Can These Alternative Energy Companies Survive?

The alternative energy industry is going through a major transition, which has left a number of companies in bankruptcy. Most recently, Suntech Power, formerly the largest solar manufacturer in the world, defaulted on loans and was forced into insolvency.

Today, I will take a look at the hopes for survival of three high-profile companies in alternative energy that have many challenges ahead.

GT Advanced Technologies
A year ago, I was very bullish on the businesses GT Advanced Technologies (NASDAQ: GTAT  ) operates in, and optimistic about the future of the company. But since then there's been a continuation of falling prices in end markets, and equipment orders aren't coming through as quickly as investors once hoped.

The HiCz System was supposed to change the game for solar, bringing cell efficiency from 18.5% to over 22%, a huge improvement for the industry. But its commercial launch has been pushed back to 2014 and it appears that order intake is slower than expected.

Sapphire technology started with a bang for GTAT and could be used for everything from lighting to cell phone screens, but similar cost pressures as those in the solar industry have hurt orders. During the second half of 2013 the industry is expected to pick up as new applications begin to gain market adoption.

The company fell to a $159.4 million loss in Q4 2012; with $297 million in debt versus $418 million in cash the company can't afford to have many more quarters like that. The problem is that management expects to lose money on a GAAP basis again this year, despite a $1.2 billion backlog.  

Will GTAT survive? I think so because the company has a decent balance sheet and should have long-term growth in the markets it serves. But this isn't a bet I'd make until we see demand and cash flow pick up, something for which we've been waiting a long time.

Power-One
The inverter market is supposed to be hot, but Power-One (UNKNOWN: PWER.DL.DL  ) can't seem to gain any traction on the stock market. Micro-inverter competitor Enphase (NASDAQ: ENPH  ) has actually been the hotter stock recently, while Power-One bounces around near 52-week lows.  

What's maddening for Power-One investors is that the company makes money (unlike Enphase) and has a flawless balance sheet (unlike Enphase).

PWER Net Income TTM Chart

PWER Net Income TTM data by YCharts

Investors are struggling with the direction of results, both on the top and bottom lines. A great balance sheet is only a strength until you start burning cash with losses, something we've seen before in alternative energy. If declining sales continue that's where Power-One is headed.

In the end, Power-One is in a growing business, it's making a profit, and it's generating free cash flow. I'm not confident enough to say Power-One will outperform the market but I think this is one company that will survive for years to come.

First Solar
The story of First Solar (NASDAQ: FSLR  ) over the past decade encapsulates that of the entire solar industry. There was euphoria in the mid-2000s when European countries handed out generous subsidies and there was more than enough demand for all the panels First Solar could make. But as the decade wore on, China began building a solar behemoth, driven by easy money from state-run banks. The solar bubble burst and companies began dropping like flies across the industry. At the same time, First Solar's stock dropped like a rock.

FSLR Total Return Price Chart

FSLR Total Return Price data by YCharts

So far, the company has survived the worst, but the real challenge lies ahead. First Solar's thin-film technology is falling behind its rivals', particularly those making high-efficiency panels like SunPower (NASDAQ: SPWR  ) . First Solar has virtually no share in the steady growing residential market, also dominated by SunPower, relying instead on giant projects to generate revenue.

The problem is, these huge projects are drying up. Utilities in the U.S. are getting enough renewable energy from distributed solar (residential and commercial) and don't have to sign up for huge projects to meet mandates anymore. Worldwide, First Solar is having some success signing big deals, but it's not enough to fill its backlog.

The First Solar we see in 10 years will look nothing like the First Solar we see today. The company may spin off its project-building unit into a REIT or an MLP, or the company may just shut down manufacturing if it can't improve efficiency.

First Solar is one company I'm confident won't survive without major strategic changes. The company is setting up to make that happen but investors shouldn't buy into the future until they know how this plays out.

If you’re looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.

Foolish bottom line
I'm confident Power-One will survive but GT Advanced Technologies and First Solar have much larger challenges ahead. Which companies do you think will survive and who will thrive? Leave your thoughts in our comments section below.


Read/Post Comments (10) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 28, 2013, at 6:02 PM, gene132 wrote:

    Sad, but NONE of these firms can survive without massive subsidies-given out by the utilities (at the government's behest). Solar is NOT competitive, and will never be. The Germans are finding that out now.

  • Report this Comment On March 28, 2013, at 6:47 PM, JadedFoolalex wrote:

    gene132,

    I completely agree with you. The Germans are finding out the hard way and so, too, will the Chinese!

    Travis,

    an efficiency advance from 18% to 22% is not a huge leap. Going from 18% to 92% IS! Until someone engineers a new material that extracts better than 70% of the sun's energy input as well as designs a new conduit that does NOT incur line losses, Solar power will NEVER be a viable option, either energy or investment-wise!!!!

    I'm really sorry to burst your bubble, Travis. I know I've been hard on you for your columns lately, but I don't want you or any other Fool throwing away good money after bad!!

