Solar power revisited...

One of the most beautiful examples of how a Government can almost single-handedly create an entire industry is Germany. Thanks to the so-called "Feed-in Law" in Germany, customers receive preferential tariffs for solar generated electricity depending on the nature and size of the installation. This, and several other advantages of solar power created by German Government, has led Germany to become the fastest growing photovoltaics (PV) market in the world in 2005. This trend could also be seen on the German stock exchanges, where solar power companies have emerged from the ground like mushrooms. Stocks like SolarWorld AG (FRA:SWV), Ersol Solar Energy AG (FRA:ES6) and Q-Cells AG (FRA:QCE) have all performed very well until 2004, but it was in 2005 and early 2006 when most of these companies saw the stockmarket hype end. Alternative energy lovers quickly moved from solar power to ethanol and uranium and most solar stocks have not gained much since. The reason for this was one underlying question: can solar power become efficient enough without Government aid? And consequently, the question arose whether Government should keep funding the sector. Should fossil fuel costs go up, the efficiency gap decreases and it is expected that the US solar energy market - now considered to be five years behind Germany - would then become much more competitive. Washington-based Solar Energy Industries Association (SEIA) projects that the U.S. will be the world's biggest market, with $25 billion in revenues, within five years. SolarWorld AG could be one of the companies benefiting as it focuses on delivering cost-effective technology for the end-user, helped by its strategy of vertical integration. It now is the second largest integrated solar company in the world, after Sharp. This year, sales should increase 43% to just over EUR 500 million and group profits climbed 319% to EUR 63.3 mio y/o/y in the third quarter only! With such continued strong financial performance, the stock is expected to rise again soon. SolarWorld currently trades at around 21 x earnings, which is significantly below the sector's p/e of 27. Technically, the stock looks ready to go up again and I would consider a 50% increase from its current price of EUR 46.08 realistic in 2007.