The Time Is Now For a Green Revolution
Pulitzer Prize-winning New York Times columnist Tom Friedman was interviewed by Charlie Rose yesterday discussing his new book, Hot, Flat, and Crowded: Why We Need a Green Revolution—And How It Can Renew America.
You can view the Charlie Rose interview by clicking here. You can also watch his lecture on clean energy by clicking on the YouTube video here.
Friedman has been touring the U.S. discussing his book and promoting a greener future:
"We are either going to be a Democratic China or a banana republic," Friedman told about 800 people attending the Jim Blanchard Leadership Forum in the Columbus Convention & Trade Center.
He then gave his definition of a banana republic.
"BANANA: Build Absolutely Nothing Anywhere Near Anything," the slide behind him read.
His message was clear: Change our outdated ways or suffer dire consequences.
Friedman is as hot as the climate he cautions against. He said the time is now for a Green Revolution, but it will be difficult.
"Have you ever been in a revolution where nobody got hurt?" he said. "When everybody is a winner, that's not a revolution; we are having a party."
The revolution needs to center around energy technology, he said. And it must happen as the world's population continues rapid growth.
"Energy technology will be the next great industry," he said.
It's time to change attitudes and look for new answers, said the New York Times columnist.
"We don't need to drill, drill, drill," he said. "We need to invent, invent, invent."
I happen to think that Tom Friedman is absolutely correct. The "ET" industry holds tremendous potential and it will be the next great industry if the political will is there to embrace it and promote it.
I write this knowing full well that a standoff between Democrats and Republicans in Congress has prevented the renewal of tax credits for alternative energy that experts say are critical to the wide adoption of solar and wind energy in the United States.
According to the SPIE, the time is now to extend renewable energy tax credits:
I have written extensively on the solar sector before here and here. I also talked about how Kleiner Perkins Caufield & Byers, one of the best VC funds is betting big on a green technology.
I track several solar shares every single day and I am very bullish on the long-term potential of this sector. However, it is extremely volatile and extremely manipulated by hedge funds. I have seen countless solar companies report outstanding earnings, raise their guidance and then get clobbered into oblivion.
Yesterday's Tech Trader Daily from Barron's, Solar Shares Collapsing; Where's the Bottom?, focused on some of the problems plaguing this industry:
- Lehman analyst Vishal Shah wrote a note on the solar sector that in general was quite bullish, and in fact repeated his recommendations on First Solar (FSLR), SunPower (SPWR), Suntech (STP) and JA Solar (JASO). But Shah also noted that most solar companies have provided “somewhat aggressive guidance” for 2009 on the assumption that poly supply would become readily available from the spot market or silicon partners. He writes that supply tightness is likely to continue for now, and that solar ASPs are likely to decline at a faster rate than poly costs for companies without relatively long-term supply contracts. In particular, he cautions that gross margin pressure could be an issue for “most” Chinese solar companies.
- A tight supply for polysilicon would in theory be good news for MEMC Electronic Materials (WFR). However, Credit Suisse’s Satya Kumar today cut his target price on the company to $45 from $50, repeating his Neutral rating. Kumar is worried not about solar, but rather about the company’s other key market: semiconductors. The target reduction, he wrote today, reflects “potential for incremental semiconductor wafer pricing weakness in 2009.” He writes that poly spot prices are high, increasing and expected to remain high in Q4.
- Kumar today also raised another issue: currency. He chopped his price target on First Solar today to $300 from $350 to reflect currency factors. He notes that the Euro has declined from $1.60 to $1.42, and that almost all of FSLR’s sales are denominated in Euros. He notes that FSLR hedges 50% of revenues and 70% of profits. Kumar cut his 2008 EPS estimate to $3.81 from $3.98; for 2009 he drops to $6.05 from $6.81. Kumar maintains his Outperform rating on the stock.
- As I noted yesterday, Richard Keiser, technology strategist at Bernstein Research wrote in a research piece Monday that fears of commoditizaiton and over-supply in the solar sector “are well founded.”
- Also in yesterday’s post, I noted that Oppenheimer’s Sam Dubinsky wrote a research note Monday in which he said that the stocks in the solar sector were becoming more attractive, but that he was not a believer in the fundamental story; he raised concerns about both currency and over-capacity.
So in short, there are concerns that prices in 2009 are going to fall, that there is too much capacity for modules, but a short supply of polysilicon, and that the industry is going to get crunched by the strength in the dollar. The result: big, ugly price declines.
In Tuesday’s trading:
- MEMC fell $6.36, or 16.2%, to $32.93.
- First Solar fell $22.42, or 10.1%, to $200.26.
- SunPower fell $11.04, or 12.8%, to $75.55.
- Suntech fell $4.40, or 10.7%, to $36.67.
- Canadian Solar fell $5.27, or 19.8%, to $21.34.
- SolarFun fell $1.82, or 13.6%, to $11.60.
- GT Solar fell $1.40, or 13.5%, to $9.
- Evergreen Solar fell $1.46, or 19.2%, to $6.16.
- Energy Conversion Devices fell $8.86, or 14.3%, to $53.05.
- JA Solar fell $2.47, or 17%, to $12.08.
- LDK fell $5.91, or 13.7%, to $37.37.
But in my opinion, these concerns are exaggerated and misguided. These are real companies with real earnings and tremendous growth potential. The recent pullback in these shares represents a buying opportunity for long-term investors who believe in the Green Revolution. In fact, solar shares rallied sharply today.
In these crappy markets, if I were to bet on the next big thing, I would bet on renewable energy in general and solar in particular. If you believe that the time is now for a 'Green Revolution', then you might want to invest in this industry now.
Be warned, however, that you need a strong stomach to weather the volatility of this sector (even though many solar shares have low forward P/Es, reflecting strong fundamentals, these are extremely high beta stocks and I've often seen them move 20% in a day and over 100% in a few weeks!).