How to cut your risk in solar power stocks

The seeming attraction of solar power is obvious — it offers a source of clean, endlessly renewable energy that can replace fossil fuels like oil, coal and natural gas. However, like many alternative energy sources, solar power’s vast potential has risk to match.

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High costs mean many solar power stocks must rely on government subsidies

According to recent estimates, natural gas would have to cost $36 U.S. per thousand cubic feet (it’s now at $5.27) and oil would have to cost $393 U.S. a barrel (it’s now at $73.67) for solar-thermal power (which is most often used for large-scale power plants operated by utilities) to match the cost of power generated from oil and gas.

Because of that price disparity, solar power relies heavily on government subsidies and political support. That support is based on environmental “clean” energy concerns and perceptions of climate-change urgency, as well as a push toward energy independence. Right now, Germany and Spain are two of the biggest subsidizing countries.

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However, the German government is now proposing a 15% cut in feed-in tariffs for roof-mounted solar-power installations that will come into force by April (feed-in tariffs require utilities to pay higher prices for solar power).

Larger cuts loom for other types of open-field solar and solar-power sites that are located on farmland. The cut follows a similar move by France, which cut its feed-in tariff for rooftop systems by 24%.

Cut your risk by sticking with solar power stocks with a sound base of other operations

Risks like subsidy cuts are one of the main reasons why we continue to recommend that you focus on solar power stocks that have a sound base of other operations to offset the added risks involved with investing in solar power. FPL Group Inc. (symbol FPL on New York), a stock we cover in our Wall Street Stock Forecaster newsletter, is a good example.

FPL Group gets 70% of its revenue from its Florida Power and Light Co. subsidiary, a regulated utility with 4.5 million customers in Florida. FPL is also a leader in wind power, and the company is also investing heavily in solar-powered generating stations. These include three new solar stations that will be ready in 2010.

FPL recently received a $200 million U.S. grant to help with its installation of “smart meters,” which customers can use to cut their power and save on their electrical bills. But unlike many solar-power companies, FPL’s subsidies mainly provide a boost to its growth. Its regulated operations provide a continuing source of income.

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