Solar Power Will Be Transformational in the Next Decade

Many SA contributors and authors in the popular press have weighed in on the prospects for solar energy in the next year, the next decade and beyond. Although I have no formal financial training, I have been a student of this space for many years, and in fact, 3 years ago, I installed a large PV system on my house. I also installed a solar-hot-water system at the same time, rendering the house almost carbon neutral in 2005.

More recently, I have been investing substantial dollars in this space, so I have tried to become informed about it. I have written several solar-related articles in SA over the past few months, and between yesterday and tomorrow, I have submitted a series of 3 articles that discuss various aspects of the solar space. In the first article, published yesterday (link), I presented an argument that solar has already achieved grid parity if we make an apples-to–apples comparison with "conventional" power sources. In this article, I discuss my overall thoughts on macro trends in the solar space, and in the third article, to be published tomorrow, I will compare 11 solar stocks and conclude that Trina Solar (TSL) is the best bargain in the group.

In yesterday's article, I reached the conclusion that IF we compare apples-to-apples, solar PV has already achieved "parity" with the three "conventional" sources of electricity—coal, natural gas and nuclear. So the first issue to address here is, ARE utilities and power generators engaging in an apples-to-apples comparison these days when deciding what kind of power plant to build?

Although the evidence is spotty, I think the answer is "Yes." Of course, to be on the leading edge in any investing space, the evidence is often "spotty" at the beginning because by the time everybody knows something, the best potential for investment may well have passed.

The best evidence that utilities are starting to make apples-to-apples comparisons in deciding what kind of power "plant" to build is the decision last month by Southern California Edison to go "solar" for its recent needs for 250 megawatts (see yesterday's article for more details). Although I have no inside knowledge, it certainly seems likely that SCE compared solar to conventional sources of power and decided to go solar. Regardless of its novelty (to my knowledge, no US utility has ever made such a decision), SCE's decision to go solar for such a large amount of solar capacity reflects a definite societal shift away from carbon-fueled electric generation. It is almost impossible to get a coal-fired plant approved today. A major fight has been raging in Kansas (of all places) regarding the construction of a coal-fired power plant. Even in Texas, the epicenter of carbon fuels in the United States, opposition to coal-fired power plants has been growing tremendously.

In addition to growing public opposition, financing carbon-fueled power plants has become more difficult because lenders are themselves being forced to look at ALL the costs of building such generation. One of those costs is addressed by this question that lenders are asking themselves today: Assuming our borrower can even get the coal plant built without CCS (carbon-capture-and-sequestration) equipment, how much will it cost our borrower to retrofit a new coal power plant with CCS equipment if he is forced to do so at a later time? Since nobody really knows the answer to that question (but everybody knows it will be in the hundreds of millions per power plant), that uncertainty is making it difficult to finance these plants.

The general mood in this country is also clearly against carbon-based power generation. Whether one subscribes to global-warming concerns or not, there is no question that this issue has achieved critical mass in the US. Discussions that would have been considered esoteric a few years ago are mainstream today, on TV and in the popular press. One of the reasons for this, of course, is Al Gore's incessant work in this area, but another is the price of oil and gasoline. Whereas one rarely read about energy in the popular press a few years ago, when oil was at $30 and gas just a little over $1, one can scarcely watch TV or pick up a newspaper today and NOT read about energy. And although oil prices technically have very little to do with electricity generation, that truth does not prevent the two from being linked together and repeatedly discussed in stories about the "energy" problem.

The Iraq war has also focused us on what the real cost of oil has been—in terms of American lives—and that has also engendered some of the impetus to solve this "energy" problem. Finally, NIMBYism as to conventional power plants has increased tremendously in the past year, making those kinds of plants harder (and therefore, more expensive) to build.

Against this background, solar as a means of making electricity and as an investment (and most people probably do not differentiate the two) has also hit the mainstream. People who never had a clue about PV (photovoltaic, converting sunlight into electricity) five years ago are actually asking about installing these systems in their house s today. The fact that FSLR was the best-performing stock last year probably introduced a lot of folks to the whole idea of PV. And the Southern Calif Edison decision last month will undoubtedly spur much more interest in this area because the decentralized nature of the installation will expose thousands of people to the idea that electricity can be made from the sun cost-effectively.

