Has the Sun Set on Solar Stocks?

The sun has so much potential. Our neighborhood star literally shoots energy at our world all day long, and scientists don't expect it to stop doing that for about 5 billion years. One day, we'll probably harness all the energy we need from it. But we're not quite there yet, and here's why.

A perfect storm
Solar energy over the years has needed a lot of research and development, which doesn't come cheap.

Government subsidies have fueled manufacturing and installation of solar panels all over the world. The U.S., China, Germany, and many other countries have provided incentives to solar companies over the past few years, but the sun is starting to set on those programs. Even in Germany, where the government has spent about $130 billion in subsidies, the country gets only 0.3% of its energy from solar, and its citizens pay the second-highest rate for electricity in the developed world, according to a Slate article.

The worldwide economic slowdown forced countries to cut back on spending for solar power support, and with a slow financial recovery, it might be a while until we see big subsidies again.

I was for the sun, before I was against it
When the stars do align for solar power, there are problems to consider -- mainly, the political ones. If lawmakers determine constituents don't like policies that give money to solar companies, they're not likely to pass laws for it. In 2011, the U.S. government gave $24 billion  to renewable-energy projects, but public failures like Solyndra draw negative attention to increased government funding for similar companies.

This leads to back-and-forth approaches to an industry that desperately wants (and needs) to move forward. Our global climate may be ready for solar power, but our political climate often gives it a cold shoulder.

If you can't stand the heat, get out of the sunlight
Think of the U.S. energy-source usage like Mount Doom in the Lord of the Rings trilogy. Coal, natural gas, and petroleum are the core energy sources dominating the landscape and fueling the volcano of energy. You can't escape their presence, and their sheer magnitude of power is terrifying. Smoke and dark clouds around the mountain make it a very dark place to be. And where is the sun? Nowhere to be found.

Renewable energy accounted for only 9% of the United States' overall energy consumption in 2011. The total primary consumption includes uses of power such as transportation, not just electricity, but if you take into account all other forms of renewables, solar power made up 2% only of the entire renewable-energy category. Take a gander at the following chart for the full breakdown.

Source: U.S. Energy Information Administration.

We're getting more energy from wood right now than we are from the sun -- that's right, wood. Solar has a long way to go before it has any significant impact on our energy supply, and it's going to take a lot of price changes to coal, natural gas, and oil to move solar up the list of must-have energy sources.

Right now, natural gas may be one of solar's biggest opponents. In 2008, the price of natural gas was $12 per million BTUs, while the current price is just $3.54 per million BTUs. According to The Wall Street Journal, the U.S. government expects the price to stay below $5 for the next decade, adjusted for inflation. With cheap natural gas available in the U.S., it might be harder for solar companies to get the funding they need to make solar mainstream, and profitable.

Cloudy days for solar companies
This may be one of the reasons about a dozen solar companies went out of business last year and why major companies such as BP (NYS: BP) and German industrial group Siemens (NYS: SI) are getting out of the solar game completely. This month, Siemens said it's leaving solar after spending $418 million just three years ago on an Israeli solar company. Falling prices and cutbacks on German subsidies have contributed to their solar exit.

BP left the solar industry last year, after 40 years of trying to make solar work -- 40 years. It's still going to spend $8 billion on developing alternative energies by 2015, but it won't involve solar. Maybe the company should change its logo? Obviously, having two major companies duck out of the solar business doesn't mean the whole thing can't work, but smaller solar companies are having a hard go at it as well.

Two top solar-panel manufacturers, First Solar (NAS: FSLR) and SunPower (NAS: SPWR) , have been hit hard. Let's take a quick look at the net income for these two companies over the past three years.


First Solar



$640 million

$32 million              


$664 million

$178 million


($39 million)

($603 million)

Source: 10-K filings from both companies.

In the past three years, the price for photovoltaic solar panels has dropped by 75%. An influx of Chinese solar panel manufacturers drove the price down quickly. The drop in price caused higher demand, but the cheap panels, mixed with falling natural gas prices and problems with the U.S. and European economies hurt companies such as First Solar and SunPower.

Total revenue was growing year to year for both companies, yet they finished in the red last year. It's not a good sign when two major solar panel producers are losing money after two good years, despite revenue increases.

