Solar And The Boom-Bust-Boom Of Technology Markets

by: Dana Blankenhorn

With Solyndra blowing up into a real scandal and Republican governors on the warpath against aid, there are some who are calling solar energy a fad and a scam that can't meet its backers' claims. They're ignoring that this is the nature of a technology market. The value is obvious, people pile into the space, there's a boom, then a bust. This is always followed by a new cycle with new technologies and a new boom ... then another bust.

I've seen this many times. My first PC ran something called CP/M. There was a fast-growing market for such machines in the 1970s. Then IBM came out with its PC in 1981 and the boom busted. A lot of buyers, including me, were “orphaned,” our makers going under, our machines becoming relics well before their time.

A bust doesn't have to be endemic to the technology. Early IBM PCs were no more powerful than the machines they replaced. But IBM was a big brand, Microsoft (NASDAQ:MSFT) enabled clones to appear quickly and the market shifted. People who had invested in CP/M, or CP/M machine makers, lost their money. But as we all know, PCs were not a fad.

More often, a bust is caused by oversupply, by sellers producing more than their markets can bear in a short time, leading to product stacked in warehouses, losing value, and the companies behind those products going under while waiting for buyers.

That's what's happening now in solar. Chinese companies like Yingli (NYSE:YGE) are taking advantage, picking up market share because they can stand the pain of a glut. First Solar (NASDAQ:FSLR) is “future proofing” FSLR's customers with a longer warranty.

This is why U.S. tech companies keep mountains of cash around – to get through busts. Less well-capitalized American companies such as Evergreen Solar (ESLR), meanwhile, are falling by the wayside.

Something very similar happened to the PC market in the late 1980s when it seemed Japanese producers were about to take over the U.S. computer market. But Dell (NASDAQ:DELL) and its just-in-time mass customization production turned the tables on that glut. Dell didn't take parts until Dell booked orders, the time between paying and collecting was squeezed, Dell gear didn't rot in warehouses, and Dell seized share.

Solar is so early in its evolution that new technologies are guaranteed to provide a huge improvement in value-for-money over the old. Try efficiency of 19.3% , a huge jump from current products. Or how about a panel system that produces AC power – no more expensive, energy-gobbling inverters. And what if silicon wafer costs could be cut 50%?They can be.

So long as value is there, tech markets keep growing despite the boom-bust cycle. Stuff that produces electricity while just sitting on your roof, that keeps producing it for years, obviously has value. Thus loan guarantees are still being given. Thus IDC expects total solar photovoltaic shipments to reach 30 Gwatts in 2015.

That's still less than a tenth of U.S. baseload requirements, but it means tech analysts, who know these things, expect solar capacity to keep doubling, and re-doubling, and doubling again. From a tenth of baseload supply, it won't take many more doubles to equal it.

The energy crisis, in other words, will end. The technology to end it is not yet in the market. But history shows it's coming, and you can bank on that -- even if it's tough to find a way to invest in it now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.