With the above background in mind, here are my thoughts and predictions about solar going forward:

1) Primarily because I think we have largely achieved grid parity based on an apples-to-apples comparison that power generators are starting to do today, I believe that annual demand for solar panels will increase more than the 40% number that is widely bandied about. I don't know if the actual number will be 60% CAGR or 80%, but I think that once the "secret" that grid parity has been achieved is out there, I think demand will go up substantially more than 40%.

2) If that prediction turns out to be correct, it will also mean that solar will survive even if incentives are not as robust as I expect them to be. Of course, if incentives are cut, solar penetration will definitely be slowed down, and solar stocks will be substantially hurt, but the solar genie will not go back into the bottle now that we are at, or very close to, grid parity. However, I actually expect collective global incentives to INCREASE over the next few years, rather than stay the same or decrease. Although the US isn't among them, quite a few countries are aiming for the vast majority of their electricity to be renewably-generated, and several countries are well on their way (Germany and Spain come to mind). And although federal incentives in the US won't be as good as those in Europe and elsewhere, the size of our power market is such that even if only ten percent of our electricity is to be PV-generated, that will mean multi-gigawatts-per-year domestic demand for PV. Keep in mind that quite a few states have very nice incentives in place and other states are coming onboard, so total incentives in the US (federal and state) may well be sufficient to generate more total demand for PV than in the very pro-PV countries such as Germany and Spain, which have much smaller power markets than we do.

3) If the above two projections turn out to be correct, and demand will be higher than most experts expect, the fall in ASP's will be slower than many anticipate. I have read various doomsday projections that argue that there will be an oversupply of panels by the end of 2008 (and that panel prices will crash), but none of the solar companies that I am aware of seem to agree with that prognostication. On the contrary, most solar companies have already pre-sold their 2008 production and some have sold a significant amount of their 2009 production. In addition, ASP's in the 4th qtr of 2007 and so far in 2008 have actually been slightly higher than earlier in 2007, and most companies have estimated that ASP's will only drop a few percent by the end of this year, and somewhere around 10% next year. Obviously, the end users that are buying 2009 panel production today are not convinced that the panel prices are going to decrease tremendously in 2009.

4) Again, in contrast to some doomsday scenarios projecting a glut of poly by the end of this year, I believe that while poly prices will certainly decrease, and will do so more rapidly than ASP's, the increased demand for PV panels will soak up much of the poly, preventing a crash in its price. Therefore, I believe gross and net margins achieved by panel manufacturers will largely stay intact for the next 18-24 months (gross margins will be company-specific rather than undergo a secular industry-wide crash). If demand ramps as I have projected, and assuming no disruptive technologies, margins for the leading solar-panel manufacturers might remain intact for longer than that.

5) However, by 2011 or so, and again assuming no disruptive technology has yet reached mass commercialization, making panels will largely be a commodity business where most of the products (with certain exceptions) will be essentially fungible with very little to distinguish one panel from another. There will be exceptions, such as patent-protected design features or other proprietary aspects of the PV business, but these will be the exception rather than the rule. Of course, if a disruptive technology is proven and can achieve significant cost savings or much higher efficiencies, that certainly could invalidate this prediction.

6) Within 3-4 years, the leaders will be selling panels approaching 25% efficiency, and almost everyone will be making panels with efficiencies over 20%, except for the thin-film products (eg, FSLR's) which will be in the 12-13% range (I have read reports that some CIGS panels have reached 19% efficiency in the lab, but I have no ability to verify this or to evaluate the likelihood of thin-film reaching this level of efficiency in commercial production in the next couple of years). Within 3 years, poly-panel makers will be using half as much silicon per watt as they used in 2006, as wafer thicknesses decrease and as cell efficiencies increase.

7) To decrease fabrication and installation costs (decreased fab costs=increased margins), the standard panel will go from the current 150-200 watts to 225-400 watts, resulting both from an increase in physical panel size and an increase in the efficiencies of the cells (SPWR already sells commercially a 315-watt panel at 19.3% efficiency; even without any change in panel size, that panel at 24% efficiency will generate 392 watts).

8) This year, expect 2 or 3 more announcements similar to the 250-MW announcement made by Southern California Edison in which solar will be chosen over "conventional" electrical power generation sources.

