After The Crash, Part 1: Solar Stocks – John Rubino

April 13, 2017

The frustration out there is palpable. Skim the comments sections of
popular financial sites like Zero Hedge or Seeking Alpha and you’ll see
gloom-and-doomy articles drawing responses like “You’ve been saying the
same %^#&*! thing for years…he’s a broken clock…this is just scare
mongering.” And those are the polite responses.

Which means two things. First, we’ve entered the final act of a
familiar play in which a bubble lasts far longer than it should, leading
to “prediction fatigue” for analysts and increasingly vocal impatience
within the analysts’ audience. The discord usually peaks just as the
bubble is about to burst.

Second, there’s little point in repeating the same warnings to an
audience that’s heard it all before and trusts it less each time.

So let’s look beyond the approaching darkness and start planning for after
the (inevitable if not imminent) implosion of the fiat
currency/fractional reserve banking system. In other words, what should
we expect to buy with our hyper-appreciated gold and silver when
financial assets like stocks and bonds have fallen to pennies on today’s

One answer is that several emerging disruptive technologies will – at
the bottom when few are paying attention – beget a flock of
next-generation Googles and Apples. By learning about them now we’ll be
in a position to judge them accurately and buy them wisely when the time

This is the first post in a series that will profile some of these
technologies, explain how they work and why they’ll change the world,
and list the companies currently building positions in each field.
Together, these posts will form the basis of a book (working title:
After the Crash: Tomorrow’s World-Changing Technologies and How To Invest In Them), due to be published in early 2018.

Energy goes exponential
Let’s begin with an easy one. Solar power is taking over the world — despite widespread skepticism. See the comments section of this 2015 post for a sense of readers’ brutally-negative expectations at the time.

Then consider what has happened in the intervening two years:

Stunning drops in solar and wind costs turn global power market upside down

(Think Progress) – For years, opponents of renewable power, like
President Donald Trump, have argued they simply aren’t affordable. The
reality is quite different.

Unsubsidized renewables have become the cheapest source of new
power — by far — in more and more countries, according to a new report
from the United Nations and Bloomberg New Energy Finance (BNEF).

In just one year, the cost of solar generation worldwide dropped on
average 17 percent, the report found. The result is “more bang for the
buck,” as the U.N. and BNEF put it. Last year saw 138.5 gigawatts of new
renewable capacity. That not only beat the 2015 record of 127.5 GW, but
it was built with a total investment that was 23 percent lower than in

“After the dramatic cost reductions of the past few years,” explained
BNEF chair Michael Liebreich, “unsubsidised wind and solar can provide
the lowest cost new electrical power in an increasing number of
countries, even in the developing world — sometimes by a factor of two.”

“It’s a whole new world,” Liebreich said. “Instead of having to
subsidise renewables, now authorities may have to subsidise natural gas
plants to help them provide grid reliability…Solar power delivers
cheapest unsubsidised electricity ever, anywhere, by any technology,”


Solar breaks 50% of California electricity for first time – driving wholesale rates negative

(Electrek) – According to the EIA, California solar power has been
driving wholesale electricity rates towards – and sometimes below –
$0/MWh – and on March 11th total solar power production broke 50% of
demand. The increase in utility-scale solar power, which grew 50% in the
state in 2016, is quickly changing the landscape. Recently we saw
California solar + wind hit a record high at 49.2%, with all renewable
energy above 56%.
In March, during the hours of 8:00 a.m. to 2:00 p.m., system average
hourly prices were frequently at or below $0 per megawatthour (MWh). In
contrast, average hourly prices in March 2013–15 during this time of day
ranged from $14/MWh to $45/MWh.

On March 11th, the California power grid broke 50% solar power for
the first time – when considering ALL sources of solar power in the

The conclusion? Solar appears to be going exponential, and if current
trends continue for just a little while longer it will dominate the
energy landscape. Here’s a little background:

There are two main types of solar power, of which by far the most
common is photovoltaic (PV). This term derives from the Greek word for
“light” and the more modern “volt”, the unit of electro-motive force. In
the most common version of PV, sunlight strikes a piece of silicon,
dislodging electrons which produce an electric current.

