Solar Investing Rule #3:
After the IPO stage, a viable business plan must include internal funding of capex. If companies increase shares and debt every time they need capital for adding capacity, they will get to a point where all additional profits are diluted away, or go toward interest payments. During good times, for the economy and industry, these weaknesses may not be apparent. But, when an industry downturn happens, or credit conditions tighten, companies dependent on external financing will fail. The failure will be quick and spectacular, but the warning signs were there for years.
Rule #4:
Until one technology is clearly superior, it is best to reduce risk by investing in the best company in each technology. The solar industry is still immature, so nobody knows whether crystalline silicon, or CaTe, or amorphous Si, or CIGS, or some other thin film, or something I haven't heard about yet, will emerge as the superior technology.
This industry immaturity is shown, by the fact that different companies dominate each year. In 2010, the Chinese c-Si companies are aggressively grabbing market share. Before that, it was First Solar, with CaTe. Before that, it was Q-cells and Sunpower. In 2014, the alt-energy industry will probably be dominated by a company in Zimbabwe, using viruses to grab electrons from zinc-porphyrin molecules: inhabitat.com
Contrast solar instability with wind-power (relative) stability: Suzlon today has more than 50% of the India wind-power market. It has had 50% market share or better, every year for the last 10 years. It's a safe bet, that Suzlon will still dominate it's home-country market, next year, and the year after. It's also a safe bet, that companies like GE and Siemens and Vestas will still be in the top-10 rankings, and making profits in windpower, next year, and 5 years from now. There is no solar company that has a track record like that, of long-term dominance. Wind is a more mature industry than solar, and safer to invest in, today. |
