Solar panel industry
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Solar panel maker stocks got hit across the board last week. The downturn in the industry follows lower than expected revenue, and in some cases losses instead of the profits that were previously projected. This follows the bankruptcy of SunEdison Inc. Although many executives in the industry are pointing towards cyclical issues, the rise of competition within the industry, the flood of assets from SunEdison, and the lack of proper tax incentives for the downturn, there are other factors that cannot be ignored.

Chief among them is the low price of energy that seems to be here to stay. The world is awash with cheap oil and its derivatives, which has also had an impact on natural gas markets. Natural gas is a direct competitor for the solar panel industry in terms of power plant generation capacity. This energy source also has much more installed infrastructure running now, especially after the shale revolution, but on the other hand the downturn in natural gas prices, will keep on facing supply and demand side pressures.

On one hand, big oil and gas producers are pumping more hydrocarbons and selling at lower prices. The case of Saudi Arabia is especially prominent. Despite lower prices, the Saudis keep on increasing the amount of oil they produce every day to drive other producers out of the market and to cope with the seasonal spike in energy consumption. It is ironic that a country which has such a great potential to produce solar power, will still rely on oil for domestic consumption, but at the price at which they can afford to burn black gold, it makes no sense to invest in anything else.

On the other hand there are technological advancements that have made turbines much more efficient. This means that less gas and oil is needed to produce the same amount of electricity. That coupled with increasing natural gas reserves in North America, and more liquefied natural gas – LNG – projects coming online, will guarantee an uphill battle for any alternative source of energy.

This time around, it is the solar panel companies that are suffering; in the future it could also be wind turbines and the increasingly popular geothermal projects that will suffer, unless the oil and natural gas markets turn on their heads. Government tax breaks and other incentives, or even lower competition will not guarantee that this once flourishing industry, may be able to return to its glory days.

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