Solar cells — flat silicon planes several inches square — are the
devices in which this process takes place. They are combined and
enclosed in glass-covered panels which are configured in arrays ranging
from a few square yards on a rooftop to several square miles for
utility-scale solar farms.

During solar’s long gestation, its Holy Grail has been “grid parity,”
the point at which the electricity generated by a rooftop solar panel
is as cheap as the power delivered by the local electric utility. As
recently as a decade ago PV solar was so expensive that grid parity
seemed an impossibly-distant goal. But then several things happened.
First, solar was caught up in the financial bubble of the mid-2000s and
attracted enough capital to greatly expand the world’s silicon and solar
panel production capacity. The resulting oversupply caused solar panel
prices to collapse, the industry to lose vast amounts of money and many
solar stocks to fall perilously close to zero.

But the glut accelerated solar’s price decline just as governments
around the world decided that global warming needed to be addressed
with, among other things, renewable energy. They instituted a range of
incentives designed to encourage homeowners to install rooftop solar
panels and utilities to build solar farms. The incentives worked beyond
their architects’ wildest dreams, leading early adopters like Japan and
Germany to install more solar capacity in five years than had entire
world up to that point. This soaring demand allowed the solar panel
makers to fully utilize the factories they had built during the boom
years. Longer production runs produced massive economies of scale, and
prices plunged even further.

Spurred by this suddenly-booming demand, makers of related gear like
inverters — which convert DC current from solar arrays to AC current
that can power appliances — developed better, cheaper versions. And the
people who install solar panels on homeowners’ roofs learned from each
other until a standardized set of “best practices” emerged to make
installation both fast and cheap.

The International Energy Agency now predicts that solar’s share of
the global electricity market will rise to 26%, making it the world’s
single largest energy source. The global electricity market itself is
expected to double in that time, so solar will be grabbing a rising
share of an expanding market.

The players
Unlike many other emerging technologies, solar is already a fairly
mature ecosystem with several different types of companies operating in
various parts of the business. Among them:

Panel makers. Dozens of companies around the world
turn silicon (and occasionally other materials) into solar cells.
US-based First Solar is both the largest by market capitalization and
the only major PV firm that specializes in “thin film” panels made of
cadmium telluride. Most other major panel makers use silicon and tend to
be headquartered in China, where costs are low and demand for
locally-made panels is high.

Installers. System installers like Solar City (now
part of Tesla), Vivint and Sunrun build and maintain solar arrays on
homeowners’ rooftops in return for lease or loan payments that are
typically less than current utility bills. It’s not yet clear if this
business model works, however, because of the high cost of marketing to
individual homeowners.

Yieldcos. Similar to real estate investment trusts
(REITs) with commercial property or master limited partnerships (MLPs)
with gas pipelines, these firms own solar farms and pay most of the
resulting cash flow to investors. After some early stumbles, the concept
seems to be stabilizing and within a few years should be a hot niche
for income-oriented investors.

What’s coming
Solar works today, everyone wants it at the right price, and lots of
companies can supply it. But that is not an invitation to buy a bunch of
random solar stocks. Even during boom years there will be winners and
losers, and being able to tell them apart is crucial. That’s a subject
for another post, but for now it’s enough to know that solar stocks are
in a tumultuous boom in which they’re moving a lot of product while
watching their share prices languish.

