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Solar Breaks Oil Price Dependence

by: Duru September 01, 2008 | about stocks: AKNS / ASTI / CSIQ / CSUN / ENER / ESLR / FSLR / JASO / LDK / SOL / SOLF / SPWRA / STP / TSL / WFR / YGE    

Dr. Duru

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On July 13, 2008, I worried that skepticism in the high price of oil, as demonstrated by the surge in short interest in USO, would translate into a further sell-off for solar stocks. While oil topped at that time, solar stocks experienced a resurgence. Earnings news and major contract news provided the latest catalysts even as shorts increased bets in many solar stocks. Almost all the major solar stocks that I follow on the American stock exchanges are trading at prices above their mid-July levels. Five solar stocks are even trading more than 25% above those levels. It seems that solar stocks have broken their dependence on oil, at least for now. The table below demonstrates the action since oil last peaked on July 11, 2008:

Solar Stock Symbol Price Change Since Recent Peak In Oil
China Sunenergy (CSUN) 55%
LDK Solar (LDK) 50%
Suntech Power (STP) 40%
SunPower (SPWR)36%
ReneSola (SOL)26%
Yingli Green Energy (YGE)17%
JA Solar (JASO)14%
Trina Solar (TSL)12%
Energy Conversion Devices (ENER)12%
Solarfun Power (SOLF)12%
Evergreen Solar (ESLR)6%
Ascent Solar Technologies (ASTI)3%
Canadian Solar (CSIQ)0%
First Solar (FSLR)-1%
MEMC (WFR)-4%
Akeena Solar (AKNS)-6%


This latest turn in events should be very encouraging for us solar enthusiasts. With an American presidential campaign featuring two candidates who profess to support heavy investment in alternative energies, there might just be enough momentum to keep these stocks levitating through the lingering uncertainties around 2008 subsidies. Solar stocks may even survive further slowdowns in the global economy that would presumably drag oil prices down further.

But do not for a second forget that the path from A to B for solar stocks will remain full of deep depressions amidst the rallies. Most solar stocks still remain well-below 52-week highs and many carry high valuations despite ongoing macro and company-specific risks. The health of the solar industry and its stocks is tightly tied with the popularity of long-term thinking for energy planning. Solar projects are capital intensive and generally still cost more than conventional sources of energy. All this means that solar stocks will deliver a lot of investment risk for a while to come. If, for example, energy prices drop "low enough," I suspect solar technology could become tomorrow's problem all over again....waiting for the next phase of the planet's energy crunch.

Stay tuned, and be careful out there.

Full disclosure: Long ENER, LDK, SPWR. Short STP, TSL. For other disclaimers click here.

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This article has 40 comments:

  •  
    Sep 01 08:56 AM
    Solar stocks will jump significantly as the first solar powered transportation networks are deployed. Using distributed power collection to power transportation's distributed power needs changes payback for solar to less than 5 years.

    Examples:
    www.earthtoys.com/emag...
    www.npr.org/templates/...
    Reply
  •  
    Sep 01 09:38 AM
    Just wait until the political, and geo-political reality takes hold, vis a vis the likes of Russia and the mid-east, where when oil, if you remember, was at $125 a barrel and the Saudis said they saw no need for a production increase. The West will soon-enough grow tired of being held hostage to dictators, and KGBers. Not to mention the whole global warming thing. Whether you believe it is man-made or not, or for that matter believe in at all, is irrelevant to the issue. The political reality is that it exists, and gobs of money are likely to be spent in attmepting to correct a real universal problem or a delusion, depending on you point of view. The equation is changing. No longer are the variables purely dollars and cents.

