It is common among fossil fuel advocates to write that "solar is not competitive without subsidies," but repeating a lie does not make it true.
Every industry has failures. Nearly all mainframe computer companies from the 1950s are now gone, as are the mini-computer makers of the 1960s and the early PC pioneers of the 1970s. If I bought a computer ETF in 1955, most companies in it would not exist 20 years later. Does that mean computers were worthless?
The failure of a specific company, whether a Solyndra or SunEdison (NYSE:SUNE), or even the failure of a technology like the Concentrated Solar Power system at Ivanpah, is to be expected in any rapidly-evolving technology.
What matters is cost, which drives price. Solar PV manufacturing costs have been dropping 21% per year throughout this decade, and that will continue for at least another 10 years. "Solar parity" varies from place to place, because the mix of competing technologies varies, but right now, solar costs less than "peaker" natural gas power - generators that are turned on and off quickly in reaction to demand.
The only reason fossil fuels remain competitive is because of sunk capital costs. All those pipelines and refineries are already paid for. So are the demand drivers, the cars, trains and power plants used for fossil fuels. The only infrastructure solar cells use, besides their own manufacturing plants and transport to installation sites, is existing transmission lines, and they often use less of these than fossil fuels because plants can be located closer to population centers. Adding storage, which fossil fuel advocates consider a subsidy, actually improves the quality of power, saving money for all who use it, no matter how it's made.
When you buy a gallon of gas, you get the energy that gas creates when it burns. You then have to go get another gallon of gas. When you install a solar panel, you get energy from that panel for 10-20 years. Once the capital costs are retrieved, you only pay for maintenance. This is why companies like Berkshire Hathaway Energy (NYSE:BRK.A) (NYSE:BRK.B) keep buying solar. They started with large, utility-scale projects, but are now buying energy from smaller, "solar garden" projects, as these become economically efficient.
Current natural gas prices do undercut current solar electricity pricing. That is why the solar industry stocks remain under pressure. This is especially true for those in the most-expensive segment of the business, residential solar, where projects are small and such things as installation and permitting become significant on a per-panel basis. Stocks in companies that specialize in residential like SunRun (NASDAQ:RUN), Vivint (NYSE:VSLR), and even SolarCity (NASDAQ:SCTY) are going to remain low for some time. (SolarCity is evolving into a manufacturer.)
But manufacturers who have a handle on costs, and focus on utility-scale projects, like Trina Solar (NYSE:TSL), SunPower (NASDAQ:SPWR), and First Solar (NASDAQ:FSLR) should continue to do well. (The last remains my top pick in the sector.) The one caveat would be new solar technology that drops costs even faster than these existing suppliers can. As costs decline power in the industry will tilt away from the installers or developers, toward the manufacturers, because marketing costs drop once a product's economics are proven.
What about subsidies, and what about the future? Solar subsidies are expiring over the next several years. Fossil fuel subsidies, especially tax breaks designed decades ago, are not. But fossil fuel costs are rising - the product is being sold below cost right now - and solar costs, as previously noted, keep going down. The value of sunk infrastructure costs may make fossil fuels appear to be a good deal for some time, but that infrastructure is wearing out, just as roads are wearing out. Adding those costs to the equation delivers a different result.
Would you rather be investing in something whose costs are declining, or something whose costs are increasing? That has been the economic case for solar throughout this decade, and the case remains intact.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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