This Solar Company's Dim Future

LDK Solar (NASDAQOTH: LDKYQ  ) will miss an interest payment that's due today because it doesn't have the money on hand to pay it. While its losses were reduced by a third in the latest quarterly numbers released on Monday, its revenues were cut in half.

Unfortunately for the panel maker, while rivals ReneSola (NYSE: SOL  ) and Suntech Power (NASDAQOTH: STPFQ  ) were thrown lifeline loans earlier this year by the government-controlled China Development Bank, Beijing no longer seems willing to extend a helping hand to its solar sector. LDK will have to fend for itself. It's probably no coincidence that Suntech defaulted on its bond interest payments and declared bankruptcy for one of its subsidiaries in March despite the cash infusion.

Like many of its solar brethren, LDK can't operate without government subsidies, and though industry advocates like to say oil companies are subsidized so why shouldn't we do the same with solar shops -- President Obama has made that same argument saying we should take the subsidies from Big Oil and give them to Big Solar -- the fact remains solar power is already subsidized at greater cost than any other form of energy based on the amount of electricity generated. 

Apparently China has finally learned that subsidies don't guarantee success, just as U.S. taxpayers learned that lesson with the bankruptcy of Solyndra, Evergreen Solar, Abound Solar, and a host of other solar shops along with so-called "green tech" companies like lithium-ion battery makers A123 Systems and Ener1 that all got government handouts. We're also still paying a heavy price for the government's "investment" in General Motors and its heavily subsidized-but-still-losing-money Chevy Volt.

A Wall Street Journal article last year showed that while oil and gas companies received subsidies amounting to $0.64 per megawatt hour produced, solar's subsidies topped a whopping $776 per megawatt hour. For the amount of money spent, we're getting very little return on our investment, although the Energy Dept. says those numbers might be off because a lot of the solar projects were still under construction at the time. Yet with just $654 million spent underwriting oil and gas (compared to $968 million with solar), we're getting the best bang for our buck there.

This country is broke and going broker by the day. We can't afford to keep solar companies on the payroll any longer and other countries around the globe have realized the same thing. That even China realizes this now suggests we could see many more solar shops falling by the wayside.

While alternative energy is great in concept, it still isn't ready for prime time, whether that's solar companies being able to run profitably or alt-fuel vehicles displacing gas guzzlers. I believe the troubles LDK Solar highlights will come to be the industry norm and would not put a dime of my investing dollars into any of them at this time.

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Read/Post Comments (8) | Recommend This Article (1)

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  • Report this Comment On August 28, 2013, at 8:28 PM, mtracy9 wrote:

    This article appears to have been written by

    a shill from Exxon. Solar and wind power

    are the fastest growing forms of energy in the US,

    much to the dismay of the oil companies

    who want to keep up hooked on oil for

    obvious reasons.

    As for Solyndra, that was a minor blip of one

    billion, compared to the 2 Trillion we've blown

    off in the Middle East in the conquest of oil

    and oil company profits in places like Iraq.

  • Report this Comment On August 28, 2013, at 8:38 PM, ronwiserinvestor wrote:

    Why aren't any of the solar leasing and PPA companies mentioned in this article. I can think of several who are collecting a massive amount of taxpayer money in the form of the 30% tax credit that they are applying to their much higher system pricing. One in particular hasn't made any profits, yet investors keep dumping money into them only to watch their stock price tumble. And now that $0 down FHA backed loans have hit the market, the road ahead for solar leasing and PPAs will get even tougher. The solar lease and PPA bubble will soon pop.

  • Report this Comment On August 28, 2013, at 9:58 PM, ChiefOreilly wrote:

    It would appear that the once Independent-minded Motley Fool has been bought out by the fossil fuel industry whose writers are using MF as a vehicle for their lies and misinformation.

    MF has had articles almost daily for the past week or two touting the wonders of Natural Gas, and how harmless and beneficial is the process of fracking.

    Now, they add misinformation about the Solar industry. The article reads like something you'd expect on Sean Hannity or Fox News - misinformation, propaganda, and pandering to confirmation bias.

