The Recent Solar Energy Push Won’t Last Long
Not long ago, I wrote about the German drive to replace nuclear energy with solar and wind power.
At the time, Berlin was touting this overture as the “next great push” into a new energy age.
Turns out, plans haven’t gone as expected.
This winter has provided a good example of how things can go wrong. Solar has a major drawback in that all panels shut off at the same time. That requires massive reliance on other sources of energy.
Despite its avowed decision to relinquish nuclear power, Germany must now import nuclear-generated power from neighboring countries and resort to coal, despite an earlier move to the contrary, in the face of the highest energy costs in Europe. The government is even opening taboo fuel oil generators to make up the power slack.
A move against fracking has prevented the development of domestic unconventional gas, leaving the country dependent once again on importing volume, primarily from Russia. What had begun as a bold experiment in rebalancing energy sources has resulted in a developing pricing crisis.
The cost of German energy needs has begun stifling economic development. That is likely to become a more pressing issue moving forward. The solar energy industry in the country has been the recipient of massive subsidies, including what is known in the American market as “renewable energy portfolio standards.”
These “standards” require utilities and distributors to purchase a certain percentage of their power from more expensive renewable energy sources, passing those added costs on to already besieged consumers.
Rates are now projected to go up as much as 60% in the wake of the nuclear shutdown.
And the problems for end users and renewable energy sources are going to get worse.
A Record Setting Month
December marked the highest month in history for new solar systems connecting to the grid. The subsidies for adopting renewables expired at the end of the year and additional units are now expected to await a new round of government assistance.
But those making it by the deadline are eligible for subsidies over the next 20 years.
That ensures a continued bite out of taxpayer revenues for what will remain a more expensive method to generate electricity.
Unfortunately, cost increases hardly end there.
The so-called “green energy surcharge” applied to electricity bills across the nation will be moving up…again.
This will translate into on average a 200 euro ($260) per year additional expense for each household, after calculating an increasingly expensive energy bill.
This has led one of the leading German national think tanks to label the solar energy push “the most expensive mistake in German environmental policy.”
Expectations are that there will be a new emphasis placed on other renewable sources, such as wind power or biomass. Yet there is no possibility that a renewable remedy of any sort is in the cards without significant subsidies and rising costs to consumers.
Ultimately, there will be an ongoing permanent place for solar, wind, and other renewables in the developing energy balance. Despite the prospects emerging in unconventional oil to complement the same in gas, the position of sustainable non-fossil fuel alternatives will improve over time.
Unfortunately, time is also the problem.
Attempts for massive transitions in the near term are hampered by technical limitations and high prices. Unless there develops a genuine market burst point in both usage and generation, this is likely to remain an energy segment dependent on public sector assistance programs. Pure market drivers discourage the use of solar due to both reliability and cost factors.
An investor should keep this in mind when reviewing the recent moves in solar and wind stocks.
Solar Stocks Remain Down Significantly
While primary exchange traded funds (ETFs) in both solar and wind power have been moving up, you should be particularly careful about how sustainable that movement is.
First Trust Global Wind Energy (NYSEArca: FAN), is up 2% for the month, but down 6.6% over the past 13 months. Meanwhile, the two most liquid solar ETFs – American Vector Solar Energy (NYSEArca: KWT) and Guggenheim Solar (NYSEArca: TAN) – are both up for the month (4.6% and 3.2%, respectively).
But after reviewing their performance since December 2011, they are significantly down by 33.1% (KWT) and 40% (TAN).
The same shortcomings are apparent when reviewing leading individual companies. The solar sector is becoming controlled by the Chinese, where both the development of new approaches and the building of new usage networks have concentrated in a new center of the solar industry. Even still, Chinese LDK Solar (NYSE: LDK), while up 1.9% for the most recent month, is down a whopping 77.6% since December 1, 2011.
The most visible American company, First Solar (NasdaqGS: FSLR), has lost 13.5% for the month and 55% in the last thirteen months. And the American Depository Receipts (ADRs) of dominant wind power leader – Danish Vestas Wind Systems (OTC: VWDRY) – may be up 7.3% for the month, but still down 63.6% over the same thirteen-month period.
None of this should prompt us to conclude that renewables are on their way out.
Far from it.
But it does indicate that the prospects of these alternatives remain dictated by cycles of government support either in the form of direct subsidies or indirect incentives (such as portfolio standards).
And that does not provide for an adequate investment base.
For now, understand this reality for the solar and renewable investment environment.