  • Report this Comment On March 28, 2013, at 11:06 PM, dgmennie wrote:

    Regarding solar and wind as alternative energy sources, I agree that dumping endless amounts of carbon dioxide into the atmosphere is not a good idea. But this is a condition demanding worldwide cooperation to resolve -- otherwise, no solution is possible. It is downright silly for any city, state, or country to inflict damage on its local economy in response to this because the carbon dioxide produced in other parts of the world is beyond the control/influence of any one government. Emerging economies everywhere want to use conventional (e.g. low cost) energy sources to grow their domestic economies and produce export goods. They are not about to cut back for grander goals such as saving the planet. Solar and wind energy might be an option for some, but not for folks in mud huts trying to cook dinner or stave off the cold.

    Politically-correct advocates and politicians now make careers out of promoting various tax plans to limit carbon emissions, or "cap and trade" schemes to shuffle the deck chairs around (like on the Titanic). This is total nonsense in the grander scheme of things. Better they deal with the abundant problems of society that will yield to human intervention (like ruinous property taxes, bad education systems, corrupt medical practices, bad investment advice masquerading as honest research).

  • Report this Comment On March 29, 2013, at 9:10 PM, NOTvuffett wrote:

    dgmennie, although i disagree with your supposition that carbon dioxide is a prime driver of the world climate, i appreciate your clear thinking on this matter. even if you do think that this is true, a piecewise implementation of carbon control will have a neglible effect in the forseeable future.

    currently, the level of carbon dioxide is less than 400 parts per million. would you deny countries like china or india the right to produce co2 as they become more affluent?

    travis, the only way to evaluate solar is to quote it in an amortized $/kWh scenario. what is the amortized cost of coal or nat. gas $/kWh.

  • Report this Comment On March 30, 2013, at 11:45 PM, edison2222 wrote:

    Enphase is a different inverter, not in the box product. It not only a lot easier to install with only 24VDC input, it also work on the back of each individual panel. That not only helps a lot of DIYers, it also allow monitor each panel performance and reporting power generation daily for each panel. Other inverters runs on 700VDC, require professional installer and dangerous, if any one panel gone bad, whole solar array is not produce must and hard to find problem. That is why Enphase gained so much market share. It will probably grab market shares from all other inverter manufactures.

  • Report this Comment On March 31, 2013, at 4:04 PM, TMFFlushDraw wrote:

    @JadedFoolalex

    Solar power is already a viable option. You don't have to believe me though. Just watch subsidies continue to fall and installations continue to rise. Most people won't realize how cheap solar is until they figure out it's financially unwise not to have solar on their roof... which is happening today in many parts of the country.

    Germany is a terrible solar market because it has no sun, which is why it is declining as subsidies decline. Germany gets less sun than Minnesota (for a comparison). In California, Arizona, Saudi Arabia, Australia, Japan, etc. solar is cheaper than other new energy sources.

    @NOTvuffett

    Here is a good analysis of the numbers you're looking for. Keep in mind, this is nearly two years old and the cost of solar is down 20% to 40% since then (depending on type of install).

    http://votesolar.org/wp-content/uploads/2012/07/Lazard-June-...

    Travis Hoium

  • Report this Comment On April 02, 2013, at 2:01 PM, gembuyer wrote:

    As an investor in PWER, GTAT, and ENPH I also have 95 ENPH inverters and total of 95 pannels made by Sharp. With subsidy my break even point was just under 3 years. Without the subsidy, My break even would have been around 10. That means with a 20 year warranty, it cuts my electrical energy bill by 50%.

    Now, that is the price of panels two years ago. Current prices are down about 30% from then. So current payback is about 6.5 years.

    More than economical, Generating my own solar power is a wonderful investment of my capital for the return generated. I am on grid and sell excess prime generation back to the utility.

  • Report this Comment On April 02, 2013, at 2:06 PM, gembuyer wrote:

    dgmennie perhaps you need to read more. Please note you comment saying India will not use solar, when they are puting panels over canals to generate electricity and decrease evaporation. Leading the world in technology while emerging from the third world.

    Please be careful in the assumptions you post without knowledge. Perhaps that is one input into your rating of less than 20

  • Report this Comment On April 02, 2013, at 4:58 PM, jargonific wrote:

    It seems to us that Sunpower, SPWR, is under assault annually from short sellers and that this is the worst threat, not ending subsidies.

    The company appears to be nearing the stand alone point. But we have a suggestion. Let's remove the ability of short sellers to target alternative energy stocks of any kind.

    That might be the best way to give the companies producing these products a lift and protect those of us who are willing to take the risk as investors too.

  • Report this Comment On April 09, 2013, at 10:45 AM, GirlsUnder30 wrote:

    Did anyone notice the article that preceded this one?

    http://caps.fool.com/Blogs/the-awesome-opportunity-with/8013...

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