SOLAR BEST BUYS (AND WIND) – CHEAPER THAN NUCLEAR

Like any good salesman, a hustler at TheStreet.com promises to provide “all you need to know” to invest in solar. In fact, what’s there is a smattering of undernoticed and overnoticed investment vehicles ranging from First Solar, everybody’s favorite solar energy stock, to a hot new exchange traded fund (ETF) that pulls an interesting bunch of China solar companies into its mix.

What is really worth noticing in the piece is investment maven Jim Cramer’s observation of the two diverging patterns of solar energy business development and his pick for the better investment of the two. Cramer: "There's two solar industries. There's a solar industry of the individual and I don't want to invest in that at all... First Solar is an industrial company... They are not one-to-one... They use large available pieces of real estate... and they put their film solar panels on top of those and then sell the electricity... They're going to win a series of very big contracts... There's no future for that one-to-one market. It's going to be industrial. And only First Solar right now is playing it. When I say only, there are others coming on, which is [an]other reason why First Solar's multiple could shrink eventually."

But Cramer’s endorsement of the solar power plant business, of which he appears to only have a superficial understanding, is only half of “all you need to know…”

The other half comes from Pam Radtke Russell’s June piece in Energy Biz magazine. “The rising cost of materials and labor has the potential to put an end to the nuclear renaissance before it ever gets started…”

Russell cites a series of reports from last year that put the cost of new nuclear plants in the $5,000/kilowatt range, way out of range of what most would consider a reasonable investment. New nuclear's unaffordability is accentuated by (1) the ongoing increase in the cost of construction, (2) safety concerns drastically slowing the completion of nuclear plant construction and extending payback on financing over a more and more protracted period and (3) the fact that nobody has figured out yet what to do with nuclear waste.

All this leaves a question hanging in the balance. Adrian Heymer, senior director/new plant deployment, Nuclear Energy Institute: "If not nuclear, then what?"

Funny you should ask, Mr. Heymer. Especially since you provided Ms. Russell with these operating cost estimates for her piece:

(1) New nuclear plant (first 12 to 13 years, until construction costs are paid down): 30 cents/kilowatt-hour.
(2) New nuclear plant (after construction costs are paid down): 18 cents/kilowatt-hour.
(3) New solar power plant or wind power installation: 14 cents/kilowatt-hour.

Heymer told Russell natural gas, and maybe LNG, would also compete with a new nuclear plant.

Sounds like Cramer’s solar power plant companies might be even better plays than he realizes.

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All You Need To Know About Solar Energy
August 15, 2008 (TheStreet.com)
and
Nuclear Cost Estimates
Pam Radtke Russell, June 23, 2008 (Energy Biz)

WHO
Jim Cramer; Cypress Semiconductor; First Solar, Energy Conversion Devices and Trina Solar; Claymore/MAC Global Solar Energy Index ETF; Florida Power & Light (FP&L); Progress Energy; Florida Public Service Commission (FPSC); Jim Harding, co-author of Keystone Center, Nuclear Power Joint Fact-Finding;

WHAT
In TheStreet.com’s summary good of solar energy company stocks, investment maven Jim Cramer touted solar power plant-oriented buys, a particularly good recommendation in light of new information putting the cost of new nuclear power plants at a price too high to make them good investments.

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WHEN
- TheStreet.com’s recommendations are based on current solar energy sector information.
- Moody’s did an estimate on new nuclear plant costs in October 2007.
- FP&L’s report to the FPSC was late in 2007.
- Based on these estimates, Moody’s expects affordability to keep all but 1 or 2 new plants from being constructed by 2015.

WHERE
- Uniquely, Claymore/MAC Global Solar Energy Index ETF is a global index fund, with stocks from China (29.91%), Germany (29.01%) , the U.S. (26.33%) and a tiny percentage of 2 other countries represented.
- FP&L’s report to the FPUS was for costs on new Turkey Point development at the southern end of Florida.
- The Progress Energy project would be on Florida’s west coast.

WHY
- Cypress Semiconductor owns 52% of SunPower, the company that will get a big portion of the rewards on the huge solar power plant purchase agreement closed by PG&E August 14.
- Several solar companies (First Solar, Energy Conversion Devices and Trina Solar) now have quarterly revenue, earnings and margins, allowing a more traditional investment evaluation to replace earlier comparisons of panel efficiencies.
- Ex: Thin film manufacturer First Solar is a “buy” for investment maven Jim Cramer on earnings of 85 cents/ share, 47% higher than expected.
- The Claymore/MAC index fund picks companies that provide solar energy products and services, does liquidity screens weights them by their market capitalizations. It represents an average market cap of $5.8 billion and a price-earnings ratio (P/E) of 44.
- FP&L estimated the Turkey Point project cost would be $24 billion. A Progress Energy estimate on 2 new plants was slightly lower. Both put the cost at more than twice the $2,000/kilowatt estimated in 2005.
- The Keystone Center estimates put the cost at &2,950/kilowatt before interest and $3,600 to $4,000/kilowatt with interest.
- Moody’s estimated the cost of new nuclear to be $5,000 to $6,000/kilowatt.

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QUOTES
- Jim Cramer, investment advisor: "Wind and solar stocks are transcending the weakness in oil…"
- Jim Harding, co-author of Keystone Center, Nuclear Power Joint Fact-Finding: "It's not an easy decision for a utility to make going forward… The decision to move forward with building a new nuclear plant is going to be a real head scratcher for companies to determine whether they can finance such a large project and whether it will be the most cost-effective resource…"