US Looks to Solar

I’ve been investing in solar since 2006, but realize I probably gloss over some of the basics since I’ve been around it for a while so this article from CNBC has a nice overview from the U.S. point of view. Unfortunately, as with almost all things, America is reactive not proactive and we’re about 5-10 years behind some other major Western (and Eastern in case of Japan) 1st world countries. In fact we are probably falling behind China to some degree (and pathetically some of the Middle Eastern countries who are moving to alternative energies!). But China and the US are the 2 main future engines for solar to thrive off of (and India is just now starting to get into the game). I’ve written in the past, compared to Bush – almost any human being in America will seem like a "greenie tree hugger" so the next administration should be a lot more friendly to alternative energies of all sorts – but at this point economic reality (i.e. pain) has finally pushed the United States into this path, with or without the politicians providing any leadership.

As with all things, whether health care, entitlements, regulation, infrastructure, dykes in New Orleans – we’ll only address things when it turns into emergency status. Which we are quickly approaching in energy – the problem is most solutions are very long range in nature (i.e. nuclear – nearly a decade from planning to running) Another fine mess we’ve gotten ourselves into… proactive is a dirty word here….but just wait until we have to deal with entitlements (Social Security is a drop in the bucket in comparison to the Medicare disaster) in a serious manner in about 10-15 years. [May 23: David Walker on CNBC this Morning] So we’ll keep kicking the can(s) down the road, only planning for 2-4 years out (1 election cycle) while long term issues get stuffed into the closet – until they get so large they spill out and cause societal pain. Look for a lot of crises in city sewer systems, bridges, roads, and our entire infrastructure system over the coming decade or two as well. [May 29: US Rail Network Facing Congestion Calamity] As we all know when you build something 50-70 years ago it only needs a smattering of upkeep 😉 We reap what we sow…

But I digress – back to solar; while a potentially lucrative investment there are a lot of potential risks as well [Jan 3: The Long Term in Solar]; unlike most of the other sectors we invest in – this one has relatively low moats i.e. barriers to entry (but the growth rates are so spectacular we cannot ignore the near term out of fear for the long term) so the entire landscape could be different in half a decade – caused either my massive consolidation or disruptive technologies. But we take this group 1 year at a time, and at least for the next 18-24 months we should be ok.  [From the CNBC article]:

• Apple is considering harnessing the sun to power its iPod music players. California’s Ironwood prison is installing more than 6,000 solar panels, and Boston’s Fenway Park is tapping solar power for Red Sox baseball games.
• After decades on the fringe, solar power is closing in on America’s mainstream as surging fossil fuel prices and mounting concern over climate change spur states, businesses and homeowners into a quickening embrace with alternative energy.
• Panels bolted to roofs to convert sunlight into electricity are still too expensive in most regions to compete with cheaper, less environmentally friendly fuels like coal without generous subsidies. Solar’s high costs have kept the resource out of reach for many residences and businesses. But not for long, industry analysts and scientists say.
• The tipping point at which the world’s cleanest, most renewable resource is cost-competitive with other sources of energy on electricity grids could happen within two to five years in some U.S. regions and countries if the price of fossil fuels continues to rise at its current pace, they add.
• Tom Werner, chief executive of SunPower [SPWR 79.33 -0.36 (-0.45%)] , the largest North American solar company by sales, sees such "grid parity" for solar power in the United States and elsewhere happening in about five years, or possibly as soon as 2010.
• "That’s actually more aggressive than what we would say previously, and that’s because the cost of electricity is going up faster than we had ever modeled," Werner said an interview at the Reuters Global Energy Summit on June 3.
• Suntech Power Holdings [STP 40.24 -0.21 (-0.52%)] , one of the largest of a growing number of Chinese solar companies, sees the same five-year timeline, thanks to increasing supplies of silicon that will help drive down costs.
• In the United States, much depends on November’s U.S. presidential and congressional elections. A Democratic win of the White House, and possibly greater Democratic control of Congress, could spur aggressive U.S. measures to limit climate-warming emissions of carbon dioxide—including legislation opposed by President George W. Bush that would cap emissions from 86 percent of U.S. facilities. If passed, such cap-and-trade provisions would make it costlier to emit carbon into the atmosphere and discourage the burning of fossil fuels. The economics of solar and other cleaner energy sources would be more competitive.
• Democrat Barack Obama wants to require U.S. utilities to generate 25 percent of their electricity from renewable sources like solar by 2025.
• "Obama or McCain would be better than Bush," said Feldt (CEO of Evergreen Solar)  
• Although solar power is easily installed, building solar panels is expensive because of tight supplies of silicon, their costliest element. Most industry analysts expect a constraint on silicon supplies to end within two years. But they are divided on whether this would help or harm the industry. (I have the same questions – many moving parts will go into action once polysilicon prices drop – which I outlined in my piece above; it’s the chicken and the egg scenario – will far lower prices drive enough demand so companies can stay in the black as competition increases to a fierce level?)
• Some say a drop in silicon prices would tip the scales from boom to bust by dramatically boosting supply of photovoltaic panels that make up 90 percent of sales in the industry. Such panels use refined crystalline silicon. But rival technologies are emerging such as thin-film panels that require almost no silicon, raising the possibility of a costly battle in the industry over which type of solar power will dominate.
• The solar industry will look very different just two years from now," said Ted Sullivan, a senior analyst at Lux Research, a New York market consultancy.
• Some analysts urge investors to look beyond volatility in the near term to a promising future for solar in energy-thirsty nations such as the United States, which could overtake Germany as the world’s top solar market within four years, according to the European Photovoltaic Industry Association, a lobby body.
• "While silicon oversupply in mid-2009 is likely to pressure companies’ margins, we believe investors at some point will become comfortable with solar’s improving costs," said Ronan Wolfsdorf, a solar and renewable energy analyst at consultants Macroenergy Monitor in Cambridge, Massachusetts.
• Under laws in 25 U.S. states and Washington D.C., solar and other clean energy sources such as wind must constitute up to 30 percent of a utility’s energy portfolio in five to 15 years. Just 10 states had such requirements in 2003. And some businesses are bringing solar to the masses.
• The United States—the world’s fourth-largest solar power market after Germany, Japan and Spain—saw nearly 150 megawatts of solar capacity come online in 2007, up 45 percent from 2006, for a total of 750 megawatts, according to the Solar Energy Industries Association, a U.S. trade group. (we used to be #1, but since manufacturing is not "cool" in our new age service economy we passed the baton to Germany a long time ago)

So unlike what some of the pundits who are still stuck in the 1980s believe; solar is real. It is very real – it is just a matter of figuring out who the ultimate winners will be. Much like the internet era which at one time was dominated by say AOL and Netscape – we have no idea. No one thought of Google in 1997 or 1998. So the industry trend is there; knowing which players will be dominant in half a decade is impossible to know and just pure speculation by anyone claiming to know today. We’ll take it year by year; but in the end it will be an industry much like semiconductors – high volume, low margins – but the potential for growth in a "World of Shortages" scenario over the coming decade or two should be enormous. And we like expanding pies like this – multiple big winners can emerge.

Source:  As Energy Costs Soar, US Looks to Solar