9) Also within the next year—maybe two years if the economy takes a while to recover—expect to see PV products sold at select Costco, Home Depot or Lowe's stores in locations that have a significant sun resource, and therefore, a better payback. Expect to see several "kits" offered, ranging from 2KW to maybe 7KW. You will have the choice of installing the modular kit yourself or pay an extra fee to get it installed (or do most of the installation yourself and then have an electrician or solar installer do the final connections). It will probably be financeable—with your electric savings each month just about covering your monthly payment on the PV system. Expect price targets of about $10,000 for a 2KW system installed, up to $30,000 for a 7 KW system, installed. Assuming electricity cost of 13 cents per KWH (that's what I pay here in Texas today), expect 12-15 year paybacks in sunny locales in the US. Of course, as costs of these systems continue to drop, more big-box stores will carry these systems because even places with a less-than-perfect sun resource will be able to achieve reasonable paybacks.

10) Also within the next year, maybe two (again, based on how the economy is doing), expect a new business model to be floated in which a company will install a PV array on your roof at no cost to you. In exchange, you will enter an agreement to pay the company for electricity that you use at the existing rate you are already paying, plus 2-3% annual escalators for 30 years. The company will be responsible for all maintenance, and will receive any market incentives that are available. At any time during the 30-year agreement, you will be able to purchase the system at a pre-arranged price.

11) Finally, expect a much larger percentage of new construction—whether it's residential or commercial—to incorporate energy-saving features, demand-response capabilities and active electric generation via solar power. Expect homebuilders (once they recover from their current predicament—or maybe as a means to distinguish themselves even now) to offer homebuyers the choice of an "energy-efficiency" upgrade which will include an active solar component. By installing a PV system as part of the home's construction, one can lower its cost substantially (versus a retrofit) and once that cost is rolled into a 30-year loan, the electric savings will actually exceed the increase in the loan payment that is due to the "energy-efficiency" upgrade option.

Obviously, as I suggested in the title, I expect solar to be "transformational" in the next decade and beyond. I believe the trends I have predicted above will be self-reinforcing (ie, as PV becomes cheaper, increased demand will make it even cheaper), and thus will accelerate. One can only hope so because going to a renewable-energy-based economy is our (Baby Boomers') only chance to maybe leave the earth in better shape than it is now for our children and grandchildren.

DISCLOSURE: I own a large position in TSL, and a decent-sized position in STP. My CSIQ shares were called away from me over this weekend since I sold $25 calls against my position about 3 weeks ago, but I may buy more CSIQ on a dip. I am not short or long any other stock.

Comments

[Solar Guy]

Another great article Jack. Keep 'em coming. Your facts match up very well with the guru, Travis Bradford, in his book "Solar Revolution". As a fellow Baby Boomer, I'm on a crusade to do exactly what you suggest and leave this a better planet for our kids and grandkids. Did you catch the announcement from the King of Saudi Arabia about capping oil production at current levels to save what's left in the ground for their future generations? Wow -- what a profound statement and worldwide impact as other oil-exporting countries will probably follow suit. They probably have, or will soon, reached peak oil but won't disclose it because it would weaken their geopolitical power. They (and the oil companies) will continue to maximize profits as demand exceeds supply and reduce the depletion rate without any further investment in new fields. See article at www.evworld.com/articl.... (It's also why I'm looking for investors for my solar power plant startup here in Florida). I'm the former CEO of a dot-com company for 10 years, and believe this sector is bigger than the Internet for the next 20 years. We can't get the solar industry going fast enough in my opinion.

[DonaldRay]

A most wonderful article. Wish people of your thinking was in the Political position to make these ideals become reality quicker.

[Pickings]

Great insights - keep 'em coming! The obvious downside to solar is when the sun's not shining: Do you see any new technologies/plays in mass energy storage?

[Jack Yetiv]

Thanks for the kind comments. I believe that Saudi Arabia may be "capping" what it ain't got--as you comments suggest, Solar Guy.

I am not familiar with Travis Bradford but will have to look him up when time permits.

To Donald Ray--again, thanks for kind comments. I think "politics" proper is a race to the bottom, a race I won't be involved in. But I have founded a think tank, which I will launch actively in late 2009. One of its focuses will be energy. I believe I will achieve far greater good through a think tank than I ever would as a politician.

For example, Ralph Nader, Al Gore and Mothers Against Drunk Drivers all have achieved much greater good than just about any politician I can think of.

Jack

[Jack Yetiv]

To Pickings:

For most of the next decade, the fact that solar doesn't produce at night won't be much of an issue because utilities are not short on night production--they are short on peak power production. That's what solar provides in the right locales.

Electricity storage will become absolutely critical in order to grow solar in the subsequent 10 years--but those technologies are still in their infancy, and I am not well informed on them. Storage of compressed air and molten salt are two things I have read about, but really haven't evaluated them in the detail that I am accustomed to. Therefore, I cannot make any intelligent comments about them.

