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Solar energy industry

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The "New" Biggest Threat to the Energy Industry

By , Associate Editor, Money Morning -

The energy industry has a dangerous enemy that is getting stronger and more motivated to damage companies' operations and wreak havoc on global oil prices.

This new threat comes from the growing trend of cybercrime, and the criminals have become more focused on disrupting large industrial systems, like those operating in the energy industry.

Indeed, oil companies are reporting more frequent, better organized attacks on their systems. With most of the world's energy production and distribution controlled by computers, this puts the industry in an incredibly vulnerable position.

Executives say the repercussions of an attack that isn't stopped in time could be massively harmful.

"If anybody gets into the area where you can control opening and closing of valves, or release valves, you can imagine what happens," Ludolf Luehmann, IT manager at Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), said at the World Petroleum Congress in Doha, Qatar. "It will cost lives and it will cost production, it will cost money, cause fires and cause loss of containment, environmental damage - huge, huge damage."

Crime Targets the Energy Industry

Cybercrime used to focus on hacking into systems to retrieve people's personal financial information. But now it's become more sophisticated and hackers more skilled, targeting more complex and protected systems to get highly classified information.

"The scene used to be dominated by speculative attacks - people being at the wrong place at the wrong time, but it was nothing personal," security researcher David Emm told BBC News. "But we certainly are in a different world than where we were 18 months ago. What we're starting to see is an increase in targeted attacks. We know critical systems, like those in oil production, are vulnerable to attack."

Shell's Luehmann told Reuters hackers are now unleashing attacks over longer periods of time, collecting more information than before to create more complex and resilient infections.

While other businesses can more easily shut down their information technology systems to update software security, the energy industry cannot simply turn off the oil and gas supply for long stretches of time. Any long disruption - from an attack or from trying to prevent one - wouldn't just affect one company, but the entire global oil market.

"Oil needs to keep on flowing," Riemer Brouwer, head of IT security at Abu Dhabi Co. for Onshore Oil Operations, told Reuters. "We have a very strategic position in the global oil and gas market. If they could bring down one of the big players in the oil and gas market you can imagine what this will do for the oil price - it would blow the market."



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Five Stocks That Will Thrive After the Solar Energy Industry Shakeout

By , Associate Editor, Money Morning • @DavidGZeiler -

With as much as two-thirds of the struggling solar energy industry expected to either fail or be acquired over the next three years, the table will be set for the survivors to capitalize on a market with enormous growth potential.

The process has already begun, with three solar companies - Evergreen Solar Inc. (Nasdaq: ESLR), Spectra Watt Inc. and the notorious Solyndra LLC - having declared bankruptcy this year.

Solar companies have struggled to keep their heads above water as the price for solar panels has fallen as much as 40%. The average operating margin in the solar energy industry plummeted to 0.1% in the third quarter from 13.7% a year earlier.

The stocks have been pummeled, as a result. The Claymore/MAC Global Solar Index (NYSEARCA: TAN) exchange-traded fund (ETF) is down 58% this year and the Market Vectors Solar Energy (NYSEARCA: KWT) ETF is down more than 60%. Several individual solar stocks have lost more than 70%.

"It's just a really difficult time," Morningstar Inc. (NYSE: MORN) alternative energy analyst Stephen Simko told The Globe and Mail. "The profitability of the industry has collapsed... Unless more bankruptcies happen and more production is shut down, this is a problem that is going to persist."

Few Will Be Left Standing

The tremendous pressure on margins has most people both outside and inside the solar energy industry predicting massive consolidation.

"This is the decade of mergers and acquisitions," Jifan Gao, chief executive officer of Changzhou, China-based Trina Solar Limited (NYSE ADR: TSL), told Bloomberg News. "From now until 2015 is the first phase, when about two-thirds of the players will be shaken out."

The Macquarie Group Limited (PINK ADR: MQBKY) agrees. In a recent report the Australia-based research firm said consolidation would claim 66% of the world's solar companies. Macquarie predicts that only four out of 35 solar companies in China will survive the next three years.

But in the aftermath of the carnage, the surviving solar companies will emerge stronger and in prime position to make the most of an exploding market.

In fact, the solar market has grown in 2011, but because capacity has exceeded demand, prices have continued to fall.

A Growing Market

According to the Solar Energy Industries Association, solar is the fastest-growing energy sector in the United States. The group says solar panel installations in June were up 69% over the previous year.

That pace of growth is expected to continue for an industry that supplies just 1% of the electricity in the United States. The U.S. Energy Information Agency projects installed solar energy capacity to increase 20 to 40 times 2010 levels over the next decade.

The primary reason for such optimism is the same reason the industry is suffering - falling prices that make solar competitive with traditional sources of energy like coal, oil, and gas.

First Solar Inc. (Nasdaq: FSLR), for example, says the solar panels it makes now can produce electricity for 14 cents to 16 cents per kilowatt - still significantly above the average cost of electricity in the United States of 11.6 cents per kilowatt.

But the solar energy industry has steadily improved panel efficiency, and expects the advances to continue. First Solar says that by 2014 its panels will produce electricity for 10 cents to 12 cents per kilowatt.

"At that point, there's a tremendous amount of interest," First Solar spokesman Alan Bernheimer told USA Today.

But which companies will survive to reap the benefits of the golden days of solar?



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