Cleantech stock implosion yields gems

December 9, 2008

— Eric Auchard is a Reuters columnist. The opinions expressed are his own —

Cleantech, with its intoxicating mix of high-tech promise and save-the-world bloody-mindedness, has fallen harder and faster in the destruction that has visited growth stocks in

Underscoring the sector’s risks, German solar cell maker Q-Cells cut its 2009 outlook on Tuesday, saying slack demand could linger until the middle of next year amid a growing industry price war. The stock lost nearly a fifth of its value in trading and the news sent down shares of rival companies.

But while it’s too early to say when the selling might be over for solar and wind stocks, gems lie in the rubble of collapsed valuations, ready for investors to snap them up when markets recover their appetite for growth and its attendant volatility.

To understand what is possible, take measure of the decline: The WilderHill Clean Energy Index, composed of around 50 renewable energy and conservation stocks, has lost three quarters of its value year-to-date, twice the loss of the S&P 500.

The mea culpas are flowing. “Every stock we cover has performed worse than the S&P 500 year-to-date,” Raymond James analyst Pavel Molchanov confessed recently in a note to clients.

In recent weeks, solar stocks, the global sector’s biggest segment by far in terms of market capitalization, have cracked up — laid low by the sharp fall in the price of oil, the plunge in the euro, the credit crunch and a move to safer havens.

The solar sector is made up of players across the Americas, Europe and China and many stocks are trading at below or close to their book value on the assumption some companies will go out of business.

Deliveries of wind systems have slowed for all major turbine makers, ranging from big diversified companies such as General Electric and Siemens AG, to wind specialists such as Vestas from Denmark or Gamesa of Spain.

Bears say the solar sector faces a future of declining prices and uncontrolled capacity expansion, especially in China.

Spot prices for the polysilicon used in most solar cells have collapsed to below $200 per kilogram from upward of $500 earlier in this year.


But stock pickers say the impact of plunging solar product prices is not being shared equally.

Low-cost technology leaders with strong balance sheets are seeing minor price declines while lesser names, especially from China, are finding it hard to sell their products at any price.

For now, almost everyone’s favorite pick remains First Solar, which has everything going for it except perhaps valuation, they say. The company is often compared to Intel Corp, on which it has modeled its manufacturing strategy for making solar cells.

First Solar produces solar cells used to form photovoltaic panels at a cost approaching $1.00 per watt compared to the $2.50/watt industry average, analysts say. Gross margins remain intact around 50 percent while other players face compression.

“If you want to play one stock in the U.S., Europe or China, it has to be First Solar,” says Mark Bachman of Pacific Crest Securities in Portland, Oregon.

Valuation has long been First Solar’s thorn. But the stock, which traded above $300 earlier this year and at a valuation as high as 140 times forward forecasts, has seen its valuation sink to 17.5 times next year’s consensus profit forecast.

Put off by its valuation previously, Edward Guinness at Guinness-Atkinson Alternative Energy Fund, became a buyer in mid-October once the stock was cut in half.

His alternative energy fund, which has some 40 pure play cleantech investments, has lost two-thirds of its value from a peak of $150 million earlier in the year but Guinness still sees promise relative to other energy funds in his group.

Cowen & Co analyst Robert Stone says Energy Conversion Devices Corp has managed to build backlog while taking advantage of falling cell prices. He sees Energy Conversion shares gaining up to 60 percent.

The company’s secret to withstanding recessionary pressures is the 50 percent of its backlog is from large, well-capitalized customers like Marcegaglia of Italy, which build Energy Conversion’s panels into their own residential roofing products.

Guinness says he is looking to companies that have the scope to become integrated, global players. Pure cell or solar panel plays can only grow so big because roughly 60 percent of industry revenue is in the installation end of the business.

U.S.-listed SunPower has made strides to expand from components downstream into the residential installation market, Guinness says, and Germany’s Q-Cells is in the early stages of such a move and shows promise once its business stabilizes.

Cowen’s Stone sees prospects for SunPower to see a 70 percent gain relative to the market over the next 12 months if the funding crises eases and already approved U.S. utility deals move ahead.

But analysts say that pricing declines must play out before investors are willing to get aggressive about solar stocks again.

American Technology Research analyst John Hardy says solar is likely to be one of the early beneficiaries of a potential loosening up of credit markets in the new year. Once pricing stabilizes in the solar market, survivors could see rapid gains.