  • Report this Comment On August 29, 2013, at 12:50 AM, TheDinger wrote:

    A little more perspective is in order, as well. The oil industry has been in existence since the latter 1800s, and is very mature. The solar industry, although photovoltaic technology traces back to 1879, did not begin to develop commercially until the 1950s. Solar is decades behind oil in its development, and thus is still quite inefficient.

    A new automobile design (Tesla, anyone?) is "great in concept" also. And the very first one manufactured costs exponentially more than the millionth one that will be manufactured.

    If we should give up without making the effort, as the author suggests, the world would still be in the Dark Ages.

  • Report this Comment On August 29, 2013, at 5:36 AM, Tarpitz wrote:

    Really earning some extra brownie points with Glenn and Rush with this effort. Nobody said solar was going to replace oil overnight but something eventually will need to since the supply is finite. Yes I know we may have many years of fossil fuels remaining, but that doesn’t change anything, it is going to run out eventually. Solar is the best bet right now unless we can start mining the moon for fusion fuel. In the next few years many subsidies won’t be needed for solar and it’s getting more efficient every year, which will continue for many decades. This Seeking Alpha article from 8/27/13 reports that subsidies aren’t required already in many areas for solar to be competitive:

    “Deutsche Bank said the dramatic fall in the price of solar panels to between $0.60 and $0.70 per watt - lower than thought possible five years ago - has already rendered solar power competitive "without subsidies" in Japan, South Korea, Australia, Italy, Greece, Spain, Israel, South Africa, Chile, Southern California, Hawai and Chile - in some cases because electricity prices are ruinous. (Italy's solar is not efficient but electricity retails at $0.38 per kilowatt hour, compared with $0.15 in Germany and the UK). These regions could be joined within three years by Thailand, Mexico, Argentina, Turkey and India, among others. Mr Shah said emerging markets are likely to embrace solar over the next decade for hard-headed commercial reasons, without the need for government subsidies. [Evans-Pritchard]”

    Because of this and the many benefits of solar it has a good chance to be the main energy source of the future and in many places the energy source of choice for the present. Of course there are difficulties that need to be overcome and some companies won’t survive but to not see the enormous potential is a huge mistake.

  • Report this Comment On August 30, 2013, at 10:43 AM, ifool100 wrote:

    This article appears to be more a political statement, rather than helpful info about alternative energy.

  • Report this Comment On August 30, 2013, at 12:38 PM, ibuildthings wrote:

    Subsidies don't guarantee success or failure. If an idea was workable, AND the subsidized participants do the correct things, it is similar to any other infusion of cash. The key difference is who decides where the subsidies go. That is usually based in politics and "connections".

    I for one was not angry that Solyndra's investments didn't work out. Such is the risk of venture capitalism, whether private or public. I was very angry when Obama's donors got a second round of funding, and used that money to refund their own personal investments, so that when the bitter end arrived, they had their money out and the taxpayers took all of the losses. That was a lack of politics and integrity, not related to the viability of solar energy.

  • Report this Comment On August 31, 2013, at 8:23 AM, TMFCop wrote:

    ibuildthings,

    The problem with political "venture capitalism" is the investments are rarely if ever made on the basis of a project's viability, and almost solely on the political connections. That's why Solyndra should cause outrage, because the politics overrode the financial sense that others were cautioning. Because the owners were big political donors, the pressure was on to keep throwing taxpayer money at it rather than end it as should have happened earlier, as even those on the inside acknowledged.

    Of course the other problem is that it's not the government's function to play venture capitalist. By deciding where money gets funneled it dries up capital for other ventures that individuals would choose or prefer to invest in.

    I don't think the government should ever be in the business of loaning money to businesses. If it wants to create incentives through tax policy to boost certain areas where it thinks investment should be going, that's fine, though again I see that as diverting resources away from other areas.

    It's like the "broken window" theory of classical economist Frederic Bastiat: since a broken window creates more business for the glazier, it *seems* like good public policy to go around and break windows. What's unseen though is that the money that's channeled to the glazier is taken away from places the people might otherwise want to spend their money, say at the baker, the shoemaker, etc.

    Public policy typically only looks very narrowly at one outcome -- the business generated by the glazier -- and neglects the broader impact on the money taken away from everyone else.

    Thanks for reading.

    Rich

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