    It is going to be a long(and bumpy) ride for the solars and other alts, but one which in all likelihood will be very profitable for the patient investor.
    Reply
  •  
    Sep 01 10:35 AM
    Not only that, but it is widely known that oil and solar don't trade against each other. Coal on the other hand does.....as most of our non-renewable electrical plants burn coal....not oil. Common sense alone could have helped you, but you decided to keep the solar-oil relationship myth alive.
    Reply
  •  
    Sep 01 10:42 AM
    "knows very little about solar technology and where its heading"

    "solar stocks will deliver a lot of investment risk for a while to come"

    Where's the disagreement?


    Reply
  •  
    Sep 01 10:43 AM
    Dr Duru's strategy of hedging the solar bet recognizes the idiocy of buying something with a 15 yr payback +/-. Only stupid subsidies make it work. Yes, solar can work on a limited basis (what people afford now like garden lights) and that basis is growing slowly. Unfortunately most people are selfish, herdlike animals -- my own solar collectors have a payback of LESS THAN ONE YEAR but nobody is interested. Truly sustainable solar will be the poor man's solution, not for rich men like Al Gore who will continue to use all the oil they want while enslaving the rest of us with taxes to fund their solar show, oil wars, nuclear power plants that operate at 30% efficiency, and yes, dribs and drabs for Kyoto scams till folks catch on (herdlike). Then the peons will just turn the thermostat way down, most lights off and walk (or ride a horse) to their suburban ghetto home (End of Suburbia).
    Reply
  •  
    Sep 01 10:56 AM
    I'm learning from the comments. Michael Lofrano brought out a positive outlook which I have to give him a 10 rating. I personally would like to see more new homes and hotels, apartment buildings, commercial buildings having solar collectors added on the roof especially in the desert cities like Las Vegas.
    Daniel Kowkabany
    Reply
  •  
    Sep 01 11:02 AM
    Before Henry Ford only the wealthy could afford a car. Does anyone think the Henry Ford of solar technology is in the future?
    Reply
  •  
    Sep 01 11:15 AM
    Mr sirfisup doesn't add much to the understanding of readers. If these were video comments we might expect him to be upzipping his fly and frothing at the mouth while telling Dr. Duru who's who.

    Wouldn't it be nice if flamers found their own Internet and left those of us seeking information and intelligent comment to sort through well-intentioned posts?
    Reply
  •  
    Sep 01 11:19 AM
    Bill JAMES - thank you again for showing our energy CONSUMPTION CHART - it provides the info for sane planning and implementation; individuals, business and government.

    However, I disagree about the trigger point for solar being TRANSPORTATION. It will first be POWER GENERATION, just as Boone is providing for wind power. Reason, solar PV provides electricity - so it will first replace other forms of electricity.

    Transportation requires electrical users before it makes an impact. That's why I say to electrify the railroads. They are already diesel-electric. Just run the power feeds and get rid of the diesel.
    Reply
  •  
    Sep 01 11:26 AM
    jlounssbury59 - you say some really stupid stuff - And Henry Ford of the past was one of the first with electric vehicles; 100 years ago.
    Reply
  •  
    Sep 01 11:26 AM
    Can we please stop treating the two presidential candidates as if they are equally likely to be beneficial to renewable energy such as solar? They're obviously not. McCain is about nuclear, and just picked a VP who is all about drilling.
    Reply
  •  
    Sep 01 11:27 AM
    And solar-thermal has been in use since the Beginning.
    Reply
  •  
    Sep 01 11:28 AM
    Like - there's nothing new under the sun.

    So, yes; the Henry Ford of solar is still in front of us.
    Reply
  •  
    Sep 01 11:45 AM
    I am completely befuddled as to why any discussion of Solar stocks is so controversial and so political. I follow these stories and commentaries regularly, and the level of vituperative has increased dramatically. Everything from conspircacy theories to good old name calling fills up half of the submissions.
    So lighten up. We're not on SA to round up votes, we're trying to garner useful investment information. If politics is a component which influences that, then try and be rational about it. (Go find a political blog site to rant on.)

