I want to begin by saying that my background is not in stocks or finance; it is in engineering and renewable energy. Therefore, I do not use models or intuition or luck to make recommendations for stocks. This is in no means a professional trying to tell you what to buy or not buy, and I am not liable for any profits or losses that occur as a result of this article. Or maybe just the profits
That being said, I have an extensive background in solar energy and I possess a grasp of what factors into the success or failure of a solar business. Therefore, this article will focus on the factors that are making a number of solar companies seem like good investment options.
First, the biggest news in the solar industry: MidAmerican Energy Holdings Co., is purchasing two solar farm projects from SunPower [NASDAQ:SPWR] for a whopping $2.5 billion. These projects are projected to have a capacity of 579 megawatts, which is more than half of SunPower's entire installation total for 2012 of 936 MW. And if you have never heard of MidAmerican Energy Holdings, you have probably heard of its parent company, Berkshire Hathaway, which is run by arguably the smartest investor of our time, Warren Buffett. Of course no single event can define an entire market, but Buffett's enormous purchase puts some faith back into a recently poor-performing industry. Nevertheless, this does not change the fact that solar power is a very high initial cost business with "razor-thin margins in the context of a massively oversupplied market," according to the Huffington Post. The company's stock prices showed a jump from $5.49 at the end of 2012 to a peak of $13.39 in mid-February; they are now leveling at just under $12. Over the next few years, as the solar farm projects near completion and SunPower begins to provide hundreds of megawatts of clean power to California, it's stock profile should begin to reflect that output.
This has not been the only investment in solar by the Oracle of Omaha; MidAmerican bought a 49% stake in a 290 MW Arizona solar plant from NRG Energy and also purchased First Solar's 550 MW Topaz Solar Farm in California in 2011. These are huge purchases from a man who takes investing seriously and will not make a purchase just for the sake of appearing environmentally friendly. The investments are likely due to high solar availability and the size of the renewable market on the West Coast, in addition to California's aggressive plans to reduce its greenhouse gas emissions to 1990 levels by 2020 and cut them by 80% by 2050. If the state is to achieve these goals, solar is a great place to start.
One of billionaire genius Elon Musk's projects, SolarCity, is another solar company showing strength. It's initial public offering price of $11.79 back in December 2012 has crept up to a solid $18.13. The company installed 156 MW in 2012, which was above expectations and more than double of its 2011 installations of 72 MW. SolarCity also won a bid to provide solar power for as many as 120,000 military housing units over the next 5 years. This is huge news because it will essentially double the total amount of homes with solar power, and the entire project is privately financed by BOA-Merrill Lynch since the government backed out of a federal loan due to the Solyndra scandal.
SolarCity also announced a $65 million dollar deal with Honda that will reduce the price of solar arrays for anyone who owns a car by the Japanese auto giant. This arrangement makes solar panels more affordable to those who want them on their homes, especially since they are usually associated with very high up-front costs. Through a unique pricing scheme, SolarCity is able to install panels on homes with little initial cost to the homeowners by allowing them to pay a monthly fee — which is usually lower than grid prices — over a long-term contract. Also, in the states where it is allowed, the homeowners can sell any extra electricity generated back to the grid at a fixed price.
These are just a few examples of the expected growth of the solar industry in the short term. I did not even mention China's huge investment into the solar industry and its goal of 35 GW total generation by 2015. There are also a number of cases showing that the opposite is true, such as First Solar's stock drop after an announcement that its "expected revenue fell 15%" in 2012. However, I still see the overall picture as a bright future for solar power.
On a more long-term idealistic scale, humanity will need to transition from fossil power to renewable and alternative sources of energy if it stands a chance to reduce greenhouse gas emissions and keep global temperatures from rising to catastrophic levels. This is why I think that solar and other green sources of energy are not fads, but the beginnings of the future of power generation in the world. As someone with more background in engineering than finance, you have no obligation to take my word with regards to stock prices, but with regards to our fate as a species, I sure hope I am right.