At a wedding I attended last weekend, the flower girl ran across the dance floor during the father of the bride’s toast and fell flat on her face. In typical fashion of a kid who has fallen down, she started crying and ran straight to her mother. No less than ten minutes later she was back on her feet running around stealing the show again.
This is the same story that is happening with solar stocks. The fall for solar stocks happened between February 2011 and November 2012 when the Bloomberg Global Large Solar Energy Index fell 87%. Solar stocks are once again stealing the show by regaining 55% over the past 12 months.
In fact, solar stocks are even outperforming the impressive growth the technology industry exhibited after its slump in the early 2000s. Between March 2000 and September 2002 the NASDAQ Composite fell 77%. In the next year, the NASDAQ gained 37%.
The story is not that solar stocks are better than technology stocks, but that young people and young industries are resilient and can fight back from a tough fall. More than two dozen solar manufacturers went bankrupt during 2011-12 and another company just bit the dust even in the middle of this current boom. The invisible hand of capitalism is not a bad thing; it weeds out the inferior businesses yields only the strongest to most effectively use our scarce resources.
Photovoltaic (PV) panels were manufactured based on government policy and not on price for many years. When the German, Spanish, and French governments unexpectedly cut subsidies to renewable energy in 2010, solar manufacturers were left hanging out to dry. Panel prices have been dropping for years and dropped even further when there was an oversupply of panels on the market after the cuts. Solar manufacturers were forced to sell panels at below cost. Firms that competed solely on price were forced into bankruptcy, while the stronger and better managed companies were left standing.
Over the past year, panel prices have stabilized and manufacturers are once again selling panels at above cost. Demand has picked up in Japan as a result of increased focus on renewable energy and in China where solar installations are expected to double in the next year. Worldwide solar installations are expected to total 42.7 gigawatts, 40% more than 2012 according to data compiled by Bloomberg New Energy Finance.
Something extremely interesting has emerged from price stabilization and the solar industry growing up. The cost of solar energy is now much more competitive with conventional sources of energy and in some markets is less expensive. The solar manufacturers left standing are stronger and more competitive than ever before and look like they will continue to steal the show.
If you are looking to invest in solar without the volatility of the stock market, Mosaic connects investors to high quality solar projects that have predictable, long term cash flows and competitive returns. Sign-up today to view the current projects available for investment.
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Boyd Arnold is a member of Mosaic’s business development team. Prior to working at Mosaic, Boyd worked in investment consulting and has experience starting businesses. He graduated from the University of Colorado and has completed all three levels of the CFA. Boyd enjoys cycling, brewing beer, and baseball.