    By the way oil has at times had linkage to solar stocks, but has become less of a factor. When oil was running up very dramatically, solar benefitted from the belief that this would more quickly deliver more subsidies from various countries and create comparative cost efficiencies. Subsequently, oil prices began to influence the cost of smelting polysillicone and transports costs which then cause solar to actually link inversly with oil, pretty much like all equities did. The author is certainly right that if oil recedes to much lower levels (under $60 or $70), legislative incentive for passing the renewables bill will undoubtedly become less driven and consumers will be disincentivised to purchase with paybacks that require twenty plus years. On the other hand, it is widely accepted that the trend in polysillicon, which cost is influenced by available refining capacity, is toward cost errosion. We have two presidential candidates spewing many promises about renewables, albeit the Democrats have a good more emphasis. So perhaps the upcoming legislation has become bullet proof. Individual Solar companies are not all the same for sure, while Chinese Solars are almost all undervalued relative to their American counterparts. I personally submitted an article about this; "What's the Problem with Chinese Solars?". Relative symbols, CSUN, SOL, LDK, and ESLR, FSLR.
    Reply
  •  
    Sep 01 11:58 AM
    Also, relative to the comments about Henry Ford: You are quite correct, that if you believe in "peak oil", regardless of the time frame, then you must accept the notion that a pradigm shift is inevitable. In other words, much as prior to the turn of the previous century when whale oil was relied on to illuminate homes and horse traffic was such a sanitation nuiscance in big cities, the paradigm shift built around petrolium oil. Obviously in hindsight it was enevitable, but at the time it seemed a stretch. What would run on oil? where was the infrastructure to deliver it? and how would acceptance drive the cost of building the necessary industry to bring it about. People were quite fond of their horses and smokeless whale oil. Petroleum oil was smokey and smelly by comparison. The industry and wealth in many of our North Eastern port cities was built around whaling, and people were reluctant to abandon this. When Ford delivered a low cost vehicle that ran on petroleum oil, the paradigm shift was complete. When some car company can deliver an affordable electric or hydrogen car, then the pace of things will pick up and oil will be headed for the anachronisms of history a hundred years from now.
    Reply
  •  
    Sep 01 01:56 PM
    canbyte.....what are u talking about?
    Reply
  •  
    Sep 01 02:29 PM
    Due to trading in a few solar stocks over the past year, I'll say that I noticed that oil prices affected solar stocks. So, I'd have to agree with Dru. I also agree that it seems that solar stock prices are being a little bit less affected by oil prices as time goes on. So, I think that he's on the right track here.

    I'm not so sure about the correctness of the chart since it compares stock prices to "peak oil". That seems a little to vague, but still it's a nice chart to compare how each one has moved. I have owned WFR, along with FSLR, SOL, ESLR, and YGE. Made some money on each of them except for WFR. I now think that WFR has a great potential to perhaps move up the most.

    I sometimes try to figure out what the mindset of the average U.S. person is like. As this is an election year, it seems that people who are for "change", regardless of whether they are for Obama or McCain, might at this time be more excited about purchasing the various solar or battery powered things than they would be when there is less talk of other sources of energy depletion. Are more people building with solar panels this year? It is obvious that more people are buying cars that in part use batteries.

