What's the best way to play the spike in solar stocks? And how do the ETFs stack up?
The Dow may have just logged its best first month of the year in 14 years, but solar stocks have outshined even the overall market in January. First Solar (Nasdaq: FSLR), the world's largest solar panel manufacturer, rose more than 18 percent month-over-month, while Trina Solar Ltd (NYSE: TSL), a Chinese-based integrated solar power products maker, rose 11 percent. Other solar stocks on the rise include SunPower Corp (Nasdaq: SPWRA), which increased nearly 5 percent in January, and Chinese-based Suntech Power Holdings (NYSE: STP), which rose 6 percent.
Still, solar energy stocks have remained volatile over the last two months, trading as usual in a pattern similar to that of crude oil futures. That's because the cost of converting to solar from traditional fossil fuel energy sources remains high; thus, the more we pay for a barrel of oil, the more attractive clean energy becomes. Now that oil's flirting with $90-$100/barrel, solar has begun to regain some of its favor with investors.
On top of oil's recent rally due to the Egyptian conflict, two other major events have helped push solar stock prices higher over the past two weeks.
For starters, on Friday [2/4/11], the U.S. Department of Energy said it would spend $27 million on a new effort to reduce the cost of solar power by 75 percent by the end of the decade. Currently, the cost to install photovoltaic solar panels remains about 22 cents per kilowatt per hour—lower than in the past, but still a substantial barrier compared with traditional energy sources. But if the government reaches its goal, that cost would drop to just 6 cents per kilowatt per hour.
Of course, exactly how the government intends to lower costs so dramatically remains to be seen. Will the mandates eat into the margins of the U.S.-based solar companies? Or will the money be used as subsidies to help improve the technology of the solar companies?
Another major factor driving solar stocks higher comes out of China, where an oversupply of polysilicon—a key ingredient in solar panels—has been flooding the market. Officials have floated new regulations that could help ease the oversupply situation, which would help margins of the related solar companies and boost their stock price.
China has fostered a thriving, if small, solar industry for years, and its lower costs have helped Chinese companies make major inroads into the U.S. and Europe. Chinese companies account for two-thirds of the global solar market, with one company, Suntech, selling one-quarter of all solar panels in the U.S. in 2010.