Get ready: The solar “big bang” is getting underway as we speak. By all accounts, solar power is quickly becoming the fastest growing energy source in the United States, and indeed, the world. But here’s the most amazing part…
Even with a meteoric 48% annual growth - and that of a select group of solar companies - it's just getting started. The market is expected to double over the next five years, and triple in just seven.
What’s behind solar’s shine? Is this torrid growth sustainable? What opportunities are there for investment in the solar space? Let’s take a look.
A Quick Solar Panel Primer
Solar panels can be divided into several types: thermal, photovoltaic, hybrid and building integrated photovoltaics (BIPV). In a thermal collector, water or another fluid is heated by the sun’s rays, piped into a storage tank, and then used to heat either domestic hot water or as a heat source for a building.
A photovoltaic solar panel is made up of a number of individual semiconductor solar cells. Electricity is produced when protons from the sun’s rays slam into electrons in the cells, raising their energy level. A small electrical signal is the result. This signal is combined with that of other cells and panels, and the resulting power can then be stored, used directly at the generation site (someone’s home, for instance), or pumped back into the local electrical grid for use elsewhere.
Hybrid panels combine both thermal fluid heating and electrical power generation into one unit. These are relatively new, and while showing great promise, are not yet widely available.
Typical installations combine many panels together into arrays. These may be located on the ground, but typically are on residential and commercial rooftops, otherwise wasted space. A control system handles the interface and control of the panels to the existing electrical supply or hot water system.
Let’s take a closer look at photovoltaic panels, since that’s where the growth and investment opportunities lie.
Higher Efficiencies and Dropping Panel Costs
Not unlike other semiconductors, continued research and developments in the materials themselves have resulted in huge boosts in panel energy conversion efficiencies. As little as 10 years ago, 2% conversion efficiencies were the norm for polysilicon panels.
Commercial panels are now approaching 9% to 10%, and researchers have achieved nearly 20% in the laboratory.
However, new cadmium telluride thin-film technology is the industry’s current price/performance leader, and it and other derivations of thin-film will completely replace polysilicon panels in a few years.
Current panel costs are in the range of $1 to $2 per watt, however some companies have already broken the $1 per watt barrier. This trend will continue, with prices reaching $0.50 per watt and even lower in just a few short years. At the same time, panel efficiencies continue to increase, making solar installations even more financially attractive as time goes on. Have they finally become cost effective? The answer is yes and no…
Governments Around the World Gear Up
Germany and China are still the two biggest markets for solar. The German market will grow by nearly one-third this year, and that’s in the face of less than ideal economic conditions.
All indications are that global credit is beginning to loosen, particularly for solar installations in countries where governmental subsidies exist: Germany, China and now the United States.
The United States is the dark horse of solar, with some states offering as much as 35% credits on top of the 30% federal refund. It’s no wonder that the forecasts for solar installations for this year and next are double that of last year.
Here are the top five solar companies to invest in now:
First Solar (Nasdaq: FSLR) is the biggest player in thin-film solar panels, and is also the lowest cost producer. The company is a likely candidate for the S&P 500 and should experience a great second half of 2009.
Evergreen Solar (Nasdaq: ESLR) is another thin-film panel maker. This company is just beginning to ramp up its manufacturing, and that’s a good thing, since it has a backlog of over $3 billion.
Canadian Solar (Nasdaq: CSIQ) makes panels in the current polysilicon technology, but represents a great short-term (less than one-year) play in the space.
Ascent Solar (Nasdaq: ASTI) is focused on the developing BIPV market, and as such represents a great long-term play.
Energy Conversion Devices, Inc. (Nasdaq: ENER) makes, sells and installs photovoltaic panels and batteries for energy storage.
As I indicated last week, growth will likely continue to ramp up in a big way here in the United States and by 2016 our total installed base could equal that of the rest of the world. China and India are also heavily subsidizing solar installations and will drive growth even more.
Even with all this heady growth, total worldwide energy gleaned from solar will still be less than 3%. Clearly, investing in solar for the long term represents one of the greatest growth opportunities in our lifetime.