The sun will come out, tomorrow
Solar power should by no means be written off, but as fellow Fool writer Travis Hoium said, it's going to be difficult to know which solar companies are going to be profitable down the road. With an industry that's seen a lot of growth, but not a lot of profits, knowing when to jump in, and whom to jump with, is hard. The industry is facing some tough times, and it's difficult to predict when one of these solar companies will rise over the horizon and make it all worthwhile.

Investors and bystanders alike have been shocked by First Solar's precipitous drop over the past 12 months, and now the stakes have never been higher for the company. Are they done for good, or ready for a rebound? If you're looking for our recommendation on how to play First Solar along with continuing updates and guidance on the company whenever news breaks, we've created a brand-new report that details every must-know side of this stock. To get started, just click here now.

The article Has the Sun Set on Solar Stocks? originally appeared on Fool.com.

Fool contributor Chris Neiger loves the sun, but he has no positions in the stocks mentioned above. The Motley Fool also has no positions in the stocks mentioned above. Motley Fool newsletter services recommend First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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The way I see it is that most of investors still believe that Earth (fossil fuel) is still the center of the solar system if nto the universe.. No ,sir.... The Sun is the center of the solar system... We have to learn to use the Sun for much of our energy needs... We will still use fossil fuels , but solar energy will rise... and we will wake up !

October 30 2012 at 3:10 PM Report abuse rate up rate down Reply

I notice that investors in general want solar stocks while expecting fossil fuel stocks to perform well. Our economy cannot afford fossil fuel prices as they are today.. We will go deeper and deeper in debt and deficit because of that.. We have to find different ways of heating our buildings without hgih fossil fuels prices .. We still refuse to look at solar BTUs as the most efficient means of harnessing solar energy.. We limit solar energy to photovoltaics and to a far lesser extent , water heating for swimming pools or traditional water heaters.. We still refuse to research and develop solar home furnaces or major solar furnaces for office buildings or simiilar sites... WE STILL REFUSE TO... as if to protect high fossil fuel prices quietly and ferociously!

October 30 2012 at 3:07 PM Report abuse rate up rate down Reply

In case , you readers still doesnt get this comment below. Ok, you know that photovoltaics is about 20% efficient at average which means it fails to convert 80% of solar photons hitting the thin film or monocrystalline surface. Well, if you want close to 100% efficiency in solar energy right now, you can have it only if you can use BTU (British Thermal Unit) without any need to convert it into electricity. Your home furnace doesnt use electricity in most regions but nat gas or heating oil which is measured in BTUs not watts. Your home furnace is about half of your monthly utility bills This is where solar energy can supplement your home furnace during daylight hours whenever the sun shines.. The best part of that is that you dont need to use any thermostat to control temperature to save money. The sunlight is free and often enough, it can heat up your home all way to 80 degrees or higher during the daytime . Once the sun sets, you can switch to your old standy, your home furnace. You will not even need firewood, home furnace or electric room air heater during the daytime . This is a huge idea that can go a long way toward our energy conservation goals.. Still no takers ! I will never understand it... I have built my own crude solar home furnace and it works.. I know that manufacturers can design and manufacture better ones than I can ... still the manufacturers do not do that... It is really bizarree enough ..We are protecting high fossil fuel prices while our economy is hurting under it... This is insane economics!!

October 30 2012 at 3:02 PM Report abuse rate up rate down Reply

If we never had those solar stocks, what would have happened to nat gas prices or oil prices? Much higher!! Because of solar stocks, the prices came down... Once all the solar stocks is gone or bankrupted, the prices will go up again. Guys like you just doesnt get it unless you want higher prices that only the affluent can afford and to heck to the masses. Actually, there is far cheaper ways of harnessing solar energy but no solar company manufactures those kinds because they are too cheap to make money off. So we stick with inefficient photovoltaic technologies. Solar energy doesnt necesary mean watts only.. Solar energy can also deliver direct BTUs.. We use BTUs to heat water with solar energy, yes , but we can also heat air for homeheating with solar energy.. We never wanted to make them in any form or shape at all. It is a plain obvious conspriacy to keep this simple technology out of the consumers who needs them . We dont want to push fossil fuel prices down way too much from overly successful solar industry that makes a wide assortment of solar devices ranging from solar cells to solar furnaces. Most people just doesnt know any better and they want to keep this way ... keep us ignorant about solar secrets that is long overdue to get out!

October 30 2012 at 2:54 PM Report abuse rate up rate down Reply