Jack Yetiv

ack

[marvingortler]

Not in your discussion is Parabolic Solar Collectors. I believe that a huge project is underway in California which is cheaper to build and more efficient than polysilicon.

[rdmill]

Jack--why did you pick STP over SPWR for example? Also what about the installers like AKNS? Could a dramatic drop in the price of oil slow down the Solar stocks? Thanks

[supershort]

You make a very nice long pitch for solar stocks. Sorry to be the spoiler, but I just can't resist.

Solar panel power plants are not self sustaining. They don't produce power at the same peak or efficiency for any predictable period of time. You will need a backup source, and as our nation and economy continue to grow and recover, solar will not keep up with the demand. So in essence we are wasting money for a two tier system.

You correctly state that the price of oil should not have an effect on solar power, but it does. In a negative way. Oil is used to manufacture many of the plastics and components in a typical panel installation. That will continue to drive up the costs of these systems and your quote of

" $10,000 for a 2KW system installed, up to $30,000 for a 7 KW system, installed. Assuming electricity cost of 13 cents per KWH (that's what I pay here in Texas today), expect 12-15 year paybacks in sunny locales in the US. Of course, as costs of these systems continue to drop, more big-box stores will carry these systems because even places with a less-than-perfect sun resource will be able to achieve reasonable paybacks. "

is a very telling sign. How can the average homeowner with increasing costs and inflation afford this at this point, or even in the near future? A lender would never give a loan at this time or in the next three to four years on something that has a payback in 15 years at best. The out of the box solar panels will never be a reality alsoi for the simple reason that a power surge can knock down a grid. Lighhtning strikes could cause an overload to the system and take out a grid, if there were many homes and individuals on a grid. Now the terrorist factor. Once your home or busness is loged onto the grid, it is only a matter of time to bypass the surge protector and knock out a grid.

You also fail to mention the astronomical P/E ratios these stocks are trading at. Even based on your predictions, the values are way too rich. Also why are all the insiders of these companies dumping their stock like there will be no sun tommorrow?

Solar will play a part in our future, a slightly greater part than we have now, but at these prices, the stocks are incredibly overvalued at this point.

[curious cat]

supershort,
where were you when he was touting thornburg? i could have used a sober analysis on that one too.
thanks

[supershort]

I was shorting them.

[GlobalWarmingExaminer]

I looked at a 2KW installation for my home and the price, after rebates and credits was about $17,000. The full price was closer to $30,000 without incentives. Assuming 6 hours of full, direct, sunlight per day producing at full power and cost of $0.125 per KWh is $1.50 per day. That's $548 per year (assuming no cloudy days). That is a rate of return on investment of 3.2% per year or a payback time of 31 years.

It is getting closer to being a reasonable investment after credits and rebates. Things that would make the equation more favorable: If power companies would switch to time of day pricing, they would buy peak power for a higher price. Establish low cost loan programs with government guarantees to reduce the cost of borrowing. Raise the price of coal and other fossil fuels. Reduce the cost of solar panels and inverters.

Bottom Line: the subsidies that the solar energy is currently enjoying is creating artificial demand. This demand is important to drive the price of solar systems down so that eventually we will reach the price where solar power is economical on its own merits.

[Jimbo]

I am a fan of yours even though I am politically far to the right of you. Many "rightwingnuts&qu... are also concerned about the environment and the health of the economy. I was a school boy in Florida (where I now reside) in the 1930s. Poor folks could not afford and electric, or kerosene, water heater. Many homes in Florida featured a shallow wooden box with copper, or even galvanized pipe,latticed in it. The whole interior was painted black and a sheet of window glass over the top kept out debris and promoted a greenhouse effect. After WWII ended , power companies pushed "Gold Medallion" homes serviced by "Reddy Kilowatt" and two dollar a barrel oil. Presently, in Central Florida, we are paying 22 cents a kilowatt. We installed a modern solar water heater a few years ago and our total electric bill has hovered around the low 70 dollar range for a three bedroom, three bath house. Of course, when the cooling season hits,our electric bill will increase significantly. I am very interested in installing a solar electric system in our home and I was practically salivating at your last article. I expect that most new home construction (boy, is that forward looking!) will feature solar electric collectors. The cost will be folded into the mortgage just like household appliances. Nothing like paying for a dishwasher or a refrigerator over thirty years!. I will be looking forward to your future posts. Jimbo

[GlobalWarmingExaminer]

I am long on CSIQ and TSL because I believe the industry is currently capacity constrained. The shortage of polysilicone is abating and these companies could grow production volume at some very impressive rates for several years. All of the solar producers can make money, I just favor the ones with the lower P/E ratios.

