Solar Energy Investments

Solar energy investments had a very rough year in 2011.

Two solar ETFs fell by more than 50% as the industry went into massive oversupply... leading to crashing solar panel prices, revenue, profits, margins, and anything else you can think of.

Many of the industry stalwarts that had been around since the inception of the solar industry – like Solon and Evergreen Solar – bit the dust.

Even the much-hyped solar startup Solyndra is bankrupt, while others could soon share the same fate.

And now we've seen First Solar take an epic nosedive:

 

Ouch. 

Also take into account that the big guns like LDK and Sunpower are only operational thanks to government or parent company largess. The recent solar carnage would have been much greater if a free market operated in the global solar industry, while the fossil fuel industries maintained their generous subsidies.

Instead the solar industry is a mishmash of free markets, government subsidies, feed-in-tariffs, and irrational support.

So why even bother investing in solar?

Because while many solar energy investments are dead in the water, not all is lost.

While investing in the industry may come with challenges, overall it has grown an astounding 200% in the last two years in terms of volume – and prices have come down by around 70%!

What are the criteria for staying alive in 2012?

How can you avoid the pitfalls and cash in on winning solar energy investments?

Here are five things to watch when investing in solar stocks.

1) Government Support – Most of the Tier 1 Chinese Solar Companies will fall into this bracket. However, given that there are so many, you would have to look at the biggest – Suntech, LDK, and Yingli – for survival in any case. LDK, in my opinion, is a bankrupt company. The only reason it continues to produce solar panels is because of Chinese government support. 

2) Low Cost – Though it seems like an obvious point, there are still existing companies with high costs like Q-Cells and REC. You just can’t invest in them, given that low cost is a necessary – and not solely a sufficient – condition to survive

3) Branding – Essential in getting financing for solar projects. Without a brand, you are not bankable... and will have to sell at a 10% discount in a market that's already selling at below cost.

4) Efficiency and R&D Dollars – If you sell a low-efficiency multicrystalline solar panel, then you are toast. The market is now only looking at higher efficiency stuff, given the choice buyers now have. You also need to spend sufficient R&D dollars to get ahead of the competition in reducing costs and increasing efficiency. Smaller solar companies are at a disadvantage here.

5) Low Debt – Not necessary if you are LDK and have a sugar daddy like the Chinese Development Bank, but very important for every other solar company. Trina Solar shines in this respect... Suntech does not.

The sun has not set on solar energy – but this time in the shade could really separate the dead weight from the winning solar energy investments.

For those doubters who think the industry is not a good investment, think again...

We've only just begun to outline the solar stocks to buy in 2012.

Keep following Energy and Capital as we weed out the losers and bring you the winners in the solar industry.

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