Analyzing Solar Stocks With False Assumptions

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Dana Blankenhorn

The lessons of technology investing also apply to solar investing.

The decision by Evergreen Solar (ESLR) to move to China has some analysts saying “ha-ha” over solar energy. But in fact it reveals a basic fallacy in the way solar power, and solar power stocks, are analyzed by Wall Street.

It’s a manufacturing assumption. Solar panels are said to be a manufacturing business. So if prices are going down, that’s bad. If governments are no longer seeing solar as just good PR, if they’re treating it as a real industry that has to make its own way, that’s bad too.

Here’s the simple truth. Solar is a technology business. Not only that, it’s a new technology business.

Evergreen Solar never understood that, and we’re all paying the price for it.  So is the state of Massachusetts, which seems to have thought that luring a solar manufacturing plant was the same thing as luring a car plant.

It’s not. It’s a risk.

In fact, all solar stocks are a risk. What they require is risk capital.

There are many directions in which solar technology can improve. Systems can become more durable. They can become more efficient. They can use heat and ultraviolet radiation, not just visible light. And the fact that technology becomes cheaper over time is a feature, not a bug. We should assume it and cheer it, not fear it.

As a practical matter, this means that while the capital advantages of Chinese producers are impressive, they’re not the whole story. They are not the end game. When it comes to solar technology, this is the era of Fairchild, not of Intel. There are still too many breakthroughs ahead to know who is going to become Intel.

Another warning. There is a basic misconception in technology investing. We say, “had you put $100 into semiconductors in 1970 you’d have a bazillion-gazillion dollars today” or we say the same about Intel or Apple. But it’s never that simple or easy. I know people who lost money on Apple, and Intel, because they bet on it at the wrong time. If you put your money into Intel a decade ago, it’s gone nowhere since.

So it’s a dart board. Even investing through an ETF is no guarantee. For instance, the Chinese market leaders are now looking to develop projects, not just make equipment .

This is what early chip companies tried to do. They tried to make computers because Moore’s Law was constantly on their tail. How did it work out? Not too well. Because they’re different businesses. And there’s a big difference between being a producer of panels and an owner of production capacity. Best of all (for Americans) neither business is where the future lies.

It lies with technology. It lies in the lab.

So I’m going to end this piece with a name, PVT

You can’t buy it right now, it’s privately held. Their relatively simple idea is to use both the heat and light on a solar panel to generate power, transferring the latter through an Energy Transfer system linked to a home’s water heater.  Lots of people already have solar hot water heaters, just as an increasing number of people have solar panels for electricity. This just combines the two.

How long will this remain competitive, before other breakthroughs make it obsolete? I don’t know. I only know that will happen.

The only lesson is to not look at solar power stocks the way you would look at utilities or manufacturing. Look at them the way you look at technology stocks. Which means you’re buying the story, you’re buying the sizzle, you’re buying tomorrow, and you better be ready to get burned several times before your portfolio is warmed.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it’s the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore’s Law. It’s the application of the last to harvesting the energy all around us he’s most excited about. He lives in Atlanta.


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