Solar energy skeptics don't understand Moore's Law.
While Intel co-founder Gordon Moore has always felt modest about his 1965 Electronics article , my own work has taken a more expansive view of what Moore wrote. That's because the exponential improvements promised by Moore have since appeared repeatedly in related parts – radios, hard drives, optical fibers – and all this growing computer power builds on itself.
This has everything to do with solar energy. Many solar panels are produced much like silicon chips. And all renewable energy research benefits from the enormous computer power, and connectivity, now available to scientists, engineers and investors.
I like to tell people that energy harvesting is where computing was 40 years ago. Intel went public in October, 1971, raising $7.2 million on its IPO. That's still less than $20 million, when adjusted for inflation. The company had lost money early in the year, but its 4004 chip would start a string of profits lasting until 1985. It's now worth $116.8 billion.
Is First Solar the Intel of this space? Not necessarily, because solar cell technology is not nearly as settled as chip technology was. First Solar makes its modules of cadmium telluride, rather than silicon. Its systems are less efficient (per square inch) than those made with silicon, but easier to make in quantity.
As with Intel, whose planar process made modern electronics possible, First Solar's secret sauce is its manufacturing equipment. While everyone else focuses on cell efficiency, First Solar focuses on these machines. It's less the Intel of the space than the Applied Materials (AMAT). When looking at possible competition, it's vital you keep that in mind. First Solar's manufacturing expertise has its costs down below $1 per watt. It's producing 4 Gigawatts of cells per year, and opening a new plant in Germany just as that country re-thinks its past commitments to nuclear power.
It doesn't matter how efficient your solar cell technology is if you can't scale it to mass production at a reasonable cost. Despite the relative inefficiency of its technology, First Solar has done this. As a result subsidies matter less to First Solar than they do to competitors. If a $2.90/watt system in California is a good deal, even without subsidies, then First Solar's manufacturing expertise is getting pretty close to grid parity already, even when you add distribution and profit to the mix.
There's going to be demand. China wants to be installing 10 Gigawatts of solar per year by 2015. Germany has raised its targets, and kept older subsidy rates in place to achieve them. No matter what Republicans do here, companies like First Solar are not going to be hurting for customers.
Then there's the nationalism angle. With Total buying most of SunPower (SPWRA), First Solar is the last major U.S.-based solar panel maker, giving it a powerful argument in Washington.
So costs are not a problem, sales are not a problem, and capital is not a problem. The question remains price – its current price-earnings multiple of about 16.5 has the bears dancing. But there's a difference between a bear dance and a long-run opportunity. Can anyone seriously doubt that First Solar will be here in five years, worth even more than it is today, even if that's within the arms of a Chinese or German (or possibly American) competitor?
I don't own any of this stock, but if the price is right it's still the best bet on the renewable energy board.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.