It’s no mystery by now that the credit crisis has been nothing short of a
disaster for solar PV stocks. For one thing, risk has been re-priced on an
unprecedented scale, and the solar PV sector is, by most measures, a very risk
sector. Rising debt costs in an industry where projects typically use between 50
and 70% leverage were bound to take their toll. It also hasn’t helped that most
people pre-crisis predicted a significant glut of solar PV supply in 2009 on the back of

markedly lower silicon prices. Lastly, concerns over the sustainability of
generous subsidy regimes in places like Germany and Spain have been looming over
the industry for a few months.  

The net result of all this has been that, over the past three months, solar
stocks (represented on this chart by the
TAN ETF) have significantly
underperformed wind stocks (PWND
ETF) and the clean energy space as a whole (GEX
ETF). 

At this stage, with all the talk of the a

"green" stimulus package from the Obama administration, are there reasons to
be cautiously optimistic?

With utilities now eligible for the ITC, will utility investors seize the
opportunity low module costs will bring in 2009 to get heavy into solar PV?

I believe there are reasons to continue to be more bearish on solar than on
the rest of the clean energy space, including wind. Solar PV, unlike other forms
of alternative energy, has primarily been a residential story. A 2007

report by RBC Capital Markets estimated that the residential sector would
account for 72% of solar PV end demand in 2008, with the balance split between
the commercial and industrial sectors. By 2011, although the
commercial/industrial sector would make up some ground, residential would still
account for 68% of demand.

According to the same report, Germany should make up about 36% of global
demand in 2008, California 10% and Japan 18%. For 2009, Germany should account
for 26% of global demand, California 12% and Japan 18%. That makes them the
three largest markets for both years.

As the financial crisis rapidly morphed into an economic crisis, households
have been coming under increasing pressure: in

Germany,

Japan and California.
Moreover, as discussed initially, credit continues to be tight, making it
difficult for households to borrow for extravagant initiatives like installing
solar panels on rooftops. 

Unlike wind or solar thermal, which are primarily utility plays, solar PV is
very much leveraged to the economic health of consumers and households, and it
just so happens that those are the segments of the economy that are coming under
the greatest pressure right now. I therefore think that solar PV stocks will
continue to underperform wind and the clean energy space a a whole for at least
the next 12 months.

This entry was posted on Thursday, December 4th, 2008 at 12:42 pm and is filed under Business, Carbon Emission, Energy Stocks, World News. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.