    I think that we'll get going with solar sooner than most people realize. It seems to me that our addiction to being able to drive around a lot will create a good market for solar power. So many people in the future will be willing to have a little less power in their cars to get the battery powered car market really strong. Later on, with the money from the first battery cars, they'll work on making these more efficient and faster. This is the way of any new type of technology. I'm not worried and I plan to get back into solar stocks as soon as I make some more money on FCX, which is still gradually going up, though it went down in the last session.
    Reply
  •  
    Sep 01 02:36 PM
    we need to understand that the solar market and the solar stocks are 2 different things, especially in the short term.
    to read a comment like the one of sirfisup is quiet discouraging:"I must say that the writer is a pure amateur and knows very little about solar technology and where its heading. Sand is about one third of the earths natural resource and is the primary commodity to manufacture silicon. Solar technology efficiencies are improving significantly and of all the alternative energies is the cleanest form of energy. The writer must have very little regrad for the emerging economies of China and India and unfortunately a very poor understanding of the fundamentals of capitalism. The only reason why you haven't received many more retort replies is simply because you are an idiot."
    this comment itself shows very low intelligance and no knowledge of the stock market and how it works. from the comment one might assume that solar stocks are heading only one way and will not have pullbacks of any degree. this is not the case.
    investing in stocks is sensitive to many outside variables like the availability of money (interest rates), alternative investments, sentiment, political climate and many others.
    they all translate to valuations. when everything is good we can get double the valuation relative to the bad times.
    the fact that silicon will get cheaper and that the solar technologies are advancing will carry risk that is as high as is the opportunity. the solar industry will be commoditized all along the food chane. while costs will be much lower so will go the ASP's.
    history shows us how things work and we will be fools to ignore it.
    while i am a huge solar fan, i will never close my eyes and ears to the presence of risk. any growth industry carries risk and investing in stocks in these industries is also risky.
    i can only wish investing was as simple as some of the commentators make it seem. we were all much richer. since it's not, please invest with your head and not with your heart. it is way more profitable (i started investing with my heart and fell in love with investments and it didn't work well. sometimes it's worst than a divorce as you can pay much more than half) :)
    Reply
  •  
    Sep 01 02:45 PM
    good short candidates, thanks
    Reply
  •  
    Sep 01 03:17 PM
    Without reference to any particular comment, I feel American investors need to remind themselves that solar's future is for now quite independant of US policy despite that being a major issue for investors to base their decisions. Many countries have taken decisions to preempt future problems with a total disregard to US decisions, oil price, oil supply and other factors that could be said to impede on solar's growth, why? Because ultimately oil will run out and ultimately other sources will have to take over and all that is installed now will be present and working. What the naysaysers never give credit for is that these initiatives in renewables are in fact prolonging the life of oil and allowing them to continue their hard to break habits that much longer.
    To change people's habits subsidies are sometimes needed otherwise no-one would ever want to implement technology that is just too much of a change for individuals to carry out alone. Some criticise these subsidies but they don't remember any of the other areas where they exist also, agriculture, aero, defense, automotive and dozens of others or criticise companies offering "subsidies" or even free stuff to attract a large enough client base to become profitable, Not enough is being done to affect energy consumption, there are hundreds of ways to fairly and progressively get people to stop overconsuming resources but. We can allow time for education or await disasters but usually a good idea is to start rewarding those who start of their own initiative then introduce measures inciting people to reduce consumption and later tax the hard-core who refuse to follow on the right path for future generations. Die hard oil freaks just don't get it but big oil does, they've long decided to discretely invest in and research solar and other tech., just in case, they just don't want you and me to switch trains too fast.
    Reply
  •  
    Sep 01 03:35 PM
    jcordes, thank you. Cheerleaders, please take rana to heart for investing in, hopefully, fruitful enterprises.
    Reply
  •  
    Sep 01 05:01 PM


    solar will probably form another bubble after oil, but it will soon crash because its not competitive. Wind--solar They both came from the 1600s and can only provide small amounts of power at a huge cost in taxes.
    Reply
  •  
    Sep 01 05:39 PM
    The "huge" cost in taxes is temporary. The benefits outweigh the costs, even short term. Not all fossil fuel costs are obvious. If this were the first time government has been expected to give a boost to an industry, I would join in raising red flags. But it is entirely within the scope and responsibility of our system to encourage an enterprise that will eventually benefit all. And solar will.
    Reply
  •  
    Sep 01 06:39 PM
    Seeing so many stupid relies, it's no wonder that so many small speculators are wiped out at some point.
    Reply
  •  
    Sep 01 06:40 PM
    The biggest risk for solar industry is an oil price crash.
    Reply
  •  
    Sep 01 06:42 PM
    I've "traded" several solar stocks over the last 2 years or so and have done quite well, thank you.
    This was an ok article, a lot of market participants believe in all kinds of inter-relationships with stocks and their respective industries, nothing wrong with that.
    But, I have found Seeking Alpha to be quite a good resource for ideas, and would like to see the "complaining pundits" go back to the Yahoo blogs, or learn how to respond with some useful input.

