Are there any good prospects for the solar companies? Part ІІ

Solar systems

Despite the negative performance of the companies in this sector, the low market prices have led to consolidation in the sector and sifting out a significant number of poor quality companies. The positive aspect of things is the leading by some developed countries policy of diversification of energy sources, which gives priority to renewable energy sources. Preferential purchase prices of energy and subsidies, received by the countries, and the entry of solar energy in people’s households, will inevitably maintain the interest in solar components.

Examples for this issue might be:

• Japan’s decision to abandon nuclear power and to face toward renewable energy, approving preferential tariffs for renewable energy;

• Germany’s decision to abandon nuclear energy;

• Attempts by European countries to increase with 20% the share of renewable energy sources in total energy consumption;

• The creation of the first solar airplane;

• Plans to introduce solar chargers;

• Apple’s plans to create their own solar center for building solar systems, etc.

And while in Europe the situation is still controversial regarding the revision of tariffs for renewable energy in countries like the UK, Italy and Germany, in the U.S. could be observed a significant revival in the use of photovoltaic installations. For the first quarter it has been reached growth by 85% of PV installations on an annual basis, which is the second best quarter in the history. The expectations for 2012 are that the United States will take nearly 11% of the total consumption of photovoltaic installations, placing in the fourth place in the world after China, India and Japan. For comparison, in 2011 the U.S. share of total consumption was 7%, while in 2010 it is registered a share of 5%, which clearly defines the trend of consumption overseas.

From this perspective, a long-term investment in a company in the solar industry can be a good purchase for market participants that take high risks, taking into account the extremely low values that reached some of the companies in the sector. The problem is the selection of a particular company. Many companies appear undervalued in terms of their market factors, as in the same time they do not show profitability or have high leverage. In some of the Chinese solar companies there is a loss of confidence in the published data, since in the recent years signals and actions against Chinese companies became more frequent, manipulate their own accounts.

Therefore, if investors are willing to invest in this sector, most appropriate seems the purchase of exchange-traded fund Guggenheim Solar Energy Index (TAN: arcx), because in this way there is an exposure in the sector, without having a concentration in one particular company. This gives the opportunity to benefit from the positive development of the sector as a whole.

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