It May Be a Bad Idea to Invest in Solar Power Inc.
Grid parity is what is referred to as solar generated electricity that is equal to or cheaper than retail electricity prices. According to a recent report by Deutsche Bank, we are already at grid parity in more than half of all countries, and within two years will be at parity in around 80% of countries. This in part due to a predicted 40% decrease in the price of solar panels. Here’s a breakdown of how the price of a photovoltaic module is expected to fall an estimated 40% before the end of 2017:
If the price of solar falls to such an extent that it becomes a much cheaper alternative than say coal generated electricity, then adoption will continue to increase sharply and players in the industry will need to compete on cost and most likely through using economies of scale. If the market is to increase an estimated 10-fold by 2030, we will likely see consolidation in the sector as many solar companies become unable to compete on cost and their assets become acquired by larger players. All the while we will likely see many investments that may look promising initially, but that may be very poor alternatives to a more diversified investing approach such as through these ETFs. One investment that solar investors may want to be wary of is over-the-counter OTC company Solar Power Inc. (OTCMKTS:SOPW).
Since the company has nothing but a “contact us” form in the “investor relations” section of their website, you’ll need to dig into the SEC filings to learn anything about them. With a market cap of $1.25 billion at today’s share price of $2.08, Solar Power Inc. came about in 2006 as a result of the frequently seen “over-the-counter reverse merger”. Company management all appear to be of Chinese origin and the Company describes themselves as follows in their latest 10-Q:
A global photovoltaic solar developer offering its own brand of high-quality, low-cost distributed generation and utility-scale solar energy facility development services.
Unlike most OTC companies, Solar Power actually had sales of $32.5 million in the first 3 quarters of 2014, a 19% increase from the year prior. But looking at what has transpired over the past 8-9 months is puzzling. In May of 2014, they sold 40.6 million shares at .16 cents a share then in July of 2014, issued another 95.3 million shares for $0.16 per shares. The below chart shows what happened to the price of those shares in a matter of just one month. The red dot corresponds to when the majority of the shares were sold to outside investors in July 2014:
So these shareholders acquired around 23% of the Company and realized a +1,200% return in just a few months. Did Solar Power really create that much value in just a few months? Not only that, but in the next 2 months Solar Power went on to sell 92,6 million more shares at .27 cents a share to more non-US investors who weeks later had then realized a +670% gain on the transaction. So Solar Power effectively sold +38% of the company for $47 million when that share of equity is worth $476 million today less than 1 year later??? It doesn’t sound like a lot of value was created here for shareholders.
So who did Solar Power sell all these shares to? Well it could be the Company’s largest shareholder which is LDK Solar Co., Ltd. who owns approximately 30.2% of the Company’s outstanding Common Stock. LDK declared bankruptcy in February of 2015 and apparently Solar Power had accounts payable due to LDK of $50.9 million. Of this amount, LDK then “forgave” 18.4 million recently. It seems likely that LDK’s creditors will end up chasing Solar Power for this full amount, and wouldn’t they then want to liquidate all those shares as well?
In the past, Solar Power Inc’s lenders have had to sue them to get them to repay loans. They had to restate their financials recently due to an accounting error. They purchased another company in 2012 which then filed for bankruptcy just a year and a half later. There’s just too many warning flags here.
If today’s valuation is fair and equitable, then management gave away 38% of the company for pennies on the dollar . If today’s valuations are the result of a price bubble, which is what we would speculate based on that rapid rise in share price, then any long-term investors are being setup to be bag holders. In either case, Solar Power (OTCMKTS:SOPW) looks too dubious even to speculate on, much less invest in.