Solar stocks have investors feeling burned
Three of the leading solar companies have been whipsawed this year by a combination of disappointing earnings guidance and unease over the recent bankruptcy of SunEdison (SUNEQ).
Shares of Solar City (SCTY), the residential solar power installation company backed by billionaire Elon Musk, have tumbled nearly 40 percent this year. SunPower (SPWR), the second-largest U.S. solar panel manufacturer, is off by about 30 percent. First Solar (FSLR), which also makes panels, has seen its stock fall nearly 9 percent.
"SunEdison only back in July was the world's most valuable solar company with tentacles that reached far and wide," said Sean Kravetz, a money manager with Esplanade Capital, which invests in solar companies. "There's no question that it has cast a pall over the entire sector."
Kravetz and Wall Street analysts say SunEdison's demise resulted from management missteps and wasn't indicative of sectorwide problems. The bankrupt firm's creditors include China-based solar equipment makers Trina Solar (TSL) and JA Solar (JASO), according to a Credit Suisse report.
Other solar companies, though, face many challenges unrelated to SunEdison.
For instance, First Solar recently declined to provide Wall Street analysts with guidance for 2017 because its business is too unpredictable. According to Bloomberg, the Tempe, Arizona-based company reported its strongest results in five years in 2015 as solar companies scrambled to complete projects before a federal incentive was due to expire. But now, earnings per share are expected to slump to $4.30 in 2016 from $5.37 last year and to tumble further to $3.53 in 2017.
Still, analysts are convinced that the setback in these companies' stock prices is temporary because the federal subsidy that was feared would disappear has been extended for three years. The Solar Energy Industries Association exects that $132 billion in solar projects will be installed between 2016 and 2020, compared with $17 billion last year.
Solar is certainly on the minds of state and federal regulators. The U.S. Environmental Protection Agency's new Clean Power Plan aims to encourage states to generate more power from cleaner sources of energy. According to the North Carolina Clean Energy Center, 39 states considered changes to solar policy and rate design during the first quarter. More than 20 states considered changes to net metering, the practice where solar customers can resell power back to the grid at a profit.
Nevada, however, recently slashed payments to owners of solar panels, prompting SolarCity to quit doing business in the state.
"Overall, the policy environment remains predominately supportive of new renewables development," said Michael Morosi, an analyst with Avondale Capital Partners, adding that Nevada's decision was an anomaly. "Many states are opting for early implementation of the Clean Power Plan mandates even ahead of potential challenges (to it) in the courts."
SolarCity, based in San Matteo. California, plans to install 1,250 megawatts of solar panels this year, an increase of 44 percent from 2015. The company, which is unprofitable, is targeting the Northeast and California for growth.
SunPower announced plans in 2014 to boost manufacturing capacity over the next five years. First Solar, which got $3 billion in federal loan guarantees, can produce solar panels cheaper than its China-based rival Trina Solar for the first time in three years, according to Bloomberg.
"One of the greatest economic benefits of solar is price certainty," according to a statement from the North Carolina Clean Energy Technology Center. "You are essentially locking in your fuel cost for the next 25 years, whereas oil and natural gas are notoriously variable. Utilities also pay hedging costs because of this variability; these costs are not necessary for solar."
Unfortunately for solar investors, price certainty is lacking when it comes the companies' shares.