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

Solar systems
Solar systems

The light in the tunnel for companies engaged in the manufacturing of solar cells, modules and photovoltaic systems in the world, seems to be faded, since in the recent years the sector has been undergone to continual sales. The initial high expectations in the middle of the last decade, were followed by disappointment, poor results and a number of bankrupt companies.

How did it come to this?

With the entering of China in the PV market, there could be observed an oversupply that significantly exceeded the global demand and led to considerable decline in the profitability of solar companies. Just for compare, in the period from 2001 to 2010, the market share of China increased from 1% to nearly 50%. The practice of Chinese companies to sell items at a price below its real cost, let to significant decline in the price of photovoltaics, causing not one or two bankruptcies in the sector, of companies that could not withstand the low market prices. Despite the anti-dumping measures that the American Government was trying to get regarding Chinese companies, prices of the items remain low, which determines the negative results of most companies in this sector during the recent quarters.

Another negative impact on the sector and in particular over the U.S. had the significant drop in the price of gas in a worldwide, which reduced the cost of electricity overseas. The production of shale gas has significantly increased the demand, making the more expensive solar energy uncompetitive. A recent example of the difficult situation in the sector was the delayed IPO of Bright Source Energy Inc. due to the unfavorable market conditions in the sector.

One of the major indices, reflecting the state of the solar industry in the world is the Guggenheim Solar Energy (TAN:arcx), recorded a considerable reduction in the last year. During the last month it could be observed a certain revival in trade with companies in it that led to its increase of nearly 15 % compared to 6 % increase for the wider S & P 500.

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