The past year has been volatile for any investor playing the solar energy and renewables markets.
On the plus side, the introduction of solar power feed-in tariffs across many parts of the world has been positive. But this has been tempered by the recession and subsequent lack of funding for the sector. Throw in environmental disasters such as the BP oil spill and Fukushima nuclear disaster and you have a melting pot of unpredictability.
Regularly featured on Fox, CNN, CNBC and Uk Website Total Solar Energy Jeff Siegel is the co-founder and managing editor of Green Chip Stocks, an independent investment research service that focuses primarily on stocks in the renewable energy sector. Speaking to UK Website Total Solar Energy, Jeff reveals his thoughts on how he evaluates these factors when deciding to invest?
“Sadly, the Fukushima disaster really only instigated change in a few countries,” says Jeff. “Germany and Switzerland in particular seem to have some real momentum behind ending their reliance on nuclear power. And of course, Japan too.”
“That being said, the Fukushima disaster did shed some light on the prohibitive costs of nuclear power production. Here in the U.S., the nuclear industry simply could not survive without very generous support from the government. Today, the nuclear industry has more than $58 billion worth of loan guarantees in its pocket just for new construction. This is an addition to the subsidies the industry has been receiving for 50 years.”
“The point of a subsidy is to help enable a new industry to compete on its own. Today, nuclear cannot compete with the assistance of tax payer dollars. Therefore, it is an uneconomical form of power generation. If anything is to slow nuclear power development, it will be the economics. Unless, of course, every country with a nuclear power plant experiences the same kind of disaster that has hit Japan. Unfortunately, if the meltdown doesn’t happen in your backyard, there’s going to be little interest in the dangers of nuclear power generation.”
So whilst change has been slow following the disaster, Jeff still rates solar energy as a good investment despite the recession.
“Right after the market crash, it was pretty dismal,” Jeff laments. “But looking at the numbers, although investment isn’t as robust as it was in 2006 and 2007, it’s still doing pretty well compared to other industries. The bottom line is that, recession or not, there really is no greater growth story than solar energy. And that’s what keeps the money flowing.”
“I also think that the natural gas boom in the U.S. is going to be short-lived. We’re going to eat through our reserves pretty quickly as we begin to transition our trucks and buses to run on natural gas. Also, because it’s now so cheap, it’s going to eat in to coal market share. I wouldn’t be surprised to see us running short on natural gas in 20 years. This is not just my opinion, but the opinion of a lot of folks who have a piece of the natural gas market, but are also placing their long-term bets on solar power, wind and geothermal.”
“I think we’re going to see the bottom for solar power this year. The glut warning isn’t going to pan out and be as bad as the bears and solar shorts would like you to believe. The solar energy market does not live and die by the European market. China just announced a new solar energy feed-in tariff, and despite a shaky market, growth in installations in the U.S. is strong. This is not a trend that will reverse itself. Especially with so many new solar leasing companies coming to market and allowing homeowners to afford the benefits of solar power.”
“So the outlook for solar energy, in my opinion, is not dismal. That being said, I wouldn’t touch any solar company that’s not a major player. And I’d definitely wait until we see some stability in both the solar space and the broader market.”
So is there any particular stock out there that Jeff could recommend to give people a better return on their money than the banks are offering?
“If you’re looking for a pure play renewable energy stock, you’re going to encounter significant risk,” explains Jeff. “At least throughout the rest of this year. Just be aware of this. Some of the pure plays I like include: Trina Solar (NYSE:TSL), Suntech Power (NYSE:STP), Western Wind Energy Corporation (TSX-V:WND), U.S. Geothermal (AMEX:HTM), ECOtality (NASDAQ:ECTY) and Maxwell Technologies (NASDAQ:MXWL).”
“If you’re looking for more safety in renewable energy, and don’t mind playing a stock that’s not a pure play, I’m definitely a fan of ABB (NYSE:ABB). I think ABB is going to be the main facilitator of renewable energy transmission. Particularly when it comes to offshore wind. I also like Siemens (NYSE:SI) as a non-pure play on renewable energy.”
And despite these difficult times, Jeff still sees a bright future for the solar energy sector.
“2011 will be one of the toughest years for solar energy, as the industry has had to swim upstream against the phasing out of subsidies and a lot of negative investor sentiment,” says Jeff. “But the long-term, macro picture has not changed. This is an industry that continues to experience huge production cost reductions and installation growth.”
“Although I don’t think solar power is going to take a significant share of the power generation market anytime soon, the growth that it’s going to experience will be enough to lure any savvy investor. If you look beyond the armchair analysts and media blowhards that blast the solar industry, mostly because they’re too caught up in the hype to look at the actual data, you’ll see that there are few industries with this much profit potential. Long-term, I remain extremely bullish on solar energy.”