“Stocks are at levels where any positive catalyst will move solar much higher in a hurry,” Hardy says.

—  At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns by Eric Auchard, click here.

(Pictured above: Solar panels fill the roof of mausoleums at the cemetery in Santa Caloma de Gramenet, near Barcelona, December 2, 2008. REUTERS/Gustau Nacarino)


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There is too much hype keeping this sector up. Photo-voltaics while feasible as a technology do not represent a practical solution in most applications – especially if we consider the replacement cost of batteries or grid-adaptive inverters. Sunlight is much better as a source of heat rather than electricity. Any big-box retailer can capture a lot of heat from the roof in the winter and can use evaporative water cooling in the summer. Even more practical than sunlight is bottled up sunlightin the form of solid fuel, which is a fully renewable resource. Do not buy an electric envelop sealer if a damp sponge will suffice. Honestly if the fund managers spent less time speculating and more time doing their research, there would be no shortage of energy.

Posted by Don | Report as abusive

Solar thermal is an option and the stocks were overpriced. That I agree. But, solar is growing near parity with cheaper sources. Not to mention, volatility is a killer (just look at the per KW hour charge over the past few years). Solar can help minimize this. To make it solar viable, regulations, scale (in the form of utility or individual), storage, and an upgraded grid are needed.

Posted by Matt | Report as abusive

We are clearly not to a point where economies-of-scale apply. If we could start getting small-scale back-up applications of alternative energy sources in new construction and retrofits we might get there faster. Basically, we have to stop looking for a single do-everything energy source and push for a multi-source model.

Posted by john | Report as abusive

The EROEI for solar is now compelling. If oil sands with an EROEI of 2 make sense, then solar voltaics makes sense.

Solar performs during times of peak power, so comparisons need to be made against peak power production. Add to that the carbon footprint and you have the basis for a solar economy.

Further, we have a new administration with a mandate. Do you think the new American President will ignore this sector? I’m a buyer.

Posted by Paul | Report as abusive

This is happen to PV panels but not to solar thermal industry.The situation for solar thermal market in China is still inspiring.Himin solar as the largest solar thermal products manufacturer in the world is developing rapidly.

Posted by Jesse | Report as abusive

I think what everyone needs to remember is that even if the amount of energy produced is small and as long as the price point for normal people to purchase the tech is reasonable, then every little bit helps.

Yes maybe you only save a few kilowatts, but if everyone is saving a few over the population of 300 million (USA alone) ppl, it is quite a bit of help to the environment. Maybe not an answer, but maybe those few extra decades we gain will be enough for our tech to advance far enough to make it even more meaningful. Besides, even 1 kilowatt is 1 kilowatt less burnt from fossil fuels. This is assuming the carbon footprint in the manufacturing of the panels is also very low which it seems to be, especially in the case of first solar.

Posted by CD | Report as abusive

[…] Mark Bachman, Pacific Crest Securities with a solar stock pick:  “If you want to play one stock in the U.S., Europe or China, it has to be First Solar.”   […]

Posted by Stock Blurbs 12/10/08 | | Report as abusive

The Cleantech public companies are taking hits as are the small private concerns. In the UK, cleantech data provider Library House is in admistration and in the US, the Cleantech Group laid off one third of their staff, gutting their research team.

Posted by Clarence Hutterman | Report as abusive

This curiously sounds like the photo purists saying that digital will never match film when in fact it surpassed it.

Solar is here and like the automobile replaced the horse will replace the archaic energy system we now employ

Posted by Kay Zee Ess | Report as abusive

Missing in this discussion is the clean tech leader Ormat with their geothermal and cogeneration facilities. This company quietly goes about the business of actualing creating and selling energy every day, signing contracts and building facilities while the others talk about their plans and emerging technology.

Posted by Jon Skarimbas | Report as abusive

Timing matters. I don’t generally want a hot shower at noon, especially when it’s 90 degrees and sunny. (If it’s a weekday, I’m likely not even home.) My elderly neighbors, in contrast, may want to run their air conditioning at a low level just about then. By having my small solar array attached to the grid, my power can offset the spike in their demand at the right time. Now, multiply by a few thousand. Sure, inverters and cells require energy to build and transport, and they don’t last forever, but…20 years or more? Not too shabby. (Not knocking batch solar water heaters, mind you.)

Posted by Joy Sabl | Report as abusive