Jeff Benjamin

Investment Insights: The Blogblog

Jeff Benjamin breaks down the game for advisers and clients.

SunEdison's hard lesson for renewable-energy investors

Plus: The IRS gets more nit-picky with inherited assets, challenging MetLife's status as systematically important, and more bad news for frequent fliers

Mar 31, 2016 @ 6:30 am

By Jeff Benjamin

  • The spiraling collapse of the once high-flying renewable-energy giant SunEdison (SUNE) is mostly a story about an overly-aggressive growth strategy that saddled the company with more debt than it could handle. But it is also a story about the ongoing challenges of alternative energy companies, especially when traditional energy is so darn cheap.
  • The SunEdison meltdown, which has been unfolding since last summer, now leaves the company nearing bankruptcy or some other form of liquidation. But beyond the headlines of a company whose stock price has fallen 96% and is trading at less than a buck a share, investors and financial advisers should understand the steep side of the mountain renewable energy is trying to climb.
  • The two exchange-traded funds that focus on solar energy are experiencing the kind of performance that should be expected with oil prices hovering below $40 a barrel.
  • Market Vectors Solar Energy ETF (KWT) is down 21.2% this year, and down 40.4% over the trailing 12 months. Guggenheim Solar ETF (TAN) is down 27.1% this year, and down 48.9% over the trailing 12 months.
  • By comparison, the S&P 500 Index is up 1.1% this year, and 1.9% over the past 12 months.
  • Of SunEdison's two largest competitors, each of which are expected to benefit from SunEdison's likely demise, shares of First Solar (FSLR) are up 5% this year, and up 16.3% over the trailing 12 months.
  • But SunPower (SWPR) is floundering with a 24.9% drop this year, and a 28.9% drop over the past 12 months.
  • “SunEdison's collapse isn't unexpected and more of these companies should be expected to follow suit, because their debt levels have soared precisely as oil prices collapsed and demand for renewables slowed,” said Paul Schatz, president of Heritage Capital.
  • Renewable energy is gaining traction and growing as an industry, it just isn't there quite yet as a viable investment strategy.
  • Angelo Zino, senior industry analyst at S&P Capital IQ, said the renewable energy industry grew to more than 55 gigawatts last year, which is enough energy to provide power to about 8 million homes.
  • That compares to less than 20 gigawatts from renewable energy in 2010, and less than 3 gigawatts in 2007.
  • “I think the solar industry can learn a lot from SunEdison's mistakes,” Mr. Zino said. “The overall space has grown significantly over the last several years, and we remain very positive on the prospects for the industry.” Teetering on the brink of bankruptcy.
  • The IRS is now asking for the cost basis to beneficiaries of inherited assets. This could create some issues with hard-to-value assets.
  • The Treasury Department is taking issue with a federal judge's decision to remove MetLife's “systematically important” label. It is too big to fail. No, it's not. Yes, it is.
  • Frequent travelers, beware, the trip is about to get a little bumpier. Everything is getting smaller, except for the airfares.

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