Why Do Solar Stocks Look Like Coal?

The government mandates it, the industry is giddy over it, financial magazines point to it with gravitas. Solar is exploding! …and solar stocks look like wet noodles.

The two year stock value chart on the major solar stocks all go in the same direction as coal.

Take a look at them: in the attached image are the 30 months charts for Sunrun, enphase, Sunpower, Canadian Solar, Renesolar, First Solar and SolarCity (not represented in that order here).

But the Solar Energy Industry Assoc. tracks the vigorous growth of solar against the precipitously falling cost of solar installation, and the growth is explosive.

As a marketing person, I’ve asked myself why this dichotomy of realities exists:  Fabulous market performances and prognostics, againt horrible industry values.  

What is happening in our industry that we cannot yet convert this market reality into investor optimism?  We see sexy tech stocks skyrocket to defying valuations just on market share while bleeding red ink; yet “barriers to entry” of online plays are clearly lower than in most aspects of the solar vertical.  Yes, newsletters and stock pickers share occasional excitement over big deals (like Sunpower’s recent contract for all of France’s off-grid zones, or the Tesla bail-out of SolarCity).  But none of it seems to move the needle much.

Four years ago, stocks were moving nicely, then the malaise came.  The promise and the hype had been absorbed, seemingly, and now the reality of the length of time this market would take to mature, and the expectations of positive business results settled in.   We saw failed integration strategies, like SunEdison and Vivent; tanked panel manufacturers and other tech-side plays; disappointing service-side performers like Sunrun and Solar City. 

You can almost hear the investor community talk back: “You guys don’t have it yet; sure it’s going to be big, but maybe not with these technologies.”  Less colloquially: the market opportunities are here, but critical aspects of the current propositions are flawed or incomplete.  Unlike the online playing field, relatively open and interference-free, the solar industry has numerous disruptive forces that could quickly alter its development.

If you’re a fund analyst, that means you are putting out a hold or sell recommendations for stocks in the “red hot” solar industry.  From my reads and conversations, here are some of their varied reasons:

    Legislative and fiscal policy:  How Congress steers fiscal support, and how the IRS interprets that support could send distributed energy generation and energy storage in different direction, perhaps competing against each other, or suddenly favor centralized energy again.

    State-level Regulatory Climates:  Witness Nevada and Hawaii, as well as the trend at the CA Energy Commission, net-metering is not a condition that should be taken for granted.  Maybe utilities will end up being  solar’s biggest clients.  Who will be best positioned to lead those businesses?

    Utilities strategy: As of now, utilities seem to repel the idea of engaging in the distributed generation business; they want to stay focused on centralized generation and the grid operation business and seem focused on building ever stronger motes around that model.  We’ve seen NRG boot a visionary CEO who proposed otherwise.  IOU’s have drawn their battle lines, and they can put up a fight.

    Oil & Gas Prices: It’s hard to believe that, after the Paris accord, solar would still be pegged to O&G, a volatile stock category.  There huge press pointing to the continued growth of renewables despite cheap fossil fuels, but there may be a dogged belief on Wall Street that solar will not have a decent chance unless its carbon-based competitors get back to pre-2010 numbers.

    New Technologies and Model Leapfrogs: given the lack of profitability of current leaders, disruptions are eagerly awaited and watched.  Think  new cell technologies like Solaria, new financing methods like PACE, new sales and installation approaches like going through existing trades rather than having “pure play” solar installers.  The big solar stock may not yet be on the radar.

    Grid Parity, profitably: none of those in my peer group who lead panel manufacturing companies and cell labs doubt that solar will soon attain grid parity.  In some places of the  world, utility-scale solar is being installed for 3-cents per watt already!  But profits must be part of that picture, and in a highly competitive and crowded industry, they have been elusive.

    The opacity of the industry’s future:  there’s no blame of anyone for that.   All vested players, from the Fed to sales organizations, are working really hard to make this revolution real.   But chaos is integral to revolution; entrenched interests, competing new solutions, old consumer habits, cynicism are big components of the valuation secret sauce.

So, yep, stock values would be different with profits, but would they be exciting?

Here’s my fundamental explanation for the mushy solar stocks: consumers do not want to make their own coffee, they want to go to Starbucks.  They want to buy solar products, not buy solar for their products. They don’t want to be crusaders and make component decisions; they want to buy energized solutions that work efficiently and economically.   It’s true for transportation fuel, for homes, and for all of the consumer products increasingly getting connected via IOT.  Consumers want other companies to incorporate the solution for them, so it’s part of the value.  In my mind, the investment upside of solar energy will be finally reflected in those non-solar stocks that simply incorporate solar into their products and services, making life easier for consumers worldwide.   Then you’ll see energized stocks.

Simply put, they prefer buying stock in KB Homes (for example) than in some solar technology that might or might not end up on a KB roof; if KB Homes sells more homes with solar, it’s a winner stock.

Author

  • Philippe Hartley packages commercial financing on behalf of the leading C-PACE funders and tax equity providers in the US. He is the Managing Director of CleanFinancing. Reach him at ph@cleanfinancing.com.

Previous article3@3 on Solar PV: New York’s RPS, InterSolar and the Tesla-SolarCity Merger
Next articleSurviving The Next Solar Industry Shakeout
Philippe Hartley packages commercial financing on behalf of the leading C-PACE funders and tax equity providers in the US. He is the Managing Director of CleanFinancing. Reach him at ph@cleanfinancing.com.

No posts to display