Now LDK Solar Defaults

On the heels of Suntech's bankruptcy last month, LDK Solar Company Ltd. (Xinyu City, China) failed to make  full payments of $23.8 million-worth of 4.75% convertible notes due this year.

LDK was able to reach a private agreement on some cash payments and payment postponement with two other holders of $16.6M in notes. The company is seeking settlement with owners of the balance of convertible notes.

LDK just released fourth quarter 2012 results showing a 54% year-over-year collapse to $136M, an operating loss of $409M with a net loss of $515M. Obviously, it was a bad quarter but one of seven recent quarters with heavy losses. PV cells and panels along with silicon wafers saw drops in sales. Still, LDK's CEO Xinghue Tong is confident financial obligations can be met.

"Our business continued to be affected by the significant challenges that remained pervasive throughout the solar industry," Tong said in a statement this week. "Our fourth quarter results reflect the industry-wide overcapacity and resulting pressure to ASP's [average selling prices] and margins."

Symptoms of the Fall:  Commentary

Chinese PV manufacturers are heavily responsible for the bottom dropping out of panel pricing worldwide. The 2008 US financial collapse had the Chinese dumping panels here in the US forcing stateside and foreign makers to sink or swim to this day.

As I see it, under the Chinese financial model--a blend of communism and pragmatic capitalism--business leaders were used to heavy government with less concern for profit in a free market. Conversely, self-funded, profit-minded competitors around the world must pay more attention to supply and demand. Spoiled, if you will, by the old way things were done, Chinese companies like LDK now had international investors to pay back. It's a lesson the Chinese had to learn sooner or later.

Solar margins continue tumbling

With solar margins continuously shrinking, one might think diversified corporations with solar subsidiaries are better capable and more determined to make solar profitable. But German companies Schott, Schuco and Bosch with solid core businesses scaled back or even ceased their solar operations rather than continue paying for a dying horse, so to speak.

Still, solar is growing worldwide. Cheap panel prices are great for individual and commercial consumers, of course. Dedicated solar manufacturers have found other ways to keep afloat. Beside their widely-acclaimed panels, Sunpower's leasing program has been a huge boost to the company's presence in the US. Sunpower is also generating revenue for inverters, monitoring and racking. Just as Ford started making more than just the Model T, Sunpower's moxie could prove the way of things to come.

Commentary: Invest in Solar NOW

Even the casual observer of U.S. stock markets would know there's only a minuscule amount of publicly-traded companies doing well. Even the Blue Chips--what's left of them--are down. Renewable energy stocks are taking hits, too, and such solar biggies as First Solar, SunPower and Applied Materials are not immune.

So why invest...

In Solar Stocks? Barack Obama mentioned solar power in his inaugural speech on Tuesday. He has pledged to work with Congress on pushing solar power for immediate manufacturing and installation jobs; stimulating more solar R&D; reducing dependence of coal and natural gas; and, in the process, cutting carbon emissions worldwide. No other industry today can offer so much potential for return on investment and social betterment. Besides, contrarian investors should see solar stocks as sure-fire buys. (Check Solar Stocks Update here every Saturday.)

In Solar at Home? Starting January 1, residential solar installations qualify for a 30% tax credit of the purchase price. Many states have adopted their own solar tax credits and rebates to make going solar a sweeter deal. Contrary to some thinking, solar makes sense in all 50 states. In fact, a PV system will perform slightly better on a cold clear day in Michigan than on a hot day in Arizona. Why invest now? Because several states are so cash strapped they're considering reducing or dropping solar incentives to generate income for their general funds. As we've seen over the past six months, financial benies can be fleeting. Stated simply, the best solar incentives we may see for awhile are the ones we have RIGHT NOW.

In Solar for Business? Last spring the CEO of Southern California Edison said the price of electricity from the utility would double in five years. This could change if we go into a depression but who knows for sure? State and federal government nurtures solar investments with rebates, a 30% federal tax credit, five-year accelerated depreciation and business investment tax credit. If the Obama Administration institutes a formal carbon cap-and-trade program, then solarized businesses will also be able to sell their carbon credits annually to offset pollution generated by other companies. Europe has been doing this for years. And remember, savings on electricity begins the moment a photovoltaic system is commissioned and producing energy. Systems can last 30 years or more. No other working investment offers such reliability and longevity.

We're all facing financial challenges right now. We're learning or re-learning a common sense approach to discretionary spending. Solar power's future makes sense as a stock investment. Solar power makes sense at home and at work because it mitigates future electricity costs as it cleans the air and slows global warming.