What the BrightSource IPO Cancellation Says About the Solar Industry

Upcoming solar energy player BrightSource Energy cancelled its IPO last week, reflecting the gloomy investment environment in the solar sector. ^[1] Brightsource is a player in the solar thermal energy sector and its technology involves the use of a large number of mirrors to concentrate the sun’s energy and to utilize it to heat water into steam. The cancellation of its IPO highlights the continuing uncertainty surrounding the clean energy sector as countries around the world cut down on subsidies and natural gas prices in the U.S. are touching their lowest levels in a decade on the back of a renewed interest in local exploration and lowering the cost of gas powered plants.

Suntech Power‘s (NYSE:STP) Chief Commercial Officer commented that at present gas prices, solar could not be competitive. Other solar firms like First Solar (NASDAQ:FSLR) are also seeing their stocks hit in the present. We have a $3.54 price estimate for Suntech Power, which is at a 25% premium to its current price estimate.

Click here for our full analysis of Suntech Power.

Worsening environment

Solar stocks have plunged over the last year because of a number of factors including rising panel production capacity in China and major subsidy cuts in European markets. Government support in the U.S. has also become more difficult to secure because of the Solyndra bankruptcy. The IPO withdrawal by Brightsource seems to indicate that investors are still uncertain about the risk and returns dynamics to be made in the solar sector.  Some analysts worry that the broad negative sentiments in the market are hurting even the companies that have strong technology and a solid project pipeline. ^[2] Others are suggesting that the industry may see a round of consolidation going ahead and that more firms may go out of business.

Different technology

On the bright side for Suntech and other solar panel manufacturer, Brightsource’s withdrawal could also signal that industry players are still uncertain about the potential of solar thermal technology. Although solar thermal technology has certain advantages over panels, it is best suited for places that receive a lot of sunlight and requires large scale setups. ^[1] At present, clients seem more comfortable with solar panel technology because it is more proven. However, overcapacity within the panel industry itself could lead to some players declaring bankruptcy.

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1. Clouds on Solar’s Horizon, NY Times [↩] [↩]
2. U.S. Solar Developer Withdraws Its IPO, WSJ [↩]