By Jeff Siegel
Times sure have changed!
In 2006, I attended my first Solar Power International (SPI) conference in D.C.
It was a no-frills event but loaded with valuable information I used to help Energy and Capital readers get a jump on the solar bull market that ran from 2006 to 2008.
Truth be told, we cleaned up. But nothing lasts forever. And when the market nosedived in 2008, solar stocks were not exempt from the ravenous bears that mauled everything in their path.
Of course, as the broader market began to inch back up in 2010, solar stocks didn’t miss a beat… at least the handful that were still viable.
Since 2010, solar stocks have enjoyed a fantastic ride. First Solar (NASDAQ: FSLR), SunPower (NASDAQ: SPWR), and JA Solar (NASDAQ: JASO), just to name a few, showed non-believers that the solar industry was no longer a niche market catering only to tree huggers and wealthy eccentrics. And when I arrived at this year’s solar conference, I expected to hear more cheering and chest pounding from the gatekeepers of this industry.
What I heard instead was something every energy investor should know about because there’s a very real possibility that the solar industry could soon be heading face-first into another meltdown.
A Solar Nightmare
I should preface this section by telling you that despite some ominous news, the solar industry has still put up some pretty impressive numbers. Consider the following:
- Annual solar installations in 2014 will be 70 times higher than they were in 2006.
- By the end of 2014, there will be nearly 30 times more solar capacity online than in 2006.
- Solar has gone from being an $800 million industry in 2006 to a $15 billion industry today.
- The price to install a solar rooftop system has been cut in half, while utility systems have dropped by 70%.
- It took the U.S. solar industry 40 years to install the first 20 gigawatts (GW) of solar. It’ll install the next 20 GW in the next two years.
- During every week of 2014, the solar industry installed more capacity than it did in the entire year of 2006.
Now, the reason I focused on 2006 in this list is because this is when the solar Investment Tax Credit (ITC) kicked in.
The solar ITC is a 30% tax credit for solar systems on residential and commercial properties. And it is the ITC that, without a doubt, has been one of the most important federal policy mechanisms supporting the deployment of solar energy in the U.S.
It’s also scheduled to expire in 2016.
Now, if you’re a regular reader of these pages, you know I’m not a fan of energy subsidies. There is no greater threat to a free market than government intervention. And in the case of energy, it’s these subsidies that push lawmakers to pick and choose winners in the energy industry. This goes for everything from solar and wind to fossil fuels and nuclear.
That being said, I completely understand why Rhone Resch, president and CEO of the Solar Energy Industries Association, said the following at the opening session of SPI:
It’s absolutely imperative… job #1… that we extend the 30 percent solar Investment Tax Credit past 2016.
2015: The Year of Solar
The truth is, no one actually knows whether or not the ITC will be extended beyond 2016.
If I had to put money on it, I’d say it’ll get extended for at least another four years, taking us into 2020. But when it comes to policy, nothing’s certain until all the votes are counted.
So as a result, many in the solar industry are now operating at a capacity that suggests 2015 will be the last year for that 30% tax credit. In other words, they’re kicking it up a notch in 2015 in an effort to take full advantage of the ITC before it expires.
I suppose it’s a bit of an uncomfortable indicator for solar supporters, but for energy investors, it is a call to action: Ride the wave of aggressive integration in 2015.
There’s no doubt that the big dogs in the solar sector are treating 2015 as if it’s the last year for the ITC. Although that may not be the case, it’s still a precautionary measure that’rsquo;ll help these companies hedge against uncertainty as 2016 approaches.
No solar company will take it slow in 2015, but there are five solar companies (or companies with skin in the solar game) in particular that I believe will intensify marketing, acquisition, and development efforts so much that they’re going to blow the doors off and deliver record revenues before 2016 arrives.
Not surprisingly, these are the companies that are currently well capitalized and already have competitive and first-mover advantages. And for the sake of full disclosure, the success of these companies does put money in my pocket:
- SunPower (NASDAQ: SPWR)
- First Solar (NASDAQ: FSLR)
- SolarCity (NASDAQ: SCTY)
- SunEdison (NYSE: SUNE)
- Hannon Armstrong Sustainable Infrastructure (NASDAQ: HASI)
Of course, if the solar ITC is extended, then 2015 will just be icing on the cake. And while I certainly won’t vocally support any subsidy for energy, as long as fossil fuels and nuclear continue benefitting from direct and indirect subsidies just as they have been for decades then it should not come as a surprise when the solar industry gets the go-ahead to wet its beak from the government trough, too.
So invest accordingly.
To a new way of life and a new generation of wealth…
Jeff Siegel is Editor of Energy and Capital, where this article was first published. 
@JeffSiegel on Twitter
