New Orleans Solar Power

A: Solar is a technology that easily grabs the attention of investors, but is a tougher sell for consumers.

While solar power is relatively abundant in many parts of the country, it’s a tough sell in many cases. Solar power often comes with high initial set up costs to install solar panels. Installing panels usually requires somewhat significant construction, including drilling into homeowners’ roofs. Lastly, solar’s biggest challenge with the consumer is inertia. It’s too easy to just keep using the electricity that’s already being fed into the house.

With that said, investors are infatuated with the possibilities of solar and other forms of alternative energy. And it’s true, there are exciting opportunities. Some companies are finding ways to add solar to their factories and offices to save money. And as solar panels become more mainstream, their cost is falling. Additionally, more contractors are getting used to installing solar panels, which drives down the set-up costs.

But you ask a legitimate question. With all these positive things going for solar companies and the industry, why are the solar stocks not big-time home runs for investors? For instance, shares of First Solar (FSLR) are down about 14% this year and Energy Conversion Devices (ENER) shares have lost more than half their value.

There are many reasons for this:

• Since it is such an early-stage industry, you tend to get many uninformed individual investors rushing in and out in reaction to news.

• The sector is heavily dependent on subsidies offered by governments, especially in Europe, which seem to be in constant flux.

• There have been questions about how ready government is to subsidize the technology during an economic slowdown.

• But most important of all is the price of oil. When the price of energy falls, then the urgency of alternative energy falls. And the drawbacks of solar seem all the more important when the price of oil falls.

The price of oil is down dramatically from levels last year as investors factor in a slower economy. Oil prices are roughly half of their levels last year. And that’s been a big point of pressure on solar stocks, as you have noticed.

If oil prices rise, then it might be likely to expect solar stocks to rise, as well. However, there are other factors at work, including uncertain government subsidies. If oil prices remain weak or even head lower, though, that could spell more trouble for solar stocks.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns. Follow Matt on Twitter at: twitter.com/mattkrantz