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MagicDiligence (< 20)

U.S. Solar Energy Industry Outlook for 2011

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December 30, 2010 – Comments (0) | RELATED TICKERS: GTAT , PWER.DL

Guest contribution provided by Forex Traders.

2010 was quite a year. Professional investors had to deal with sovereign default in Greece, bankruptcy in Ireland, a never-ending saga of fiscal contraction in Europe, another $600 billion of quantitative easing in the United States, war in Korea, international currency and trade imbalances…and the list goes on. To say that 2010 was a volatile economic year is a bit of an understatement!

In late July, Federal Reserve Chairman Ben Bernanke testified before Congress and stated that the economic outlook in the United States was “unusually uncertain.” This statement roiled investors and caused them to turn on the U.S. dollar with merciless selling. The dollar dropped sharply during the second half of 2010, and in November the Federal Reserve put all speculation to rest when it formally announced an additional $600 billion of stimulus in the form of another round of Treasury purchases.

You would think that all of this economic and financial volatility in currency trading and the economy as a whole would lead to a devastating business climate, but the reality is that several industries were able to push forward in 2010, despite major obstacles. One such industry that showed a resilient tendency to grow in 2010 was the solar energy industry.

Lower Prices Lead To Growth

As prices in many sectors of the economy fell, some increased consumer demand filled the void, and that is exactly what happened in the solar energy industry. In 2010, solar prices dropped and consumers responded by buying. The Solar Energy Industries Association, which is an industry trade group, reported in late December that commercial solar customers in the United States reached 103 megawatts of capacity in the 3rd quarter, which is a 38% jump from Q3 2009.

This explosive growth in 2010 may be enough to put the United States back in the global race against foreign nations as well. A report released in late December from GTM Research stated that U.S. net exports totaled $723 million in 2009, and U.S. solar installations created $2.6 billion in direct value to the U.S. economy. Furthermore, the solar energy industry was found to be much more balanced than the overall economy, which ran a $374 billion trade deficit. The fact that the United States was a strong net exporter of solar energy in 2009 bodes well for 2010 figures since the industry as a whole performed very well in 2010.

2011 Outlook

The question that investors want answered, however, is how well will this growth spill over and continue into 2011? Although no one can know for sure how the solar energy industry will perform, there are definite signs pointing to a strong year in 2011. Perhaps the greatest sign of all is the solar energy tax legislation, the Treasury Section 1603 Program, which President Barack Obama signed into law in December. This was a major milestone for the solar industry.

On the day that President Obama signed the extension, Solar Energy Industries Association CEO Rhone Resch released a statement that said, “It took a year of tireless effort from the entire solar industry and our champions in Congress to get an extension of the 1603 program. President Obama and our bipartisan champions in the Senate and House recognize that the solar industry is one of the fastest growing industries in our country, and this extension will create tens of thousands of new jobs for Americans.”

The 1 year extension of these tax cuts will undoubtedly provide further momentum to an already strong sector of the United States economy in 2011. Unless very strong bearish economic events undo the overall economy, the solar energy industry could very well be set to experience another year of strong growth and progress.

The solar industry is well represented in the Magic Formula, with examples being GT Solar (SOLR) and Power One (PWER). Perhaps the outlook for these stocks is better than the market anticipates?


Disclosure: Steve owns SOLR

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