Investing in (or even commenting on) rent-seeking businesses terrifies me.
Because so much depends on a correct reading of the political tea leaves, you had better be very connected or very aware, preferably both.
I've been doing it a long time, in industries as disparate as defense and healthcare, ag and insurance.
It is nerve-wracking. If you mis-read the Zeitgeist you can have entire industries disappear.
It happened in solar in the eighties and could happen again.
This isn't Graham & Dodd "find the net-net" with such a huge margin of safety that you can throw a cert. in the sock drawer and only visit it when you get down to those funky wool argyles you can't remember buying.
So I try to pay attention. And hang out with people who are sharper than I am. [not difficult -ed]
Here's some insight from the Financial Times' Energy Source blog:
It’s been a somewhat disappointing year for the solar industry, at least in Europe, with cuts to subsidies in Germany sparking fears of a Spain-style slump in European demand.
The announcement in late January that Germany would cut its subsidies hit some solar manufacturers hard - and they still haven’t recovered (as the Solarworld chart on the right demonstrates).
Is the news for the solar PV industry about to get better in Europe?
First the good news: on the Germany front, Reuters reports that a small reprieve looks likely in the form of a three-month delay to the 15 per cent cut in feed-in tariffs for power from open-field solar sites. But these only account for a fifth of installations, while 16 per cent cuts for the much bigger rooftop installations will go ahead on July 1 as planned.
Germany last year installed about 3,000MW of solar capacity; twice what the government had envisaged. This year’s target is higher at 3,500MW — but the government is introducing a trigger to reduce incentives further if the target is exceeded.
Matthew Yates and Steve Milunovich at Bank of America-Merrill Lynch don’t think that will be enough, however. They predict a backlash against subsidies:
With power prices around €50/MWh in Europe currently, solar is costing consumers around €60bn more than they otherwise would have paid for electricity. We calculate a German household is now paying €130 in annual solar subsidies and rising rapidly. We fear an increasing backlash against overly generous subsidies and reiterate Underperforms on SolarWorld, REC and Q-cells.
They also believe an announcement on subsidy cuts in Italy will come soon, and France may bring forward its planned cuts from 2012. The Czech Republic, which has fears its grid can’t handle the country’s growing renewables capacity, is also thought likely by BA ML to cut subsidies soon....MORE