The Solar Energy Sector: Profit From the “Solar Shift” With These Five Firms
by David Fessler, Energy and Infrastructure Expert
Thursday, January 21, 2010: Issue #1180
“Skill to do comes of doing.” – Ralph Waldo Emerson
This simple statement fits the progress of the solar energy sector over the past 50 years.
In terms of that filtering down to solar stocks, however, the progress is more intermittent. The solar energy sector was one of the bright investment spots in 2007 and 2008, but was conspicuously absent from the big rally of 2009.
A closer look reveals that there isn’t actually too much holding the sector back in the United States. And I’ve got five companies aiming to take advantage of this up-and-coming area…
From Science Project to Mainstream Power Source… Almost
Back in 1954, Daryl Chapin and Calvin Fuller created the first photovoltaic (PV) solar cells, based on polysilicon technology. Despite the breakthrough, early PV cells were expensive and progress stalled before it ever really got going.
But through technological advances, panel efficiency (the amount of solar energy that is converted into electrical energy) has risen steadily. There are at least a dozen new panel technologies manufactured commercially – all with an eye toward lowering the cost-per-watt. Polysilicon panels and CIGS panels (Copper, Indium, Gallium, Selenide) are currently the two largest technologies in commercial use.
Commercial PV solar panels now capture 10-20% of the sun’s energy – a number that is expected to climb to about 30% over the next 10 years or so. But what about the nitty-gritty – the cost?
Wanted: Parity In the Solar Energy Sector
One of the drawbacks of a burgeoning technology like solar power is the high cost. And make no mistake… cost is the important issue here.
In order for solar power to reach widespread price-convergence with conventional power sources (a term referred to as grid-parity), the cost of silicon-based panels has to hit about $1 per watt.
However, the price currently stands at $4 per watt. That number is falling fast, though – it dropped by 20% in 2009 alone. For less-efficient thin-film panels, the cost is about half that number.
And thanks to a large dose of federal and state government stimulus money, plus the recently renewed Solar Investment Tax Credit, a few high-demand locations like California and New Jersey are already there.
According to solar research firm GTM Research, 11 states will have likely surpassed grid convergence in the commercial sector by 2012, while 10 will have reached it on the residential side.
For consumers and investors alike, here’s why grid-parity is so important: once it’s achieved on a widespread basis, commercial utility projects will soar, particularly given the growing dislike for fossil fuel power plants. Residential demand will explode, too – a development expected to fuel an estimated 40% of the sector’s future growth.
And if you don’t believe it can work, just take a look at one of Europe’s big boys…
The German Example: A Model of Solar Energy Success
Germany is a great example of how the shift to increased solar power can work.
In 2000, the German government passed “The Renewable Energy Sources Act” (known as EEG in Germany). It was a paradigm-shifting event for Germany. Citizens knew they could all become energy producers. And grid systems operators are committed to not only accepting the power they produce, but paying fixed fees for it.
Today, with those fees declining every year, the EEG’s benefits are powerful…
- Germany is on track to become the leading solar market in the world. It currently produces nearly half of all the world’s solar electricity and fulfills nearly 15% of Germany’s total electricity needs. The EEG plan has them on track to increase that to 27% by 2020.
- The German solar energy sector now employs over 230,000 people.
- Thanks to solar power, Germany has reduced its CO2 greenhouse gas emissions by over 100 million tons per year.
It should be easy to replicate a model in the United States, right?
The Solar Energy Sector’s Biggest Problem…
The solar energy sector’s biggest problem here is a lack of promotion and marketing. For example, when was the last time you saw a TV commercial promoting the idea of putting solar panels on your home?
Despite that and the recession, however, we’re still forging ahead with solar ambitions – and enjoying success. Consider these figures…
- Industry research group, Solarbuzz, predicts that 6.37 Gigawatts of solar panels were installed worldwide in 2009. In revenue dollars, that’s worth about $50 billion.
- Installed watts are forecast to increase by 5% globally this year. But U.S. growth is set to explode by as much as 48% annually, according to GTM Research.
- GTM says the United States could become the global leader for PV panel demand by 2012. I think that’s a bit premature, but it certainly could happen a year or two after that.
And here are the firms poised to take advantage…
Five Leaders of the Solar Energy Sector
As panel prices continue to erode in 2010, this will ultimately increase demand for the firms that manufacture them. However, not all will churn out profits for investors.
The biggest players – and those most likely to survive and thrive – are:
- First Solar (Nasdaq: FSLR)
- SunPower (Nasdaq: SPWRA)
- Suntech Power Holdings (NYSE: STP)
- Yingli Green Energy Holdings (NYSE: YGE)
- Trina Solar (NYSE: TSL)
And stay tuned for another solar company set to go public early this year – Solyndra. The firm has already received a lot of attention for its unusual panel designs, based on CIGS technology.
Instead of being flat, Solyndra’s panels contain tubes that allow the solar cells to absorb both direct and reflected light. As you can imagine, this potentially creates panels that are more efficient than those from other manufacturers. Solyndra claims to have nearly one Gigawatt of panels on back order, mostly from commercial power producers.
This is going to be an exciting year for the solar sector. With a population more than four times the size of Germany’s, the United States could potentially create over one million new jobs in the solar sector alone, by simply following the German model.
I’ll be watching it closely and reporting on developments as they unfold.
Good investing,
David Fessler
Any investment contains risk. Please see our disclaimer.
4 Responses to “The Solar Energy Sector: Profit From the “Solar Shift” With These Five Firms”
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David Fessler is the energy and infrastructure expert for Investment U.
Nice article exstolling the future of solar electric generation. However, like other articles I have read there seems to be a glaring avordance to cost comparision to other methods of electrical generation.
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Fessler may be right on solar, but not on FSLR. This company’s technology is outdated and its cost of manufacturing too high. He should do his research first.
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Thin film ( FSLR) is cheaper to manufacture than silicon-but less efficient. To net the same amount of watts the thin film has to be almost twice the size of silicon- using more real estate per installation. The proponents of FSLR etc have contributed to the myth that silicon is scarce. Silicon is probably second only to air as the most abundant on earth. It is true that there are only a few producers of the wafers- but that is only because demand has been limited so production has been limited. There are several groups that have resisted solar power . Coal and big oil want to retain market share so prices are artificially reduced(not counting environmental or import costs)- and then Power industry. Solar power is point of use– no transmission lines- no power stations- no taxable plants, no pollution.
Germany is leading in installations of solar- and the savings in pollution reduction is inestimable- not to mention balance of payments for imports. We need to chase all the lobbyists and lifetime congressmen out of Washington. Solar is not the enemy of big oil or big coal- if they realize that they are energy companies- not oil and coal- and get on board providing solar energy installations.
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Thin film has several advantages other than cost. Because of lower weight and the flexibility of the film, a much wider array of applications are possible. Cbird sites Germany’s strong support for PV without mentioning that they are heavily invested in thin film. They have bought the entire first year production of NanoSolar, one of the leaders in thin film PV.
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