When the broad markets finally crumble, solar will more than likely
be swept along with dying industries like oil, coal, and
bricks-and-mortar retailing. The difference is that at the bottom the
surviving solar stocks will be ready to soar. Here’s a piece of research
that may be helpful in identifying and tracking the eventual winners:

Solar Manufacturing Shakeout Could Leave Just a Few Dominant Players

( – For more than a decade, the solar industry’s manufacturing
buildout has been fast, chaotic, and — for the most part — financially
destructive. Dozens of companies would take on short-term debt,
primarily from Chinese state-run banks, to build out capacity using
standard equipment that led to lots of capacity, but very little
differentiation among manufacturers.
If you look at data sheets and cost structures, Canadian Solar
(NASDAQ:CSIQ), ReneSola(NYSE:SOL), JinkoSolar (NYSE:JKS), Hanwha Q Cells
(NASDAQ:HQCL), and JA Solar(NASDAQ:JASO) are all making very similar
products and selling them for very similar prices.

Commodities are prevalent partly because trying to take a different
path from commodity panels has been really tough. SunPower (NASDAQ:SPWR)
and First Solar(NASDAQ:FSLR) — who have differentiated technology —
have been stuck competing with companies who were willing to sell a
commodity product at low prices, competing on price alone, putting
extreme pressure on their businesses. And it was almost impossible for
the differentiation in technology to show when commodity prices plunged
year after year.

Changing winds in solar energy

The dynamic of costs driving everything may be starting to change in
2017. In residential solar, customers are trending toward more efficient
panels to maximize the power from their roofs, and they’re willing to
pay a premium to do so. Finally, cost isn’t the only driver in the
market today.

On the utility side, commodity panels have had an advantage, but the
weakness of the manufacturers in the market could undermine any cost
advantage they have. Utilities and solar developers want low costs, but
they also want reliable manufacturing partners. If the manufacturer goes
bankrupt, the warranty on panels is worthless, and given the long lead
time many projects are built on, they may not be able to supply panels
as contracted. And if the difference between a reliable manufacturer and
a weak one is a few pennies per watt, then a stronger partner may be
worth the premium.

We’re starting to see signs of developers making this decision in
2017. First Solar has signed 252 MW of projects in Australia, 107 MW in
France, and a collaborative deal with Turkey’s Zorlu Holding to
distribute solar panels in 26 markets. SunPower signed a 125 MW
agreement with NextEra Energy to supply its P-Series panels. These
announcements came as Chinese manufacturers have announced very few
large supply agreements in comparison to their capacity and have begun
reporting financial losses.

As commodity manufacturers weaken, customers find their products less
attractive. We saw this as Suntech Power hit financial trouble, and in
the last few years at Yingli Green Energy, where its financial weakness
has resulted in a decline in shipments. Customers want stable partners,
and that may put First Solar and SunPower in a good position.

R&D could decide the future winners in solar

Playing into this dynamic is investment in R&D. To stay ahead of the
competition, solar manufacturers need to invest in R&D. First Solar
and SunPower are investing a lot more in R&D than competitors.

Lately, this has led to First Solar’s Series 6 upgrade and SunPower’s
X-Series and P-Series products, which should have an efficiency
advantage over comparable products in the market. And as they invest
more in R&D, that competitive advantage should increase.

Can technology create a long-term advantage?

Everyone in solar is in rough financial shape in early 2017 as margins
shrink and the global market goes through a slight downturn. And most
Chinese manufacturers are both highly indebted and have little ability
to differentiate on a technology level, so they’ll likely continue to
struggle in the commodity market. And as that weakness shows, developers
may choose stronger players as suppliers.

This creates an opening for First Solar and SunPower, who have
differentiated technology and more stable operations. First Solar’s
massive expected $1.5 billion cash balance even at the end of 2017 will
mean this is a stable partner. SunPower’s balance sheet isn’t as strong,
but it’s two-thirds owned by French oil giant Total, which is a big
reason it has attracted customers like NextEra Energy.

Both manufacturers may be able to consolidate power in 2017 as
competitors hit a rough patch. And if they can do that, they may emerge
with a larger market share and higher margins in the future. With solar
energy just reaching a point of sustainable growth, that could be a
great position to be in for investors.

John Rubino runs the popular financial website He is co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street(Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

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