For Solar Energy Firms, Future May Be Brighter

By Jane Spencer
The Wall Street Journal
Wednesday, October 25, 2006

HONG KONG, Oct. 24 -- Now may be a good time for investors to soak up some sun.

Shares of solar energy companies in the United States and Asia have fallen about 25 to 50 percent in recent months as declining oil prices have cooled interest in renewable-energy stocks. But analysts who see long-term growth potential in the $10 billion global solar equipment industry say the recent pullback is creating a buying opportunity.

The prospects for solar power may be particularly strong in Asia, which is rapidly becoming a production hub for photovoltaic cells, which turn sunlight into electricity. Analysts say Asian expertise in high-tech manufacturing, combined with low production costs, could turn some companies into industry powerhouses. The region's mushrooming energy needs, coupled with growing concern about environmental problems, are also likely to fuel the global market for clean, renewable energy sources.

Japanese electronics giants Sharp Corp. and Kyocera Corp. and China's Suntech Power Holdings Co. are among the world's largest producers of photovoltaic cells.

But a number of smaller Asian companies, many of them based in Taiwan, are experiencing rapid growth. Analysts say some of those to watch include Taiwan's Motech Industries Inc., E-Ton Solar Ltd. and Sino-American Silicon Products Inc., and Hong Kong-listed China Solar Energy Holdings Ltd.

Solar-generated power accounts for less than 0.1 percent of the world's electricity supply. But the global solar equipment industry has grown by 30 percent annually over the past five years, according to Citigroup, which initiated coverage of the solar sector last week with "buy" ratings on three U.S. solar stocks. Demand for solar panels is expected to boom in the next few years as dozens of countries approve new subsidies, tax breaks and other incentives to promote use of renewable energy sources. Historically, the price of solar stocks has been closely correlated with the price of energy sources such as oil, coal and natural gas.

When high energy prices spark concern about energy security, investors tend to pour money into renewable energy sources such as solar, wind and hydroelectric power as a hedge against the price of crude. This year has been no exception, as high oil prices sparked a rally in solar stocks during the first half. But analysts say the historic pattern is about to change, and solar stocks might still be a decent long-term bet, even if oil prices continue to fall. U.S. benchmark crude oil hit a record of nearly $80 a barrel in July, but prices have fallen about 25 percent since.

Light, sweet crude for December delivery rose 54 cents to $59.35 a barrel Tuesday on the New York Mercantile Exchange. Analysts say demand for solar products increasingly is driven by governmental concerns about global warming. As governments look for ways to reduce dependence on heavily polluting sources such as fossil fuels, they have launched a wave of subsidies on solar products, which analysts say will sustain demand in coming years.

Some analysts who are less enthusiastic about solar power say subsidies are masking a long-term problem in the industry: Solar power isn't yet a cost-effective energy source because of the high price for panels. Others point out that many energy companies in other industries receive government support.

Nicholas Teo, an analyst with Macquarie Securities in Taiwan, recommends Taiwan's Motech Industries, the world's ninth-largest maker of solar power equipment by shipments last year. Teo notes that the company has launched some projects in-house -- such as producing silicon wafers, a key piece of a solar panel -- to reduce costs. And while a tight supply of silicon is plaguing the solar industry, Motech has negotiated a long-term supply agreement with Norway's REC Sitech AS that could make it less vulnerable to silicon shortages. The stock has fallen about 23 percent since its April high, making it a good time for investors to snap up shares, Teo said.

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