Monday, May 28, 2007

Shining light on solar power equipment

Commentary: China's demand for alternative energy will grow

By Sage Brennan
Last Update: 7:00 PM ET May 27, 2007

SHANGHAI (MarketWatch) -- Investors in China's tumultuous solar power equipment sector will watch Suntech Power Holdings Co. Ltd.'s earnings report on Tuesday morning, after Suntech competitor Trina Solar reported solid results last week.

After a sluggish stretch following its IPO in late 2006, Trina Solar Ltd.'s stock saw a massive rise through mid April to almost $70, and has since settled in the mid-$50 range. Suntech's stock has seen similar volatility since its late 2005 IPO, and JA Solar Holdings Co. Ltd. has been on a bit of a roller-coaster ride too.

Stocks in this photovoltaic generation technology sector are driven by limited supply of resources, namely their silicon base material, as well as by the recent attention that alternative energy technologies have received as the global warming phenomenon has finally gained acceptance.

Although the largest markets for solar-based energy products are currently found in Europe, countries in other regions are beginning to consider government policies and other incentives that could increase worldwide demand for alternative energy technologies, including solar.

Interestingly, the many solar-cell manufacturers that have cropped up along China's east coast are overwhelmingly producing for export, but this will eventually begin to change as Beijing makes good on recent promises to improve energy efficiency. Currently, of course, China's energy efficiency is degrading with every new power plant and car that is produced, as is the case in other industrial economies.

Like the U.S. and Europe, China's demand for the whole spectrum of alternative energy products will inevitably grow, bringing prices of solar products within reach of Chinese consumers. In my opinion, the question for investors is when, not if, the solar energy market will go mainstream.

Suntech reported a tripling of profits during the fourth quarter of 2006, and I would expect the long-term prospects for companies in the solar sector to be bright.