For anyone who trades ENER (Energy Conversion Devices) they know that the play in this stock is their wholly owned subsidiary United Solar. Unlike many solar stock plays, United Solar is a provider of direct to consumer uses of solar panels and products. A lot of the big solar cell producers do business only with large electric providers (utility companies) and have zero interaction with the consumer end user in the United States who is interested in putting some solar panels on their roof.
That means that ENER as a company can benefit highly if the federal governement decides to continue providing subsidies to American consumers who purchase renewable energy products, such as solar. Since United Solar (ENER) is a major provider of solar products to consumers, it would be extremely helpful to this firm if the tax credits were to become a reality.
Now let's turn to the current status in Washington. The Senate has approved a sweeping batch of subsidies for individuals and businesses that purchase solar products, providing an eight year ongoing benefit. This was earlier in the week.
The House of Representatives has passed a similar bill today, Friday 9/26. And ENER is down -$5.25, trading at $58, along with most of the solar stocks. First Solar FSLR is down -$18 and LDK is down -$3 so far today. The fact that both the Senate and House have passed the bill would seem to be good news, right? Normally, but in this case there is a catch.
Earlier this week the Senate passed the highly favorable bill, with great long-term benefits for solar. And the President indicated he would sign the bill that passed the Senate. However, the Senate stipulated publicly that if the House altered the bill it would not pass.
This morning, the House passed the bill but with adjustments. This is causing the sell-off in solar stocks because if the Senate holds to their threat we will not get a bill passed into law before Congress goes into recess. Quite a problem.
ENER is a situation where this bill becoming law is going to change the dynamic of their company indefinitely. If the bill becomes law and the high quality tax credits are in place for eight years then ENER will be a great long-term investment. The company will be able to sell small to medium solar packages and products for roughly half the normal cost to the buyer. The great situation here is that Energy Conversion Devices isn't eating that 50% of the cost, but rather it is being passed along to the taxpayer. ENER will be able to sell much more product with the tax credits in place. On the other hand, if the tax credits are not available (the current bill in Congress goes down the drain) then the company faces a much more difficult future. Will demand for solar products continue to increase? Yes, and ENER will still be a profitable firm. But the demand will be substantially weaker for their products especially if 1) the economy remains weak 2) the price of oil keeps declining or 3) both situations are in place. ENER is looking at a major loss of business without the federal tax credits.
Despite the threat from Congress there is a lot of demand from companies, environmental groups, certain politicians and millions of people to get these solar tax credits in place. The deal is not dead but Congress is going to have to wheel and deal.
Keep a close on Congress through the rest of today, the weekend and early next week. If the solar tax credits get passed through Congress the President will almost certainly sign them into law. As soon as news breaks that the Congress has reached a compromise on the solar tax credits then you will see all the solar stocks rise. FSLR might be a good short-term play, but for the long-term investor take a look at ENER. The tax credits will help them enormously.
I happen to believe the solar tax credits will find a way through the Congress, with the Senate and House reaching a deal sometime between today and the end of the month. And if that prediction comes true there will profits available for both the trader and the investor of solar stocks.