[supershort]

Analyst,

You quote a 31 year payback time at a rate without any cloudy days and same temperature. Assuming even 90% sneshine, it goes up to 49 years. In 40 years there will be something newer, and more efficient, you can bank on that. So you will never recoup any cost savings on any solar panel system. You just confirmed another bear argument point.

[Tim Plaehn]

Excellent article. One quibble: CA power utilities are required by law to be generating something like 20% of their power from renewable sources by 2010. So cost comparisons with carbon energy are probably not in the calculations for California power companies. They are looking for the best renewable sources of power.

[Jack Yetiv]

To RDmill:

More discussion about which stocks are the best, IMO, in an article tomorrow. In short, I like STP better than SPWR because I believe that Chinese manufacturing gives STP a leg up over SPWR. Also, SPWR's supposed advantage is high efficiency (19.3% in their latest offerings), but STP is achieving 18-19% with their Pluto system, so SPWR's advantage is relatively minor. Also, STP will make much greater inroads in Australia than SPWR.

To Supershort:

I don't know where to begin in correcting your misimpressions. First, see my comments above and on my previous article regarding the need for load-balancing and therefore, why solar plants do NOt need to produce 24/7.

Second, there is VERY LITTLE plastic is solar panels. If you know otherwise, please provide me the source.

Your question about homeowners affording the system--I thought my article addressed that pretty well. Per my prediction, a homeowner won't have to "afford" a penny--electric savings will cover the marginal loan payment.

You comment about surges, etc, would suggest that you are unfamiliar with NEC (National Electrical Code) requirements for intertie inverters, which are designed NOT to backfeed into the system unless they see correct voltage FROM the grid.

PE ratios? See my article tomorrow.

To curious cat: I was neither "touting" TMA nor am I "touting" solar. I call them as I see them. Sometimes I am right, sometimes I am wrong. I was wrong on TMA. I may or may not be wrong on the solar space. This is a discussion site for stocks. I have submitted ideas for discussion.

To analyst:

With all due respect, a full price quote of $15/watt ($30,000 for 2KW) is absurd. SCE will install 275 megatts at $3.50 per watt.

I installed my system for about $9/watt gross, about $5/watt after incentives. Besides, remember my article was forward-lloking--I was making a prediction for 2009 to 2010, not today. I believe in 2010, you will be able to buy a system at a cost of $5/watt, installed.

I agree with the rest of your comments.

More thoughts in my next post.

jack

[Jack Yetiv]

To Jimbo:

Thanks for your kind comments, with which I agree. Let me highlight that solar water heating is cost-effective TODAY, with paybacks ranging from 4 years to 10 years, depending on locale and your current cost of water-heating.

Residential PV is not cost-effective today in most places (but probably is if your utility will pay you for KWH generated at peak rates.

To Tim P:

A VERY good point, which I looked at before writing my article but it was too fine a point to discuss. The question you raise is--did SCE do this to comply with the Calif RPS (Renewable Portfolio Standards) of 20% by 2010? My thought is I doubt it, given that SCE is already at 17%, and they still have two years to go.

Thanks, Jack Yetiv

[CaptainAristid]

Hi Jack, I work in the utility industry and I can say with a decent amt of authority that rate recovery at the state level drives all capacity additions. The so cal edison decision was driven by the California Solar Initiative and most renewable additions throughout the country are driven by state renewable portfolio standards. In addition, portfolio mix is one of the other major drivers. For example, which of your resources can provide reactive power, spinning and supplemental reserves, also response to dispatch instructions.

