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Yingli Green Energy Hold. Co. Ltd. (ADR) (YGE), Sunedison Inc (SUNE): Before You Invest in Solar…

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Many investors want to invest in companies that affirm their personal moral values. Solar energy makes investors feel good because not only can they make money, but they can also save the planet. But investors need to be aware of one thing before investing in solar: not all solar companies are created equal.

The irrelevant solar investment

Yingli Green Energy Hold. Co. Ltd. (ADR)

Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) is a manufacturer of solar panels. This company’s strategy is to just sell solar panels, something it’s admittedly good at. One current deal involves 3 gigawatts of panels. That’s enough to power up to 3 million homes, or Doc’s DeLorean 2.5 times (since it needs 1.21 gigawatts…)

Unfortunately, Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) has been a consistent loser when it comes to making a profit. In 2012, the company registered a gross profit loss of $59 million, despite revenue of $1.8 billion. To add insult to injury, revenue was also down 22% for the year.

While the aforementioned deal in China’s Yunnan province will likely keep Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE)’s factories busy for awhile, it’s uncertain whether this will even translate into a gross profit, let alone a net profit. Razor thin margins make it very challenging to turn a profit as just a solar-industry manufacturer.

The risky solar investment

Sunedison Inc (NYSE:SUNE) has been a four-bagger for those who got in last year when it was trading under $2.00. It has pulled back slightly from recent highs, and many investors may wonder if now is the time to get out.

Sunedison Inc (NYSE:SUNE) is riding the coattails of an interesting phenomena. Celebrated competitor SolarCity got a huge boost in investor confidence due to the recent achievements of Tesla Motors Inc (NASDAQ:TSLA) .

TSLA data by YCharts

Even if this is just a general market trend, it doesn’t mean there isn’t anything good going on with Sunedison Inc (NYSE:SUNE). While also a solar manufacturer, the company operates very differently from Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE). Sunedison Inc (NYSE:SUNE) has a second business segment that provides residential solar power solutions through what’s known as solar leasing.

Solar leasing basically takes care of all the solar power logistics while the consumer gets the benefits of solar power. In exchange, the company gets recurring revenue from a contract. This kind of revenue has many upfront costs, but the revenue benefit continues for years.

As we’ve seen with Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE), it is very difficult to turn a profit as a manufacturer. That’s why Sunedison Inc (NYSE:SUNE) operates the solar business as well. Unfortunately for the company, this segment of the business is faltering with less megawatts delivered last quarter than hoped. Of those that were delivered, many were of lower-grade panels. These panels don’t have the profit margin that the higher-end panels have, which also caused the manufacturing segment of SunEdison to not be as profitable as it could have been.

The safer solar investment

SolarCity — unlike Sunedison Inc (NYSE:SUNE) — only operates the solar leasing business. The company rocketed up big time from its IPO at $9 to where it sits now in the high $30’s. It operates in 14 states, but as CEO Lyndon Rive said:  “The market is so big, we could meet our growth targets for the next 10 years just focusing on one state.” While not profitable yet, growth doesn’t seem to be a future issue.

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