself. The growth is set to continue at a rapid pace as panel prices have crashed to just 60c/watt in the current quarter, compared to $4/watt in 2008. Solar energy projects are being sold for prices as low as 12-14c/KwH and lower in places like India and US. Note retail electricity prices are as high as 20c per unit in NY and more than 30c per unit in Italy. Solar panel systems can now be installed without subsidies and this trend is being seen in sunny countries like Spain and Brazil. The potential of solar energy is yet to be fully realized and the prospects of the industry remain quite exciting. The industry has taken a dramatic turn with the bankruptcy of Suntech (STP) which was the world’s biggest solar module supplier in 2011. This comes after the bankruptcy of Q-Cells which was the biggest solar product manufacturer in 2008. The solar industry still offers great investing opportunities and bargains for the discerning investor. I am listing out some of my top rated solar picks. However this list is not comprehensive. Also investors should remember that the solar industry is a high beta industry with higher risks than the rest of the market.
1) Sunpower (SPWR)
SunPower (SPWR) had reached the brink of bankruptcy during 2011, when the CEO of Total announced that the company would not have survived without Total’s backing. Sunpower has been lucky that it sold out to the French oil and gas giant during the start of the industry downturn. Sunpower makes the highest efficiency commercial solar panels however its cost structure is higher compared to the other Chinese crystalline solar panels producer. Total backing has allowed the company to sharply lower its cost structure and now the company is looking to increase market share. Sunpower has a strong presence in the downstream part of the supply chain having acquired one of the biggest solar system installers Powerlight. Sunpower remains one of the biggest residential and utility solar installers in the world with a dominant presence in North America. The company’s stock price has increased in recent days as it managed to win substantial utility orders in USA. Sunpower has been constantly been improving its technology and cost proposition through the use of new techniques and products. The company is potentially a big beneficiary if Europe imposes anti-dumping duties on imports of Chinese solar panels.
One of the biggest advantages that Sunpower possess over other companies is that it has a strong parent in the form of Total. This removes the bankruptcy risk which is a strong selling point these days. Solar panels come with a warranty of 25 years which means that if the supplier goes bankrupt, your warranty is null and void. Solar customers will be now extra careful with their choice of customers. Sunpower has a reputation of high quality and long experience in the solar industry. Sunpower’s valuation is not expensive with a P/S of 0.5x and P/B of 1x. If you are looking into investing in a U.S. solar company for the long term, then SunPower is probably your best bet. I remain much more positive about Sunpower than other solar companies such as Solarcity (SCTY) and First Solar (FSLR).
2) Yingli Green Energy (YGE)
Yingli Green Energy (YGE) has improved its market share in 2012 quite dramatically as it has leveraged its strength in the domestic market to become the world’s largest solar panel shipper overtaking First Solar (FSLR) and Suntech (STP). While Yingli Energy faces some issues due to its high debt load and legacy investments, the company is set to increase its lead over solar panel manufacturers in 2013. Yingli Energy plans to increase shipments by more than 40% in 2013, to reach shipment volumes of 3.2-3.3 GW. This means that Yingli panel shipments in 2013 alone will be large enough to produce enough power as a medium sized nuclear power plant. The company has signed a strategic agreement with the world’s lowest cost polysilicon and solar wafer producer GCL Poly. This will allow Yingli to further lower its already low cost structure as well as give it a big customer for its solar modules.
Yingli Energy has a strong brand which manages to get a premium price compared to the normal Chinese silicon solar panels. The company was one of the first ones to invest in marketing its brand by sponsoring football in Europe. The company’s Panda line of high efficiency monocrystalline panels gets a higher price than multicrystalline solar panels. While Trina Solar (TSL) was my favorite pick earlier, Yingli has taken its place because of its strong performance in 2012. While TSL has lagged in execution, Yingli Energy has made substantial market share gains. The company trades at a very low multiple; and remains amongst my top picks in the Chinese solar space.
3) Renesola (SOL)
Renesola is my highest rated solar picks and the stock has shown strong outperformance compared to the rest of the industry both in 2012 and 2013. The company is less followed than other solar names like Suntech and Trina Solar. However, the company has shown impressive performance in the last few years which has been overshadowed by the industry downturn. While the company continues to show large losses due to irrationally low industry pricing, it has continued to dramatically lower costs and increase market share. Very few people know that Renesola is set to become one of the top solar panel sellers in 2013. This is an impressive feat to say the least given that Renesola had almost no presence in selling solar panels just 3 years ago. The company has become the 2nd largest manufacturer of solar wafers after GCL Poly having displaced LDK Solar (LDK). The company will sell 2.8 GW of solar panels and wafers in 2013, giving it almost ~8% share of the global market. Renesola management has performed admirably compared to other companies. It has a presence through the crystalline solar supply chain from polysilicon, to panels to installation. The company is also one of the lowest cost producers of polysilicon, wafers and panels. I remain highly positive about the Renesola story. The company has seen its stock price crater in the last month due to Suntech bankruptcy as investors grew wary about the company’s ability to service its debt. However a recent ~$51 million from the Chinese Development Bank (CDB) has underscored its ability to survive the downturn.
