While what’s presently happening inside the solar power industry isn’t particularly unusual, it is highly profitable. Back in 2006, solar cell manufacturers enjoyed an aggressive rally in prices. They were the darlings of Wall Street, remember?
First Solar (NASDAQ:FSLR) alone rocketed 1,157% higher. The rally, however, was based solely on potential – and it ultimately collapsed under the weight of unfulfilled expectations and hideous earnings reports. By the spring of 2008, the industry was left for dead.
Well, second-chance fortunes aren’t uncommon, and now the sector is rallying again. Only this time, the momentum is being driven by real demand – as manufacturing costs of solar panels have dropped 60% to 70% in recent years.
The cost to install solar modules is plummeting, too. How cheap has solar power become? (Brace yourself.) Solar is starting to outbid traditional fossil fuels in utility deals!
Such a reality is pushing demand for a certain material – one critical to the industry – to its outer limits. Spot prices for solar modules around the world hit $0.63 per watt in the second quarter, marking an all-time low. And now, all of the sudden, since the economics of solar make sense, the United States is on pace to install 6.6 gigawatts of solar panels this year, a 39% jump from 2013.
This bull isn’t exclusively American, either, as lower costs are wreaking havoc with energy markets around the globe. In fact, the price of solar is now even with the price of conventional electricity in Italy and Germany. Not to be outdone, China is about to break ground on a massive 1,000-megawatt solar plant “super complex” in the middle of the desert.
As you’d expect, demand for polysilicon has gone vertical. (Polysilicon is critical to the manufacture of solar cells.) Analysts project polysilicon demand to rise 25%, to 282,000 metric tons this year.
It’s all music to the ears of SunEdison (NYSE:SUNE), a major player and manufacturer of silicon wafers to the semiconductor industry for use in solar panels. A holder of over 700 patents, the company touts one of the market’s hottest stocks. Shares have pushed from $1.82 to nearly $25 in just two years.
Now, I could give you 25 reasons why SunEdison shares will push above $30 by Halloween. But I’m not going to do that. Why? Because something even better is cooking. That is, a spinoff of SunEdison.
Inside of the first year, spinoffs outperform their parent companies in every conceivable timeframe… one week, one month, six months, etc. With that in mind, shares of the SunEdison spinoff, TerraForm Power (NASDAQ: TERP), began trading on Friday.
TerraForm is the realization of SunEdison’s ambition to bundle its existing solar power plants into a single subsidiary. The deal is “multiple times oversubscribed” and “in great shape,” IPO Boutique said in a note before shares hit the market.
Shares priced at $25 and began trading on Friday at around $33, where they still reside. As a spinoff of a parent stock that’s already soaring, TerraForm demands immediate investment consideration.