Is the Dark Cloud Over Solar Energy Beginning to Break?
By sucking the air out of energy prices and sapping private investment, the
financial crisis submarined solar energy last fall. But a silver lining has emerged around the dark cloud that has
blanketed the sector for so long.
Oil prices have recovered, climbing over $60 a barrel, the recent stock market
rally has lured many investors back off the sidelines, and President Barack Obama’s clean energy agenda has
breathed some life back into the browbeaten sector.
Now, solar energy stocks – some that lost more than two-thirds of their value last
year – have come roaring back.
After topping $300 a share last spring, shares of First Solar Inc. (Nasdaq: FSLR)
plummeted to just $85.28 a share in November. But since then the company has bounced back, soaring 125% to Friday’s
close of $191.72 a share. Shares of Trina Solar Ltd. (NYSE: TSL) hit $52 last summer before bottoming out at $5.61
in November. That stock is up more than 260% since Nov. 21.
Global economic growth is far from guaranteed at this early stage, but there’s good
reason to believe that when a recovery does get underway, solar stocks will be shooting for the moon.
California’s Gold Standard
While many other solar energy companies have collapsed under the weight of the
economic downturn, a small upstart out of California has managed to greatly expand its business.
That company is BrightSource Energy, which last week agreed to what the company’s
Chief Executive Officer, John Woolard, called the “the largest solar deal in the world.”
Pacific Gas and Electric Co. agreed to purchase 1,310 megawatts (MW) of solar
thermal power from BrightSource Energy for a sum that analysts’ believe tops $3 billion.
BrightSource had already agreed to transmit 900 MW of solar power to PG&E in a
deal that analysts valued at $2 billion to $3 billion. The terms of the new deal, which expands upon the original
900MW agreement, will build on top of that figure.
BrightSource plans to build seven solar power plants in the Mojave desert of
California that will use mirrors to direct sunlight onto a group of centralized water towers to create steam that
will, in turn, power turbines. PG&E estimates that the amount of energy produced by the plants will be
sufficient enough to power 530,000 homes.
Earlier this year, BrightSource signed a similar 1,300 MW agreement with Southern
California Edison Co. – an indication that, despite economic hardship, the solar energy business is still
But a lot of BrightSource’s recent activity has to do with California’s newly
adopted state energy policy. In 2006, California passed a law that required electrical utilities to get 20% of
their power from renewable sources by 2010.
However, on November 17, 2008, California Gov. Arnold Schwarzenegger took the
state’s green energy mandate further by signing Executive Order S-14-08, which requires that utilities generate 33%
of their power through renewable sources by 2020.
Indeed, the state of California has led the country in adopting renewable sources
of energy, particularly solar.
Renewable energy accounts for 13.5% of the state’s energy consumption, and for the
past three years, the California Energy Commission has been managing $400 million targeted for solar on new
residential building construction. That includes an ambitious "Million Solar Roof" initiative that will create
3,000 megawatts of installed photovoltaic capacity by 2018.
But California is more than an energy pioneer. It’s an early indication of where
U.S. energy policy is headed.
If President Barack Obama’s administration has its way, mandates similar to those
issued in California will be employed across the country over the next 10 years. In fact, they already
Obama announced Tuesday that he is making California's standard for vehicle fuel
efficiency and greenhouse gas emissions the new national standard.
Under Obama’s new proposals, vehicles would be 30% cleaner and more fuel efficient
by 2016. And that’s just the beginning.
The President’s budget incorporated $646 billion in revenue from capping
global-warming pollution, while allocating $150 billion to renewable energy investment over the next 10 years,
making his green-funding initiative the largest such effort in U.S. history.
Among other things, Obama’s recent stimulus package provides a tax credit of up to
30% for home solar installations.
The Obama administration also advocates a policy that would require 25% of U.S.
electricity demand be met by renewable energy by 2025. The President has the support of the Democrat-led Congress.
U.S. Sen. Jeff Bingaman, (D - N.M.), Chair of the Senate Energy and Natural Resources Committee, is working on
legislation that aims to make 20% of U.S. energy demand renewable by 2021.
While a renewable energy policy was largely neglected by the administration of
George W. Bush, Obama’s effort can hardly be described as partisan. It is more representative of a shift in
political ideology that arose when gas prices soared above $4 per gallon last summer.
A recent Gallup Poll showed that the majority of Americans support higher fuel
efficiency standards such as those Obama announced Tuesday. In March, 80% of Americans said they favored higher
fuel efficiency standards for automobiles.
Currently, just 28 states have renewable energy goals, but with the Obama
administration’s effort and a shift in public opinion, it won’t be long before all 50 are enacting their
alternative energy mandates.
According to a study by Allianz Global Investors, 78% of investors think green
technology could be the “next great American industry,” and 97% of investors believe the development of alternative
fuel sources will remain important even if oil prices remain relatively low.
And statistics bear that out. Venture capitalists invested $4.1 billion in
alternative energy projects in 2008 – a 54% increase from the year prior, according to a report by
What’s more, 45% of that money went to solar projects, compared to 23% in 2007.
“Alternative energy’s rise isn’t going to be smooth, but it’s going to be one of
the great new growth industries,” Steven Berexa, managing director of research for RCM Informed, an Allianz
subsidiary, told Kiplinger’s Personal
A Global Industry
In addition to the United States, solar energy is gaining traction around the
After subsidizing 2,400 MW of solar projects last year, the Spanish government will
subsidize an additional 500 MW this year. Japan aims to create more than 100,000 new jobs in its solar industry as
part of an effort to jumpstart its flailing economy. Proposals for solar energy plants are also being considered in
the Middle East and northern Africa.
Even BrightSource’s Woolard has attributed some of his company’s success to its
“PG&E looked hard at what we’d done,” Woolard told
The San Francisco Chronicle. “They looked at the results from our plant in Israel, and that built a lot of confidence that we
were meeting milestones and delivering.”
Australia's Solar Energy Plan
Most recently, Australia announced plans to build a solar power station that will
rival BrightSource’s Southern California operation. The network is expected to produce about 1,000 MW of energy,
but won’t be operational until at least 2015.
“We don’t want to be clean energy followers worldwide, we want to be clean energy
leaders worldwide,” Prime Minister Kevin Rudd told the Financial
The Australian government hopes renewable energy will account for 20% of the
country’s power grid by 2020. Rudd said the government intends to spend about $1 billion (A$1.4 billion) of the
$3.6 billion (A$4.7 billion) it has pledged to clean energy initiatives over the next decade.
Like in the United States, the Australian government hopes its alternative energy
initiative will be a catalyst for private investment. John Connor, head of the Sydney-based Climate Institute, told
the FT that
Australia’s clean energy plan will drive an estimated $15.5 billion (A$20 billion) in private
China's Solar Energy Agenda
Another country with an ambitious solar agenda is China. A country with notoriously
high greenhouse gas emissions, China installed about 50MW of solar capacity last year, more than double the 20 MW
in 2007, Renewable Energy
Beijing plans to expand the installed capacity to 1,800 MW by 2020, as the demand
for new solar modules in China could be as high as 232 MW each year from now until 2012.
China is also a good place to find promising solar companies. LDK Solar Co. Ltd.
(NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR: YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR:
JASO) have all been beaten down by the market, but could post a strong rebound when China’s solar initiative takes
Many analysts also like the aforementioned First Solar and Trina Solar Ltd., which
stand a better shot of withstanding the recession because of their size and experience.