Solar stocks: a bubble ready to burst?
Another by moi that’s also currently on Triple Pundit. This one is rewritten a little and shorter.
Looking at the recent performance of solar stocks, which have been very hot, could lead to the conclusion that this bubble is ready to burst.
At the very least, J. Peter Lynch, a financial analyst and contributor to RenewableEnergyWorld.com, advises extreme caution. It’s not a market for the faint of heart.
Solar stocks have gone through a couple of surges since the late 1980s, “but we’re probably only in the second inning of a baseball game with solar stocks,” Lynch says. “At the beginning of a new market there’s more volatility, with very big moves up and down as Wall Street tries to figure out this new market. Eventually there will be a lot more companies and a lot more opportunities.”
He notes that over a span of eight weeks earlier this year solar stocks grew 72 percent or essentially two years of growth in two months. “That’s unsustainable so I’d expect a correction any time now.”
That sounds very much like a solar bubble, or maybe a sunspot.
Largely because of general economic conditions and the tight financing market, Lynch expects “a lot of compression” in the solar industry for the rest of this year and 2010 along with lower pricing, consolidation and even bankruptcies.
“There will be winners and losers and the winners that emerge will take off. There’s a huge opportunity for innovation now, especially in the realm of storage. Whoever figures solar storage out, well, that’s the Holy Grail.”
“The solar industry is quickly amassing nearly as many predictions of gloom and doom as it attracted wildly optimistic forecasts a year ago,” says Daniel D. Martin, executive vice president for global expositions and standards with the SEMI PV Group.
Writing in Renewable Energy World Magazine, he says, “Some analysts claim the worst is not yet over and that the shakeout will be brutal. They predict the higher cost of finance will continue to choke-off growth, sinking average selling prices, engendering demand destruction, and even leading to the loss of subsidies due to falling government tax receipts.”
Given that, “there’s no doubt the global recession will impact the photovoltaic industry,” Martin says. “The recent solar bubble was driven by investor expectations – and government incentives that anticipated reaching grid parity in the next three to 10 years.
Though the bubble burst the industry won’t go away. “Even without speculators and government incentives, solar power generation is in the early stage of a 30–50 year run, serving an unquenchable demand for clean, renewable energy,” he says.
In addition the industry is in the early stages of the cost learning curve. “Few cell and module plants are fully automated and the supply chain is only beginning to develop optimal solutions for key production steps,” Martin says. “No one can predict who will ride this curve the fastest, but we can be confident the industry will cut costs and improve productivity every year for the foreseeable future.”
The industry’s long-term fundamentals “will make the PV market attractive to a wide variety of players for the next few years and a growing list of well-financed, global players will not retreat from a segment that may offer 30–50 years of growth,” Martin says.
Check out solar stocks on SutainableBusiness.com’s Green Stock Watch.