While the tremendous growth potential of the solar power industry has many investors greedily eyeing future profits, there's certainly an eco-friendly angle to solar investment. Given this impulse to make money and save the planet, it would be sadly ironic for investors to ignore the environmental impact of the solar supply chain.
The energy generated by solar power systems may be clean and green, but it's important to watch what goes on behind the scenes. As a Washington Post story brought to light back in 2008, some Chinese firms have simply dumped their industrial waste, rather than recycle it. Even companies with meticulous recycling programs may face future environmental setbacks, purely based on the materials used.
Polysilicon production's potential pitfalls
LDK Solar (NYSE: LDK) employs a closed-loop system to recycle silicon tetrachloride, a byproduct of the polysilicon manufacturing process, at its first facility. The company is implementing a similar system at its huge second facility, which is being ramped up in stages. I've heard nothing to suggest that LDK isn't properly controlling its waste streams.
Like any chemical plant, however, LDK's facilities handle volatile and hazardous materials. There have been multiple rumored explosions at LDK's plant, which haven't been officially recognized and which I have no way of verifying. (Anyone out there know someone who lives in Xinyu? Please have them drop me a line.) Regardless of the veracity of these reports -- dutifully forwarded to me by the company's vocal detractors -- I would note that there's at least a non-trivial risk of an explosion taking a toll on both human health and LDK's bottom line.
If this possibility sounds so improbable as to hardly be worth considering, talk to a BP (NYSE: BP) shareholder sometime.
The cadmium question
First Solar (Nasdaq: FSLR) uses cadmium, a heavy metal that OSHA deems "extremely toxic," in its CdTe thin film panels. In the European Union, there's a pitched battle over whether to exclude solar panels and other renewable energy technologies from the general ban on the use of cadmium in electrical and electronic equipment. First Solar could suffer a great blow if the EU slammed the door on CdTe panels sometime in the next few years. Fully 86% of the firm's 2009 sales went to the EU.
The risk of a cadmium-linked downfall for this leading solar firm is probably quite low, but First Solar does give the matter of "increasingly stringent governmental regulation" a fair amount of space in its 10-K. I think it's worth familiarizing yourself with the situation if you're a shareholder. A good place to stay up to date on the EU situation is the Directive Decoder blog.
A standout among panel players
While there are hidden environmental risks among the solar stocks, there are unheralded leaders in this area as well. Yingli Green Energy (NYSE: YGE) is well-known as a low-cost Chinese solar powerhouse, but the company sports some notable environmental bona fides to boot.
In 2009, Yingli was the first Chinese firm to join PV Cycle, which promotes voluntary take-back recycling programs for solar modules at the end of their lives. This is akin to what Cisco (Nasdaq: CSCO) does with old routers and switches.
Another accolade that caught my eye last week was Yingli's inclusion among the most-recommended PV brands by the U.K.'s Ethical Consumer magazine. One factor influencing the report was Yingli's SA8000 certification, indicating adherence to an international standard for working conditions. Yingli was the first China-based solar company to receive this certification.
Is it a coincidence that Yingli is also one of the most competitive solar suppliers today? Maybe, but I tend to think that excellence tends to permeate an organization and transcend categories such as financial and organizational performance.
First Solar is a Motley Fool Rule Breakers pick.
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Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his articles using Twitter or RSS. The Fool has written calls on Cisco Systems. The Motley Fool has a disclosure policy.
