From the WSJ’s MarketBeat:
When economic belts get tightened, projects that seem worthwhile down the road tend to get put off, and the solar industry is one area that may get squeezed due to weak economic conditions in coming months. Shares of JA Solar Holdings, a China-based solar company, lost 15% after critical comments from Thomas Weisel Partners, which suggested that there’s a “black hole of demand in 2009? for solar. The resurgence of the dollar, tightening in the credit markets, which makes it difficult to borrow, and oversupply, will hit the industry. “Until overall equity markets begin to stabilize and credit availability increases for renewable energy projects, we believe investors will continue to focus on equities with more near-term earnings visibility,” the firm writes. Other solar shares were soft Tuesday; Suntech Power fell 14%, and LDK Solar was down 5%.
This is a great example of what von Mises called malinvestment. When credit is too easy, projects that wouldn’t make sense otherwise, get financed. The money that gets “invested” in these projects could have been put to better use, but artificially low interest rates distort the investment decision making process. Now that credit is no longer free, many of these projects will be cancelled. As much as I’d like it to be, solar is not a cost effective way to produce electricity. At least not yet.