    currently very long: lkd, sol, leh
    Reply
  •  
    Sep 01 08:09 PM
    Is there a solar ETF?
    Reply
  •  
    Sep 01 09:33 PM
    Sep 01 04:37 PMuser211108 - i read the nyt aricle you mentioned. Basically, it just lists the roadblocks people keep thowing in the way of getting the right things done.

    As I have said in other blogs, the grid needs to be beefed up and expanded, and also provide for solar and wind hook-up. And I grossly stated that high power transmission lines are probably within 25-50 miles of any future installation.

    Take a look at where all the hydro installations are (Grand Coulee Dam in the middle of nowhere is the equivalent of 8 (eight) 1000 MWe nuc plants. No look at the rest of the hydro locations west/midwest/southeast... etc. As for nucs; we have over 100 1000 MWe plants scattered around the US - few states without - most state are less than 200 mi in one direction or another. Then there is the coal - everywhere??

    So, the grid problem is just a bunch of roadblocks (policy/politics/regul... - we have the technology and wherewithall to improve it and expand it immediately. Report abuse
    nakedjaybird
    Sep 01 09:20 PMYou know, in the NYTimes article, a FERC member member is quoted saying we need an "INTERSTATE TRANSMISSION SUPERHIGHWAY SYSTEM" - he is so right.

    And where they should run that grid is alongside/between/abov... the US Interstate hiway system that exists. And then, put the electrified ferries on steel-wheeled rails in the same space. Then we simply take the cargo off the diesel (biodiesel hybrid) trucks and ferry it electrically powered by solar and wind - that's a good role for solar and wind.

    Centainly takes the wind out of the sails of the contras that continually talk about balancing the grid.

    This idea solves two if not three problems at the same time. Since the Gov't steamrolled for the interstate highway system, let them steamroll for electrifying it. Simple. The right of way is there. Who's going to argure?. Yes, I know, someone will.

    And what's the distance between interstate hiways? Do they go thru wind mill and solar land, and do they eventually move right into cities, and go thru where all the people are. DUH??

    I hope someone in FERC reads this.

    Help out, guys. I'm like solarPV on a native hut, with a microwave, color TV, cell phone, but connected to no one.


    Report abuse
    nakedjaybird
    Sep 01 09:27 PMOh yes, and wireless internet!

    But I'm as helpless as all the steers running around me and that just reminds me of Washington DC every time I look at them and feed them. And what do I get in return - about the same stuff - let me help you city folks, it's hot, wet, sort of like putty, and smells like shit. If it looks like, smells like, feels like, it probably is.........yup!

    Happy Memorial Day to all the Vets and all those enjoying the freedom they have provided in the US and worldwide - regardless of the naysayers.
    Reply
  •  
    Sep 01 10:50 PM
    These stocks are trading on technicals and not fundamentals. I would trade and not invest in these stocks.
    Reply
  •  
    Sep 02 06:16 AM
    OIL IS POLITICS

    Tax credits for wind and solar projects have not been renewed. How come???

    Oil gets tax subsidies. Why?

    The answer is Republicans. Do you want $200.00 oil??? Vote for the soccer mom.

    Do you want $60.00 oil? GO TO:

    www.stopoilspeculation.../

    and sign the petition. And VOTE FOR DEMOCRATS IN NOVEMBER.

