This Week in Solar

Most solar stocks had a solid run this week, driven by installation optimism and some major signings in the utility market. Trina Solar and Yingli Green Energy were both upgraded by an analyst this week, predicting higher sales in China.

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The moves of First Solar (NASDAQ: FSLR  ) and SunPower (NASDAQ: SPWR  ) were helped by a broad rise in solar stocks, but they also signed utility deals this week. Here's what else happened this week in solar.

Utility-scale solar is back
When First Solar last reported earnings, there was concern -- from me and others -- that a falling backlog of utility-scale projects would bring about the company's demise. But, as I highlighted earlier this week, utility-scale projects are going strong in the U.S., and the acquisition of 1.5 GW in pipeline last month and another 250 MW project this week will help keep the utility business busy.  

SunPower also announced a 70 MW project in Chile. The project will partially be owned by SunPower's parent Total and is the largest project to sell solar power into the spot market. The combination of strong sunlight and high electricity prices makes Chile a perfect place to build unsubsidized solar plants, and SunPower is now joining the fray. Look for this to be a big market for First Solar going forward as well.

Utility-scale projects are important for investors because, simply, that's where the money is. First Solar and SunPower are making profits based on these projects right now, not based on selling solar panels. Growth in utility-scale solar may not be sexy, but it's profitable for those who can do it.

SolarCity wants to dominate residential solar
The management team at SolarCity (NASDAQ: SCTY  ) sees sales as being the bottleneck to expanding its business. Financing doesn't appear to be an issue, as the company can compete on cost, as long as net metering is in place. It's just a matter of talking to enough people about the benefits of solar power.  

This week, the company teamed up with Viridian Energy, a network marketing company with about 230,000 household customers. This adds to the acquisition of Paramount Solar and a fund with Direct Energy in just the past few weeks to expand solar.

SolarCity is using everything from phone calls to flyers to word of mouth to spread the news about its product, and so far the strategy is working. Now, SolarCity needs to take that business into new markets and continue to take market share in the residential market. These partnerships and acquisitions put it on the path to doing just that.  

Does Chinese solar debt mean anything?
LDK Solar (NASDAQOTH: LDKYQ  ) announced a forbearance arrangement with debtholders it can't pay back. The goal is to give the company enough time to restructure, but there's $2.8 billion in debt hanging over the company, and with operations generating a loss, even without debt there's little hope for the company.  

LDK is following a similar strategy to Suntech Power, which announced a forbearance agreement back in March and still hasn't reorganized.

The problems at these two companies highlight two things for U.S. investors. First, balance sheets matter, and you should focus on companies with not only strong income statements but also with good balance sheets that won't drown in debt. Second is that Chinese companies won't put U.S. investors' interests ahead of their own. Both of these companies would be bankrupt if they were in the U.S., but with the help of the Chinese government, they've stayed afloat and put off bankruptcy. That leaves debtholders and shareholders in limbo -- not a position any investor wants to be in.

U.S.-listed Chinese companies have a long history of surprises for U.S. shareholders, and they don't usually end up being good surprises. The fiasco surrounding LDK and Suntech's debt just highlights how risky they can be, leaving investors guessing what's next.

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  • Report this Comment On September 29, 2013, at 12:39 AM, ronwiserinvestor wrote:

    SolarCity will never dominate the market now that $0 down loans are available with tax deductible interest that allow you to keep the 30% federal tax credit and any cash rebate. The Solar lease and PPA companies will soon begin their downward spiral and it couldn't come any sooner.

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