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When Growth Doesn’t Matter

During the State of the Union (SOTU) address on January 28, President Obama praised the solar industry for adding 21% more jobs from September 2012 to September 2013 – bringing total U.S. solar industry employment to 142,698.

Not only did the employment rates in the solar industry shoot up 20% (10 times faster than the national average employment growth rate of 1.9% in the same period), the industry also grew 53% overall in the last four years.

Does this increase in work force translate to greater gains in future solar investing?

Reallocation is NOT Reassurance

Job growth in solar is phenomenal, as you can see in the chart below – but what are the realities of an alternative energy sector moving to the forefront of the economy?


Investment Director Karim Rahemtulla has spoken candidly before about alternative energy subsidies and their contribution to alternative energy’s success thus far, pointing out that subsidies generally aren’t beneficial to investors.

To the contrary, Obama implied dialing up subsidy allocation, expressing a desire to “[stop] giving $4 billion a year to fossil fuel industries that don’t need it, so we can invest more in fuels of the future that do.”

While high-profile shout-outs like this often provide great momentum for struggling sectors, I ask you to be wary of the assumption that growth in the sector means it’s time to buy stock in solar.

Subsidies: Smoke and Mirrors

Solar Energy Industries Association (SEIA) estimates that 13 gigawatts of solar are currently installed in the United States, which is enough to power more than 2 million American homes or every single home in a state that’s the size of Colorado.

The growth in the solar industry is undeniable.

But that growth is somewhat… false.

Tesla (TSLA), SolarCity (SCTY), SunPower (SPWR) – you name the company, I can guarantee that there’s an incentivized subsidy supporting its success.

While subsidies grant short-term support, they give a false impression of a company’s relative performance – creating deadweight loss. Without subsidies, even sector celebrities like Tesla would be registering in the red.

Listen to Pickens

The government is always pressured to grant subsidies to keep jobs inside the borders. So if we choose to measure success in this manner, I’d say that we’ve done a stellar job.

But while solar is now the fastest-growing renewable source of energy in the country, pumping billions of dollars into the economy, it still has a way to go before it can become a cornerstone of any energy portfolio.

Keep your eyes on solar, but remember T. Boone Pickens’ thoughts on Obama’s claims for “all of the above” energy tactics and reallocated subsidies: “A plan without action isn’t a plan. It’s a speech.”

And “the chase” continues,

Burns Foster