There has been quite a bit of data calling for a supply glut in 2009 with oversupply patterns existing in 2010 and beyond.  This seems counterintuitive if you consider the trends toward alternative energy, but some fresh data on Duke Energy Corp. (NYSE: DUK) may signal more pain on the way for some of the major solar players.

The Charlotte Observer has reported that Duke is cutting its $100 million solar panel order plans in half.  It seems that consumer advocates for the state Utilities Commissioncalled the proposal too aggressive and expensive.  Duke has alreadycontracted to buy 16 megawatts from a SunEdison solar farm to be builtin Davidson County.  The report also says that the local Wal-Mart andgrocer Kroger objected with the notion that it would raise theirelectricity rates.

While complaints were that Duke wasn’t allowing non-utility solarpower producers to bid on the project, the story also said that Duke has asked for proposals from othersolar producers.  But here is the problem for solar power producers andfor other alternative energy energy suppliers: Take this justone step further and the issues come flying through.  One more month offalling oil and commodities will make all of the alternative energyprojects under existing pricing trends either very unprofitable or almost a token gesture of good environmental faith.  If one utilityis halving part of its alternative energy plans, imagine how far theimplications for future order cuts will trickle down if half of thenations utilities follow suit.  Imagine if energy prices stay lowenough that solar producers and other alternative energy producerssuddenly cannot compete at all with traditional dirty energy.

Today the stock market is up almost 1% and oil is currently up $2.50 tonorth of $69.00 per barrel.  Solar stocks are being beaten again.First Solar, Inc. (NASDAQ: FSLR) is down almost 8% at $125.55. SunPowerCorporation (NASDAQ: SPWRA) is down over 4% at $31.25.  Suntech Power Holdings (NYSE: STP) is down 10% at $18.52.  Morespeculative names like Evergreen Solar (NASDAQ: ESLR) is down 11% at$2.66 and LDK Solar (NYSE: LDK) is down over 5% at $17.71.

This could actuallyact as a harbinger that would signal a much faster drop in solar ordersand you could even see more push-outs from major solar buyers.  It isimportant to note that many producers were getting orders when oil wasat $50.00 and hadn’t gone parabolic yet, but a 50% drop in the price ofa barrel of black gold will turn many market fears into self fulfillingprophecies.

The current credit markets also pose a major threat to power utilitiesas they are historically massive users of the revolving doors in thecapital markets.  Even solar being included for utilities in the newalternative energy tax allowances won’t be enough to drive orders ifthe companies are forced into hording cash.  Hell, it may just becheaper for them to pay fines for using cheaper and dirtier forms offossil fuel energy. 

A single $100 million order being cut in half is no big deal.  But it is the ramifications of others joining in on the bandwagon which could kill solar and other alternative energy growth plans.  With the current investing  climate and with the economic trends and capital market emptiness we are seeing, the problems at the alternative energy companies could go far beyond valuations.

Jon C. Ogg
October 23, 2008

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