Solar investors know there are all sorts of risks investing in solar stocks. There's the risk of reduced government subsidies like we've seen in Germany, Wall Street analysts hammering the industry, and the constant risk of oversupply. But the thing that solar investors should keep an eye on is the prices of natural gas, coal, and oil, in particular. If these three sources of energy, which provide most of our electricity and vehicle fuel, are cheap, solar simply doesn't stand a chance.
Prices in all three commodities have risen recently, and that's a big reason why I'm remaining bullish on the solar sector settling into 2011. As the cost of energy rises and the cost of solar falls, solar becomes more financially viable, and the political conversation changes, as well. When oil was at $140 a barrel in 2008, everyone was concerned about energy. In 2009, when oil was at $50 a barrel, no one cared.
High oil prices fundamentally change the conversation politically at utilities around the world, as well. The military appropriations bill signed by President Obama last week reinforces this, containing a "Buy American" provision for Pentagon solar purchases. The government is pushing solar purchases, and a trade showdown with China on the topic is only a matter of time.
From the utility standpoint, NRG Energy
The political powers in the U.S. may tilt demand toward American companies like SunPower and First Solar
Foolish bottom line
It's tough to make an argument for solar power plants and electric cars with cheap oil, natural gas, and coal; but with seemingly everyone bullish on fossil fuel prices moving north, solar is in a much better position to succeed in the long term. As a consumer, I'll take the falling costs of solar over the rising cost of oil any day.
Interested in reading more about solar? Add any of these stocks to My Watchlist, which will find all of our Foolish analysis on this stock.
More on Solar: