It's time investors got serious about solar power.
No, the U.S. is not on the verge of a solar revolution, and sunshine won't provide the country with "energy independence" anytime soon. But solar power is gaining momentum, and based on current trends, that momentum will probably continue to build.
At least two major developments appear likely to drive adoption. The first relates to a fact that should be clear to anyone who's not been living in a cave for the past several months: Oil prices are high. More important, though, some experts are wondering whether prices are going to stay at elevated levels more or less permanently. Economic growth, especially in China, is increasing demand, even as discoveries of new reserves have fallen off in recent decades. The supply-and-demand debate is by no means settled, but the true condition of the oil market will probably remain a nagging uncertainty for some time to come, which itself can keep prices high. Higher oil prices make alternatives such as solar more attractive.
The second development, recently covered in The Wall Street Journal, is even more important to solar power's prospects. It seems that states are becoming more aggressive in mandating the use of alternative energy. California, for one, may soon enact legislation requiring home builders to offer solar panels in all new subdivisions of 25 houses or more by 2008. Once legislation like this gets passed, it's hard to reverse. What's more, California (arguably the most economically important state in the union) is well known as a trendsetter. It's hard to deny that such a law would be a boon to solar panel makers.
However, as W.D. Crotty noted last year, the market offers few pure-play solar concerns. One, Evergreen Solar (NASDAQ:ESLR) remains unprofitable, although it recently received fresh capital, has doubled production capacity in the past year, and continues to build out manufacturing capabilities in response to high demand. Safer bets include oil companies, most notably BP (NYSE:BP), and electronics outfits such as Sharp and Kyocera (NYSE:KYO). Kyocera appears particularly well positioned with plans to double its capacity to produce solar electric modules, an initiative that includes a plant in Tijuana, Mexico, that will soon supply the North American market.
However you decide to participate in the trend, the time seems ripe to let the sun shine in on solar energy stocks.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
