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Sell Puts On This Solar ETF

Solar capacity has experienced exponential growth worldwide this century and appears to be ready to extend this trend well into the future. Why then is the Guggenheim Solar ETF (NYSEARCA:TAN) trading at a price that is near-historic low?

Why is the fund's Price/Earnings Ratio a measly 5.7? And why is the Price/Book Ratio less than 1? There seems to be something seriously amiss. It appears that not all is what it seems.

I decided to do some digging and here is what I came up with.

Grid Infrastructure

The power grid in all parts of the world is built to carry consistent levels of electricity, and cannot handle the variability of renewable energy. Solar power can't produce a baseload (or minimum) supply of electricity required to meet demand. Conventional power plants are not equipped to fill the gaps in electricity supply. Nuclear plants, for example, cannot easily shut down.

Therefore, there are periods of excess electricity produced, and it is sold for a very low or even negative price. The power utility will pay to get rid of it. In Germany, coal power plants are providing the required baseload as they are more flexible than other conventional power plants. In theory, renewable energy should eliminate fossil fuels. But in reality, Germany keeps burning fossil fuels. I should note that Germany is already close to generating the maximum of solar power that the grid can handle without having storage capability. Solar capacity growth peaked in 2012 and is rapidly declining.

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by Steve Auger