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Four years ago, it cost 63 cents per kilowatt-hour for solar power electricity in China. In 2012, the rate has gone down to about 19 cents per kilowatt-hour. This is massive progress for the country, which has an official goal of installing 10 gigawatts of solar panels a year through 2015 with 20-year power purchasing contracts. That price point reflects a $50 billion dollar subsidy for every 20 year, 10 gigawatt contract. The rub is that this is about three times the cost of coal-fired power.
In the United States, it is estimated that providers would need to charge $375 per megawatt hour for electricity — four times the average retail price — in order to justify investing in solar.
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Yingli Green Energy Holding (NYSE:YGE) and LDK Solar (NYSE:LDK) both started trading low on October 5 on the gloomy outlook. The Oxen Group, run by David Ristau, suggests that as an earnings month, October is by nature bad for solar companies with a weak numbers, which is pretty much all of them. Seasonal demand heading into the winter could also play a role.
A New York Times article on October 4 elaborated on some of the woes the solar industry is facing. Nearly three-fourths of solar plants outside of China have gone out of business or suspended production in the face of massive demand cuts. The culprit is not just a relatively high cost of production and installation, it’s massive overcapacity issues generated by China’s astonishing manufacturing power.
Boston-based GTM Research estimates that Chinese companies can produce 50 gigawatts of solar panels in 2012, while the total global market could only absorb 22 to 24 gigawatts. Manufacturing supply is more than double the demand, amounting to a pretty fundamental economic problem. In order to stay in business, Chinese companies are gobbling up billions in debt, and sometimes adding debt just to pay off previous debt. This combination high debt and low demand is driving solar stocks into the ground.
First Solar (NASDAQ:FSLR) plummeted over 10 percent in morning trading on October 5. The company, one of the most highly traded solar stocks on the Nasdaq, has lost over 40 percent of its value this year to date. Trina Solar (NYSE:TSL) is down as well, suffering about 35 percent losses so far this year. Suntech Power Holdings (NYSE:STP) is now trading below a dollar. SunPower (NASDAQ:SPWR) failed a “perfect stock analysis” and has joined the downward cascade of solar stocks.
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