New solar investment boom dawning as storm clouds gather


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The solar power industry watched its star decline over the last few years, hammered by a toxic combination of political controversy, massive oversupply in the solar cellmarket and competition from cheaper Chinese manufacturers. The highest-profile problems came as congressional Republicans assailed the Obama administration over its handling of a $535 million guaranteed loan to Solyndra, which later went spectacularly bankrupt.

That setback pushed the government farther out of the solar financing game it dominated in the boom years. Since their peak in 2008, shares of the most important US manufacturer, First Solar ( FSLR ), declined from over $300 to less than $30. That decline mirrors the fall in the Guggenheim Solar ETF ( TAN ), which lost more than 90 percent over the same period.

As energy prices continue to rise, however, some private investors are getting back into the game. Bloomberg News reports that investing heavyweights like Berkshire Hathaway ( BRK.A ), Google ( GOOG ) and KKR jumped into solar projectinvestment , seeking out the regular returns of 15 percent or more that an established solar infrastructure project can generate. Those three firms, alongside Metlife ( MET ) and John Hancock Life Insurance , invested $500 million in renewable energy projects in 2011, according to Bloomberg New Energy Finance .

"A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue," Marty Klepper, an attorney with Skadden Arps Slate Meagher & Flom LLP, told the news source. Klepper's firm reportedly helped Warren Buffett broker a major solar deal.

Energy center executive director Dan Reicher of Stanford University pointed out the main draw of solar project investment for these investors in Bloomberg. Once all the infrastructure and initial capital is lined up, Reicher explained, solar installations run with low costs while creating predictable returns off a product that is always in demand - electricity.

This surge in privateinterest coincides with increasing difficulties on the public front. As mentioned above, First Solar long represented the best of the U.S. domestic solar industry, with major projects across California and the Southwest, and proven technologies married to a fairly efficient production process.

Yet they too now find themselves in the crosshairs of the Congressional Republicans out for scalps from President Obama's energy administration. BusinessWeek reports that Energy Secretary Steven Chu will testify today at the House, calling the affair a political attempt to create "false and misleading controversy" about solar loans . The debate centers on two projects - Arizona's Agua Caliente and California's Antelope Solar Valley Ranch - which received a total of $1.6 billion in funding from the Department of Energy. Both projects use First Solar modules, and Representative Darrell Issa of California claims that the projects lacked the "innovation, accountability or job creation" capability to justify the loans.

Even as the government finds itself embattled on the renewable energy front, however, private investors jumped in with both feet. But there's reason to be wary. Last year, total renewable energy investment hit a record $260 billion, with US investment inching ahead of China's, New Energy Finance reported in January. However, NEF chief executive Michael Liebrich cautioned that "the US figure was achieved thanks in large part to support initiatives such as the federal loan guarantee programme and a Treasury grant programme which have now expired."

Another reason for small investors to watch out is their inability to invest on the same scale as Buffett and Google. While the latter can reap the 15-percent rewards of major solar installations, equity and ETF investors must hitch their wagons to the fate of the firms themselves, which can wind up losing money even as solar becomes a more important technology.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Business , ETFs , Technology
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