Submitted by
Wall St.
Daily
as part of our
contributors program
.
Mondays are myth-busting days in the
Wall Street Daily Nation
! Today, I'm tackling a politically charged topic - alternative
energy - by focusing solely on the economics.
What the heck does that mean? It means I have no political
agenda.
I don't care what Governor Mitt Romney or President Obama said
about alternative energy during last week's Presidential debate.
All I'm concerned about is the investment potential of one of the
most popular alternative energy sources: solar power.
Despite what you may think - or might have heard on Wall Street
- it's not good. Here's why…
We'll See Grid Parity Tomorrow… or the Next Day… or the
Next Day
I constantly remind subscribers that the most profitable time to
invest in a new technology is just before it reaches the tipping
point for market adoption.
3D Systems
(NYSE:
DDD
) - and 3-D printing in general - is the perfect example.
The technology's definitely hit the mainstream, as consumers can
now buy a 3-D printer for under $1,000. (A few years ago, the
cheapest version cost almost 10 times as much.) Not to mention,
every newsletter editor and bulge bracket firm, like T. Rowe Price,
is now recommending the industry for investment.
But guess what? Investors with the foresight to anticipate this
inevitability (i.e. - prices dropping far enough to encourage
widespread adoption) have already doubled their money. That
includes
WSD Insider
subscribers. Indeed, the early bird on Wall Street gets the
worm.
Under the same premise, Wall Street and industry insiders have
been encouraging us to pile into solar stocks for years. They've
been telling us the critical tipping point for solar - grid parity
- was drawing ever closer.
Total myth!
If we put the enthusiastic projections from the biggest players
in the industry on a timeline, it becomes evident that expectations
for grid parity keep getting kicked down the road.
As you can see with
Suntech Power Holdings
(
STP
), each time an original projection drew nearer - and grid parity
was still nowhere in sight - it simply made a new projection.
In November 2007, Suntech projected we'd see grid parity in five
years. Then in February 2009, it said grid parity was still five
years away. In 2010, yup, still five years. And in November 2011 -
you guessed it -
still
five years away.
Of course, it didn't say "still" in any of its projections. So
an investor tuning in for the first time to any of those comments
no doubt got duped that grid parity was actually within reach. Let
it be a lesson to always put any bold predictions into context.
Believe it or not, the U.S. Department of Energy's (DOE)
projections have been the most conservative and, in turn, the most
accurate. In its latest report, the DOE SunShot Initiative said its
"aspiration" was to reach grid parity by 2020.
How's that aspiration shaping up, though? Not so good!
The Tale of the Tape
As Catherine Wood and Brett Winton of AllianceBernstein, wrote,
"Today, you'd need to charge $375 per megawatt hour to justify
investment in new solar equipment - nearly four times the average
U.S. retail price of electricity."
Those costs don't even take into consideration backup storage
costs. After all, when the sun's not shining, you need a way to
supply power.
Nor do they reflect real estate costs. As Wood and Winton
rightly point out, utility-scale solar can't fit on real estate
that's already paid for (i.e. rooftops). It requires land. Lots of
it. And including real estate costs in the equation can double the
cost of new solar power.
These estimates don't include costs to update power grids to
control and manage the unpredictable delivery of solar power,
either.
Put simply, solar power's still way too expensive. And now you
know why
steep
government subsidies are commonplace.
As a general rule, I avoid investing in any company or industry
that relies solely on government subsidies to remain relevant in
the marketplace. Why? Because when the economics don't work on a
standalone basis, neither do investments in the respective
companies.
Don't believe me? Look at the two-year price performance for
leading solar power players like
First Solar
(Nasdaq: FSLR),
SunPower Corp.
(Nasdaq: SPWR),
LDK Solar
(
LDK
), Suntech and
Yingli Green Energy
(
YGE
).
Unsurprisingly, as grid parity projections keep fading into the
distance, these stocks keep falling. They're all down by more than
60%.
Truth be told, the steep drops are what prompted me to put
together this research. You see, investors see the selloffs and
start licking their lips over the potential bargains.
As I warned last Thursday
, though, not every cheap stock is a bargain. Many are value
traps.
Bottom line: Solar power's a legitimate alternative energy. It's
clean and there's plenty of it. The only problem is, it's too darn
expensive. So anyone running around screaming, "Grid parity is
coming! Grid parity is coming!" is either lying or delusional.
We're years away from it, even longer if we strip out subsidies.
Accordingly, the time to invest in solar stocks is
not
now.
