December 15, 2005
Solar Energy Helps Fuel Socially Responsible Investing
by William Baue
Managers from Winslow Green Growth Fund, New Alternatives Fund, and Portfolio 21 discuss the
opportunities and challenges of investing in solar power.
All energy on earth originates from our sun (with the exception of nuclear, which is galactic in
origin)--including oil, which is solar energy stored in fossilized carbon deposits. With the days
of oil prices below $50 a barrel behind us and climate change marching forward, investment in less
polluting, renewable energy sources is on the rise.
Solar energy, which transforms
energy from the sun more directly into usable forms, is playing an increasingly important role in
our evolving energy mix. While some investors are just jumping onto the solar bandwagon, many
socially responsible investing (SRI) firms have a longer history of exposure to this growing
"Interest in solar power and solar stocks has never been higher," says Matt
Patsky, a portfolio manager of the Winslow Green Growth Fund (ticker: WGGFX) at Winslow Management Company, which has practiced "green" (or
environmentally effective) investing since 1984. "The number of small, public solar companies has
been increasing, with several recent solar IPOs."
These initial public offerings have been
quite successful, according to David Schoenwald, portfolio manager of the New Alternatives Fund (NALFX) that
launched in 1982 as the first
environmental fund. For example, IPOs for China-based SunTech Power (STP--whose offering launched just
this week) and US-based SunPower (SPWR--which spun off Cypress
Semiconductor (CY) in the past few weeks) were both
oversubscribed. Other recent IPOs include Germany-based Conergy (CGY.DE) and Q-Cells (QCE.DE). Other
"pure plays," or small companies focused exclusively on solar, include US-based Evergreen Solar (ESLR) and DayStar
Tech (DSTI), and
Germany-based ErSol Solar (ES6.DE).
"Only a few of
these pure plays are profitable yet, which is a challenge for Wall Street," says Carsten
Henningsen, chair of Portfolio 21 (PORTX), a global sustainability fund launched in 1999. "For example,
SunTech Power has been profitable since 2003, but as a Chinese company it has direct access to
cheap labor and production and may engage in questionable accounting."
"Q-Cells and ErSol
are also recently profitable," Mr. Henningsen told SocialFunds.com. "Although companies present
themselves as profitable, it would be wise to examine cash flows and future prospects before
These mutual funds have been profitable, too. Three-year annualized returns
as of November 30, 2005 are 28.52 percent for Winslow, 13.46 for Portfolio 21, and 13.26 for New
Alternatives, according to data provided by Thomson Financial Network.
Winslow is limited to pure plays as a small-cap fund, New Alternatives and Portfolio 21 gain more
exposure to solar through large, diversified companies with commitments to solar.
larger companies like Sharp have the advantage when it comes to economies of scale, relationships
with suppliers, research and development budgets, and cash to grow market share," says Mr.
Henningsen. "We like Sharp because the company is the largest Japanese solar battery producer and
passes Portfolio 21's strict sustainability criteria."
The solar market may also be fueled
by recent commitments to support renewable energy from large conglomerates such as GE (GE), BP (BP), and even
"We believe that these announcements amount to validation of what alternative energy
proponents have been saying--that alternative energy sources will be needed to meet the world's
energy demands, and renewables such as solar will have major roles to play," said Liz Levy,
Winslow's environmental analyst. "Solar companies can currently sell all of the product they
make--crunch time will come in the future as silicon supplies ease and investments from large
organizations such as these begin to materialize."
Silicon is the primary raw material
behind solar technology (with few exceptions, such of DayStar's non-silicon technology), so
fluctuations in quality and supply of silicon pose a significant challenge to this relatively young
"New developments in raw materials and technology are yielding different types
of solar cell construction with different efficiencies and different quality materials--for
example, we are seeing more product options like thinner film solar cells that use lower quality
silicon," points out Mr. Henningsen. "The lower quality cells are less expensive, however the
efficiencies are very low."
"However, in some applications such as in developing countries
with far less power demands than the US, these lower cost and lower quality cells may work well,"
Subsidy schemes in various parts of the world are also fueling opportunity in the
"The markets with the greatest support are in Germany and Spain--there is
also strong support in a number of states in the US,"
Mr. Schoenwald of New Alternatives told SocialFunds.com.
Just this week, the California
Public Utilities (CPUC) unveiled the California
Solar Incentive Program that offers $3.2 billion in incentives over the next decade to build
solar panels on homes and businesses.
Other significant opportunities of the future have
yet to hit publicly-traded markets.
"While the greatest investor interest is presently
solar photovoltaic cells that produce electricity, I personally think solar hot water heating
systems may be more cost effective," adds Mr. Schoenwald. "There are a number of private solar hot
water heating system companies, especially in China, but no public ones that I'm aware of."