Tom Konrad
What will the New Year hold for Clean Energy?
For the people who manage clean energy portfolios, mutual funds, and indexes the question is more than idle curiosity. Getting the answer right means finding the stocks which will put a shine on your solar portfolio’s returns. Getting it wrong means the competition will blow away your wind stocks.
I asked my network of green money managers what they thought, and they gave me a lot more than I expected. This is the start of a series on the predictions and stock picks from my panel. This first article focuses on what they had to say about trends in the solar sector.
Shawn Kravetz: Solar Reversal
Shawn Kravetz is President of Esplanade Capital LLC, a Boston based investment management company one of whose funds is focused on solar and companies impacted by the emergence of solar.
Unlike most of my panel, Kravetz is a solar specialist, so I’m giving him first billing in this article. His prediction is also somewhat surprising in that it is not “more of the same.” He says,
After four years of rapid growth, global solar installations will have their first roughly flat year since 2009, but paradoxically the broad solar indices will have their first profitable year after nearly four years of Olympic-sized losses.
Garvin Jabusch: Consolidation, New Models
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog ”Green Alpha’s Next Economy.”
Jabusch expects to see continued consolidation in the solar manufacturing industry, particularly in China, and the emergence of new ways to monetize electric utility revenues from large scale solar plants. In terms of new ways to monetize solar, one came across my desk last week, in a PR from Solar Mosaic, a company that is bringing crowd-funding large scale solar projects.
Rafael Coven: Terrible Economics, Dropping Subsidies
Rafael Coven is Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD.)
Coven also expects “Consolidation in the wind turbine and solar PV [photovoltaic] business; there are too many players and the economics are terrible. It reminds me of the steel industry. Products are differentiated enough to earn price premiums, or governments play favorites with local suppliers.”
He also expects reduced subsidies for residential solar PV, especially in northern states, a trend he refers to as “a return to sanity.”
Rob Wilder: Three Potential Calalysts
Dr. Rob Wilder is Index Committee Chair for WilderHill Clean Energy Index (ECO), the first to capture and track this sector. ECO underlies the PowerShares WilderHill Clean Energy ETF (NYSE:PBW.)
Dr. Wilder prefers not to make outright predictions, but he shared three possible trends he expects would have large impacts on the solar industry, if they emerge. He notes “Solar hardware costs too have seen a great fall from poly to panels. But what resisted coming down are the ‘softer’ costs of solar like the permitting, balance of system in installation: we pay far more than Germany to install solar. ” Bringing down these other costs would have a large impact on the solar industry.
He also thinks that quickening industry consolidation or increased “ subsidies in places like China and India” which could lead to “gigawatts more solar in just the next couple years.”
Bottom Line
If Kravetz is right, and 2013 will not see any growth in solar installations, this will put pressure on an industry already struggling with “too many players” and terrible economics, as Coven puts it. Coven’s prediction of reduced subsidies also worsens the economics. All of this could hasten the industry consolidation expected by all these experts.
Even in such a harsh climate, the current rock-bottom solar stock prices could allow solar indexes and ETFs to rally, as companies are bought for pennies on the dollar. Investors re-deploying the cash from buyouts into other solar stocks would only accelerate such a rally. If last week’s extra $1.1 billion of Chinese solar subsidies is the beginning of a trend, the “return to sanity” that Coven expects in the reduction of US subsidies could be more than offset by increased “insanity” in the East.
US solar investors would do well to look beyond what is happening at home.
The solar market is a global one, and the sun rises in the East.
Disclosure: No position in the stocks or ETFs mentioned.
This article was first published on the author’s Forbes.com blog, Green Stocks on December 17th.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
