Solar stocks are completely undervalued. And big money stands to be made. The following is a current profile of the industry, along with what to expect going forward.
The Solar Industry
Let’s start with the basics.
The global solar industry has grown 849% over the past eight years, from an installed capacity of 877 MW in 2000 to 8,325 MW at the end of 2007.
That breaks down to a compounded annual growth rate (CAGR) of 37.9% for the same period.
Folks, not many things grow 849% in eight years. For perspective, the Dow Jones Industrial Average gained only 12% during the same time.
Broken down by country, or by region, some interesting trends also emerge, especially when it comes to the countries with the highest growth rates for solar installations.
For example, I bet you’d never guess that the United Kingdom ranked among the top five countries for solar installation growth over the past eight years.
Here’s the full list of those countries, along with their respective solar installation annual growth rates:
Spain, 73.3% CAGR
Germany, 65.3% CAGR
United Kingdom, 36.9% CAGR
Indonesia, 35.4% CAGR
Japan, 31.5% CAGR
That’s the story for the past eight years. Some savvy investors made a lot of money, but it’s nothing compared to what’ll happen the next eight years.
Solar Stocks Outlook & Industry Forecast
Under a conservative growth scenario, the solar energy industry will grow another 39% by the end of 2009. By 2012, it will have grown over 135% from 2007 levels.
Worth noting is that the compounded annual growth slows during the period from 2007-2012, to 18.7%—down from 37.9% for the period from 2000-2007.
This is more an indication that the industry is maturing than it is an indication of slower growth. This is due to the volume of solar module being installed.
For example, 19,624 MW of solar energy capacity will be installed in 2012. Only 9,797 MW will be installed this year.
So the percentage growth of installs is slower, but the amount of panels being produced and installed is much greater. This is great news for investors.
Interestingly, the countries in which a good portion of these future panels are going to be installed is different from the countries leading the way over the past eight years.
This is due to saturating markets, policy leadership, and the price of retail electricity if different areas.
The five countries leading the way in the next five years are, along with their estimated CAGR:
China, 35.8% CAGR
Thailand, 35.7% CAGR
Indonesia, 34.9% CAGR
India, 34.3% CAGR
South Africa, 29.7% CAGR
The U.S. comes in fifth for anticipated growth over the next five years, with good opportunities also emerging in the Mediterranean basin and Australia.
Preparing for Solar Industry Growth
To get a grip of how the solar industry is playing out, it’s helpful to first see who the largest players are.
Here’s a chart of the top solar cell producers by market share for 2006-2007:
I will tell you, however, that Q-Cells (XETRA: QCE) has since taken over the top spot.
Sharp (TYO: 6753), Kyocera (NYSE: KYO), Sanyo (TYO: 6764), Mitsubishi, and BP Solar (NYSE: BP) cannot be invested in as pure solar plays, so I immediately dismiss them. I’m only after the pure plays here.
That leaves Motech (TAIWAN: 6244), SolarWorld (XETRA: SWV), and Suntech (NYSE: STP) if you want to play with the big boys. Schott is a special case that we’ll get to in a minute.
Motech is a Taiwanese solar company that reported a record $348.5 million in revenues for the fiscal year ended June 2008, though net profit actually fell 31.9% to $2.78 million.
The company is engaged in the supply of high-quality, low-cost crystalline solar cells to Photovoltaic Industry and module manufacturers worldwide. They’ve signed major silicon agreements with Nitol (now partially owned by Suntech) and DC Chemical—two of the largest players in the silicon supply game.
If you trade internationally, keep an eye on them.
SolarWorld is a vertically integrated solar company based in Germany. They’re involved in the entire process, from silicon production to module manufacturing. And, like Motech, they’ve also signed a silicon supply deal, worth $580 million, with DC Chemical.
SolarWorld has also built and opened their own silicon production plant.
But Suntech is my favorite play here. It’s traded domestically, so everyone has access to it, and it’s been performing beautifully. This is a company that reported a 61.6% increase in net profit from 2006 to 2007.
They boast highly efficient cells, operate across nearly all sectors of the market, and are properly position in both China, the U.S., and Australia.
Coming soon, we’ll have access to Schott Solar.
The company announced plans to raise $740 million through an initial public offering last week.
Call it like you see it,
PS. Company and industry data and charts provided by GlobalData.