The Solar Industry After Solyndra

10/04/2011 7:30 am EST


Jim Trippon

Editor-in-Chief, China Stock Digest

It seems all solar companies have been painted with the same brush as Solyndra at this point, which means some companies are ripe for rebounds while others may suffer Solyndra’s fate sooner than expected, writes Jim Trippon of Global Profits Alert.

When solar energy company Solyndra, which had received a guaranteed government loan, went bankrupt and subsequently became the focus of a federal investigation, there was plenty of fallout.

Like the effects from a rock thrown at a piece of glass, however, the Solyndra scandal has shattered in many different directions—some of them unexpectedly, some of them all the way to China.

A Financial Mess
Solyndra was most famously trotted out by President Obama as an example of a commitment to green tech, solar energy, and jobs, when it was publicly displayed as a success, as a way of generating jobs and new business for the economy.

Soon after Obama’s appearance with Solyndra as a political showpiece, the model company for the new vision of green tech with a $535 million government guaranteed loan began to blow apart. Layoffs and a sequence of bad decisions on projects brought the company fairly quickly to a cash crossroads, then bankruptcy.

Political charges also swirled around the debacle. Republicans accused the Obama administration of fast-tracking the loan to curry favor via the company’s business and publicity. One of Solyndra’s main investors had ties to the Obama campaign of 2008.

Democrats, however, point out that Solyndra’s CEO is a registered Republican and that the Walton family, known for supporting Republican candidates, was a large private investor. Also, Solyndra’s loan came under a program originally initiated in the Bush administration.

Obama certainly lost political capital, but there are far more important issues here.

Others have suggested that it’s simply another case of the government failing to do proper diligence. Fast-tracking bad loans and making bad financial decisions seems to be something that can find bi-partisan culpability in recent financial fiascos.

Now there are more questions concerning Solyndra coming from the federal investigation. But what has also happened is that the Solyndra mess has put the entire solar industry in the US and globally, including China, under the microscope and under attack.

NEXT: The Real Loser


The Real Loser
While Solyndra’s loan guarantee comprises roughly 1% of the US’ $38 billion loan-guarantee program, what looks to be the biggest loser in the aftermath of Solyndra’s failure is the solar industry.

Solar stocks such as First Solar (FSLR), regarded as a leader in the US, saw its stock tumble seven straight days in a breathtaking freefall. First Solar was pursuing a government loan commitment, also from the Department of Energy, for $550 million for a large project which suddenly received new scrutiny, until it was finally granted eleventh-hour approval.

China’s solar stocks listed on the US exchanges also got battered. In July, Suntech Power (STP) traded at more than $7 a share; recently it traded at around $2.50. The beatdown was the same with Trina Solar (TSL), Yingli Green Energy (YGE) and others.

Yet what did Suntech, Trina and Yingli Green have to do with Solyndra? Nothing. Same as First Solar, but it didn’t seem to matter at all. The solar stocks have been the biggest losers so far in the Solyndra scandal fallout. Call it massive guilt by association, even though there was neither guilt nor any real association.

In the US, all of a sudden loans for any and all solar projects were being scrutinized more severely. There’s nothing particularly wrong with that, as the DOE should have been doing its diligence in the first place.

What is wrong is that First Solar’s projects are being looked at by some in the same light as Solyndra’s. Yet First Solar has been a profitable company with a history of real earnings, real cash from operating activities, a sound balance sheet, and technological expertise. That no longer seems to matter.

Likewise, as far as investors are concerned, it doesn’t matter if Yingli Green, which recently traded at a preposterously low P/E of 1.84, has real earnings and a thriving business, as do the other Chinese solar firms.

See how this cascaded: The premise was that if Solyndra was a poor risk, then all solar companies must also be, so therefore First Solar is risky as are the Chinese companies. This was beyond a market overreaction, instead it was the market near hysteria.

There are some legitimate questions for solar companies and the industry, just as there are for any company and any industry.

With the lowering of subsidies in Europe—particularly from solar’s historically biggest booster, Germany—there is a legitimate concern about a slowdown in demand. Then there’s the overall global economic slowdown, with the specter of possible global recession.

But to take solar stocks, particularly China’s solar stocks, down so low where they are trading at minuscule values is absurd.

There does remain in place China’s government commitment to green energy in its own country, and the financial support of its solar industry. That is a story that bears more telling, also.

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