Solar stocks have been on a tear in 2013. Strong demand data from China, the U.S. and the Middle East has given investors confidence that the industry's best days are still ahead. But there are still a lot of questions about public policy and earnings going forward. Here are the biggest events that happened this week in solar.

The sequester begins
Last Friday, the sequester officially began, and the renewable-energy industry will be hit with cutbacks in certain areas. The most notable in the solar industry is an 8.7% cut to the Treasury's 1603 grant program. Projects that weren't approved by March 1 will have their grant cut by 8.7%, an abrupt hit to developers looking for the payment.  

According to Greentech Media, the other big impacts will be a slowdown of renewable-energy development on public lands, layoffs and delays in energy efficiency, a hit to the Department of Energy's Vehicle Technologies Program, and cuts to R&D programs. Research has bipartisan support, so this is one area that may see funding return if a budget deal is reached in the next few weeks.  


Everyone in Washington knew there would be unintended casualties in sequestration, and the renewable-energy industry is likely to be one of them.

SolarCity flops
The big earnings news this week was SolarCity's huge shortfall in the fourth quarter. Revenue grew 22%, which is a positive, but the company lost $1.10 per share and can't seem to stop bleeding red ink.

The good news for SolarCity is that systems investments are growing rapidly. Investments in solar systems grew from $562 million at the end of 2011 to $1.01 billion at the end of 2012. As a result, operating leases more than doubled to $47.6 million for the year. The lower-margin energy system sales are also growing rapidly, which may become a theme as consumers realize it's a better financial investment to buy a solar system than leasing it.

The challenge for SolarCity is its high sales, market, and general operating expenses. The company needs to keep growing its installed base to pay for these costs, which will take time.

The other big player in the solar leasing space, SunPower , isn't seeing the same disappointing results as its leasing assets grow. This could be because SunPower's systems have a higher return or because module sales offer greater margins when combined with leases. In any case, SunPower seems to be out ahead from a financial perspective on leases, for the time being.

Happenings in China
Suntech Power
reached an important solution to its battle with GSF Capital over a solar system investment fund. The company will increase its equity interest in the fund from 79.3% to 88.15% and consolidate it in financial statements. This dispute has kept Suntech from filing quarterly reports recently, so we may get a look sometime soon at how the company has been doing.  

The bigger question is how the company will pay for $541 million in convertible bonds due later this month. Suntech needs a bailout from a Chinese fund or state-run bank, something we've come to expect in recent years. If it doesn't get one, there's a chance the company could go bankrupt. Trina Solar and JA Solar investors should watch the outcome of Suntech's financial dealings closely. They both have bonds due later this year, and if Suntech is bailed out, they'll both probably get the same deal, since they're both in better financial positions. However, if Suntech goes under, chaos is likely to ensue as investors will probably sell off all Chinese solar stocks.

Foolish bottom line
The next few weeks will be key for Chinese solar companies in particular. Earnings keep pouring out, and we may see how China's government will handle companies in serious financial trouble.

One company that isn't yet in financial trouble is First Solar, but the stock is selling off over the past two years. Does that mean it'll soon be done for good, or is it ready for a rebound? If you're looking for 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 This Week in Solar originally appeared on Fool.com.

Fool contributor Travis Hoium manages an account that owns shares of SunPower. He also personally owns shares of SunPower and has the following options: long January 2015 $7 calls on SunPower, long January 2015 $5 Calls on SunPower, and long January 2015 $15 calls on SunPower. The Motley Fool has no position in any of the stocks mentioned. 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.

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