Market Overview

Solar in 2013: Flare Up or Flame Out?

SunPower (NASDAQ: SPWR), despite being down today, has had an impressive week with gains of more than 40 percent.

The gains followed news Wednesday of a deal between SunPower and Berkshire Hathaway (NYSE: BRK-A) (NYSE:BRK-B) subsidiary, MidAmerican Energy, to start two solar projects in California worth $2-2.5 billion.

Then, on Thursday, Lazard upgraded the solar panel maker to Buy from Neutral.

S&P also reiterated their buy rating saying, “We see a more stable pricing landscape, growing demand in Japan and new emerging markets, and a robust leasing business all benefiting earnings in the coming quarters.”

While this is great news for investors of Sunpower, does it signal a coming resurgence in solar this year after a lackluster 2012?

The Guggenheim Solar (NYSE: TAN) ended 2012 down more than 45 percent and the Market Vectors Solar Energy ETF (NYSE: KWT) fell 28 percent. That's in sharp contrast to an S&P 500 that was up more than 13 percent.

In a Harvard Business Review blog post, Jigar Shah, from venture capitalist firm Inerjys, points out that despite recent struggles, the amount of energy coming from green sources has doubled in just four years -- the mark of a growing industry despite the headwinds. Further, he predicts robust global growth in 2013.

An oversupply of photovoltaic cells, the component that converts solar power to usable energy, has plagued the market since 2011 and according to EnergyTrend, will likely persist until 2016.

This oversupply creates winners and losers in the industry. Manufacturers of PV panels may continue to struggle while downstream companies, those involved in project development, distribution, and installation, will find themselves positioned for growth because of lower materials costs.

EnergyTrend notes that some PV manufacturers will fail as first tier companies gain market share. They estimate that by 2016, the top ten PV manufacturers will hold 70 percent market share. The year 2013 will likely see an increasing amount of smaller manufacturers close their doors.

Nat Cramer of Clean Power Finance points out that although PV prices have fallen and oversupply persists, that only accounts for 20 percent of a solar system's cost. Other parts of the industry, including customer acquisition and permitting could see growth.

Marc Norman, director of the Emirates Solar Industry Association, believes that the boost in supply of fossil energy from shale sources could have an adverse effect on the demand for solar energy. He points out that it is ready-made, cheaper, and the potential U.S. supply is massive.

On Friday, Pavel Molchanov of Raymond James said that the recent solar rally is nearly identical in timing to what happened last year in the industry -- an early year move higher then a reverse to severe losses.

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