    OBAMA / BIDEN 08

    OIL IS POLITICS
    Reply
  •  
    Sep 02 10:05 AM
    So much for that. Oil is capitulating today and taking the solar sector down with it. Pretty much all of the major solar stocks are down in the neighborhood of 5%. Every time somebody says that alternative energy stocks have become independent of crude oil, it's proven otherwise within weeks if not days. There is a misguided notion that we will not need these alternative energy sources if oil is cheap.
    Reply
  •  
    Sep 02 12:31 PM
    shorting those inflated solar stocks made my day Dr. Duru, thanks again !
    Reply
  •  
    Sep 02 01:25 PM
    A few notes here:

    1. Solar is not the only energy sector being subsidized. Don't people realize how much the oil industry is being subsidized, vis-a-vis fighting wars all over the world to secure extraction and safe passage? Solar is immune to these geo-political subsidies as the sun shines everywhere. In short, Oil subsidies dwarf solar subsidies and all other energy subsidies comibined. Anyone who doesn't think oil is subsidized does not understand the big picture at all.

    2. We don't need a Henry Ford of solar. That is not an apt metaphor really. The big cost savings will be with utilities adding to their grid as PG&E announced recently. Yes, maybe there will be an increase in individual use but the prime growth will come from industry seeing the cost savings. It will be huge.
    Reply
  •  
    Sep 02 02:33 PM
    akapital - where you are wrong about needing a Henry Ford of solar is this: Henry's success comes when we have a cheap biofuel injected burner encapsulated with waste heat solid state direct conversion to electric ChousMotor driven electric car with a grass tank and unlimited range filled at grass filling stations, unless they want to ride on electrified rail ferries along the electrified inter/trastate railways which also carry all the cargo presently carried by diesel trucks, and the rails are supplied by, GUESS WHAT, SOLAR AND WIND. AS ARE ALL THE EXISTING RAILROADS. That's the complexity of the new Henry Ford.

    No more internal combustion engines; hybrids running on grass combusters; electrified ferries for goods and people movement.

    No more oil, gas, and coal (and their expensive, complex extenders [shale, sands, gasification, liqiufaction, etc.). No drill, drill, drill and dig, dig, dig required.

    Get a new grip!!
    Reply
  •  
    Sep 02 02:39 PM
    The price of oil should not directly affect the demand for solar cells. Solar creates electricity while oil is used for transportation. Solar will be more affected by the ability of utilities to burn more coal, cost of natural gas (alternative to solar assuming you can't burn coal), price and availability of wind power.
    Tax credits for solar power are currently the biggest factor in demand. Due to governments indecisive nature on future credits, solar stocks can have very large price swings as expectations change with political fortune. US government will be deciding on extending credits that expire the end of this year.
    Reply
  •  
    Sep 02 03:04 PM
    Of course there's a coorelation between various energy sources; it's a free market system. ...or at least it's supposed to be. Solar has the benefit of subsidies in many nations in the world. Without those subsidies, just how many solar manufacturers would be showing any profit this year? Probably none. While there is good coming out of the current influx of money into solar in the form of increased research money and production capacities, solar will only show it has a future when it can demonstrate the ability to out-profit oil, gas, nuclear and wind. That's not happening right now and for many solar companies, it may never happen.

    Until CSIQ and the other solar giants start producing 2-5% dividends on top of multi-billion dollar profits like XOM & COP, their price is based on nothing more than hope, dreams and subsidies.
    Reply
  •  
    Sep 02 10:00 PM
    Look at First Solar. The market cap, 20 billion, and it will produce panels that would produce less power than a 0.06 billion dollar nat gas generation plant that you can almost order from a catalog. There are no US contracts for it, as only the Europeans have the stomach to pay $0.60 per kwh for power where nuclear and coal are about 1/10th the cost. When the global recession deepens subsidies like these will fall away long before basics like health care and defense spending. US government income will drop substantially next year across all levels of government. Solar as it exists is a bubble. This is electronic tech, though, someone may have a breakththrough - a 10x cheaper way to do it, but all the companies around today will have spent way too much money to be competitive at 5c/kwh.
    Reply