Why is solar looking up?
Deustche Bank recently put out a report with a positive outlook for solar in countries like Italy and India. In nations with a large amount of solar radiation and dilapidated electricity grids that cause 600 million person blackouts, distributed solar energy makes sense. At the same time, technology continues to advance, driving down solar costs.
Don’t forget inflation
Inflation is normally seen as the enemy, but it can be a wonderful thing. A solar installation is a fixed cost and can be financed by fixed rate debt. At the same time, inflation continues to increase electricity costs.
If a corporation decides to build a solar installation to power a factory with an expected a life span of 25 years, the cost of its solar energy will remain stable while utilities continue to increase rates. The differential between these two rates means that a solar installation will become cheaper over time.
How can you be ready?
There are not many ways to invest in the solar industry. There is talk of changing some legalities so that REITs could be constructed based on solar assets. Until this happens, staying informed about solar manufacturers is one of the best ways to invest.
FSLR Profit Margin Quarterly data by YCharts
First Solar, Inc. (NASDAQ:FSLR) is one of the better firms with a total debt to equity ratio of just 0.16. In a market where many companies are stuck with high debt loads, First Solar stands out. The downside is that, even with a high gross margin of 33.1%, the company still posted a loss in 2012 due to a bad first quarter.
The next couple years are looking up, and analysts expect the company to be profitable in 2013. The firm’s thin film technology is not as efficient as competing technology, but First Solar, Inc. (NASDAQ:FSLR) is still expected to make money. Currently, the company, a value play, can be picked up at a price to book ratio below 0.65.
SunPower Corporation (NASDAQ:SPWR) is not a perfect company, but it is one of the better solar manufacturers. The firm’s total debt to equity ratio of 0.83 is not excessive relative to those of its rivals. The company’s high-efficiency technology and strategic backing by the French oil company Total are major positives.
