Investing in Solar Energy Technology

David Fessler
by David Fessler, Energy & Infrastructure Strategist

Investing in Solar Energy Technology

by David Fessler, Investment U Senior Analyst

Friday, December 9, 2011: Issue #1661

[Editor's Note: We originally published David Fessler's assessment on the viability of solar power back on October 28. We felt this is an especially relevant topic today on the news this week that Warren Buffett-owned MidAmerican Energy bought a 550-megawatt solar farm from First Solar (Nasdaq: FSLR).

According to Greg Abel, chief executive of MidAmerican Energy, "This project also demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees and reflects the type of solar and other renewable generation that MidAmerican will continue to seek to add to its unregulated portfolio."]

Wednesday was a beautiful, warm, sunny day here in Northeastern Pennsylvania. We haven't had a frost yet, and the farmer who leases my fields just mowed his alfalfa... for the fifth time this year. He's never been able to get a fifth cut in the 25 years I've lived here.

My electrician was taking advantage of the good weather. He's modifying my electrical service to accommodate the photovoltaic (PV) solar panel array. It should be installed in a week or two.

The system I'm putting in will cover about half of my electricity usage. I'm hoping through conservation and the eventual use of LED lighting that it'll cover even more. Once it's installed, I'll monitor the power I'm producing in real time.

SunPower Corporation (Nasdaq: SPWRA) made my solar panels. SunPower is a vertically integrated solar company. It makes and installs panels and operates systems. These range from small residential systems like mine to large, utility-scale projects.

SunPower produces the finest polycrystalline PV panels available on the market. They come with a 25-year warranty against defects in materials and workmanship. It all sounds great... until you dig a little deeper.

The Problem With Solar Technology

The sun is a tremendous source of energy. Enough solar energy falls on a 100-square-foot area to completely power the average home. Photovoltaic solar is great technology.

Once installed, the higher-quality panels are virtually maintenance-free. There's no pollution produced, and during the day (even when the sun isn't shining), electricity is being produced. But even the best solar panels are only able to capture and convert 20 percent of that into electricity.

Still, you can see the potential of solar technology. The problem with it right now is that without government subsidies, whether they be grants (many states, including mine), tax credits (federal government) - or feed-in tariffs (Germany) - solar still isn't cost-effective.

It's cheaper than it's ever been, but still not cheap enough. Take my SunPower system, for instance. It's a 10.4-kilowatt (KW) system. My all-in cost is about $3.00 per watt, after government subsidies, which cover about half the cost. The system will pay for itself in about 12 years. Without the subsidies, it would take twice that long.

On the plus side, solar is much cheaper than nuclear (which can cost more than $10 per watt, according to a study performed by Mark Cooper for the University of Vermont Law School.) There's no residual waste hanging around for 20,000 years, either. But it's still more expensive than just about any other form of power generation.

So why am I bothering with solar in the first place? Part of it is my engineering curiosity (I was an Electrical Engineer in a previous life), and part is my fascination and curiosity with the technology.

Besides, I like being a technology early-adopter... it gives me the first-hand knowledge I can use in recommendations to my subscriber base. I don't just “talk-the-talk,” I like to “walk-the-walk,” as the old saying goes.

So Does the Solar Industry Have a Future?

So would I invest in any solar stocks right now? First Solar, Inc. (Nasdaq: FSLR) is a company to keep an eye on in the solar sector. Its thin-film technology is starting to gain traction, and it produces panels for under $1 per watt. Sales were up 85 percent last quarter, and if that trend continues, it could once again be a high flier.

Of course, many critics would argue, “Forget solar.” They point to the failure of privately held Solyndra, Inc. as a prime example of government meddling. The $528-million loan was an attempt by the Obama administration to try to pick a winner. Bad idea.

Critics also point to Germany's end of its solar subsidy. But Germany ended its subsidy for one reason: It's no longer needed. As a result of its big solar push, the country now gets 10 percent of its overall energy from solar.

Germany is a great success story, especially since it gets about as much solar radiation as Alaska. Did government subsidy play a role? Sure it did, in the beginning.

Before you all start pooh-poohing me on the idea of government subsidies, take a look at how much we subsidize the oil and gas industry. Last year it received over $4 billion in subsidies and tax breaks... Makes the Solyndra fiasco seem a little less poignant.

I'm not advocating the continued subsidizing of solar - or oil and gas - in the haphazard way it's currently being done. Most, if not all, of the policies that were put in place for energy in general have short-term lifetimes, and are generally not well thought-out.

This myopic view of our long-term energy supply gives would-be investors and investment banks little incentive to spend or lend money in support of the advancement of any of the alternative forms of energy.

Sadly, many could hold promise as replacements for fossil fuels. It also denies consumers the lowered costs that would come with increased manufacturing efficiencies as costs are wrung out of the process.

I hope I live long enough to see some meaningful progress on a national energy policy with some teeth in it. Meanwhile, I'm hoping for sunny skies this winter.

Good investing,

David Fessler

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