[jazzharmonicat]

I predict that as solar installations on rooftops become commonplace, one of the the power industry's main headaches, VAR, will decrease. GE's massive wind turbines already have electronics that can sense and correct for VAR locally. VAR is basically phase shift between voltage and current, caused by reactive loads such as motors -- and even flourescent lighting and light dimmers. This phase shift increases heat loss in power lines and transformers and costs the electric utility companies a LOT of money. Their standard way of addressing this is to just keep adding more and more banks of capacitors online. I think the electric utilities should be welcoming things like Calif's "million solar roofs" program, partly because it will reduce VAR (especially if the inverter/tie box electronics is designed correctly) and will also handle daytime peak loads due to A.C. during hot, sunny days.
I thoroughly agree with the need for some kinds of energy storage mechanisms. Home installations can have their own battery banks, but for community installations or commercial installations, something bigger and cheaper must be created. I had a crazy vision of using gravity, having multiple parallel tracks with railroad cars full of dirt being pulled up a mountain by motor/generators to store energy during peak sun and wind conditions and letting them roll back down the mountain as sunlight or wind diminishes. Of course, that would be an eyesore, but at least it's an idea. On a smaller scale, such as on a farm, digging a deep pit and raising and lowering something like a dumpster full of dirt and rocks using a motor/generator might be feasible.
Duke Power's Oconee nuclear station has a nearby river (Oconee) dammed up in a narrow gorge and they pump water back behind the dam at night and release it during peak load hours, so gravity is already being used to store energy for electric generation systems.
It is much more cost effective for electricity generation plants run from fossil fuels and nuclear to run at a fairly steady capacity. The engineer who brought up the issue of spinning capacity (which I interpret to include the energy stored in heavy rotating wheels) has an excellent point, in that electricity generation companies need the ability to respond quickly to sudden load changes. If we have something like million solar roofs and the day become cloudy over a large area, or the wind stops blowing on a large wind farm, the electric utilities have to be able to respond to even larger demand changes. But they have this problem now in the rare events where lightning or a storm causes power outages, and they handle it.
There will be many challenges ahead. Should get interesting.
-- Henry Stinson, BSECE

[Jack Yetiv]

To Captain:

Always good to get perspective from inside the industry. A couple of questions:

1) Are you suggesting by your post that SCE will recover a better rate based on the source of the power--ie, it will get paid more because it went solar for these 275 MW? If so, do you know this to be? It would be news to me, but I am always into learning.

2) To my knowledge, the CSI in Calif does not speak to utility tariffs or recovery rates. Am I incorrect?

3) If SCE is already at 17%, do you think meeting the RPS goal would be a major determinant in SCE's decision to go solar?

To Mr. Stinson:

Wonderful comments!

Recall that much of the distributed production will be used in the same building or very close to to the source generation. therefore, not only will VAR be reduced but line losses, which can run as much as 10% or more, would be quite small. In essence, thios distributedn power production effectively REMOVES these loads from the grid when the sun is shining and lightens the need to run expensive peak-demand-generation facilities (especially as nat gas is closing on $11/MCF, up from $7 a year ago).

Finally, many people do not appreciate that PV panels CONTINUE to generate power if its cloudy, albeit at a lower rate (my panels seem to produce at 1/3 rated capacity when it is overcast)--and my panels are nearly 4 years old. Much research is going into making panels whose performance during cloudy times is better than just 1/3 of rated capacity.

Finally, storage will be absolutely CRITICAL a decade down the line. But right now, in sunny, hot locales, solar matches very well to peak loads because the hotter it is, the higher the AC load--and usually, the higher the PV production.

Jack Yetiv

[jazzharmonicat]

There is a geographic area runing in band across the American Southwest (and extending a good ways into Mexico) that has about 5.5 average hours per day of direct sunlight. In that area there is a HUGE amount of land that is arid and not usable for anything -- other than beautiful scenery. It would be cost feasible, I belive, even with today's solar panel technology, to put large installations on some of the south facing slopes of some of the mountains and hills in that area, or even on flat, level land. Of course you would have to have some system to brush the dust off (no water to wash it off) or pay someone to keep the panels clean. And, of course, if one spreads them out a little and installs them on rotatable racks that can auto-track the sun, that increases the efficiency (and I believe the extra cost is worth it).
I think I agree that solar has not yet achieved parity with fossil fuels for electricity generation, except possibly for large installations of mirrors focused on a boiler, but such an installation would, like existing nuclear and fossil fuel electric-generation plants, require something like a large body of water to cool and re-condense the water. By the way, such a mirror and boiler based installation might approach 24% to 35% efficiency -- limited by same laws of thermodynamics that limit efficiency of generation plants that use steam -- including fossil fuel and nuclear types. (Which one -- second law? I forget. Look it up.)

[aurora703]

Jack-Your articles on solar are very informative in general and the ones that are company specific provide data that is sometimes hard to find elsewhere. I like TSL, but so does everyone else, it seems. I am looking at CSIQ as possibly a better "value" play. I am also looking at EMKR (Emcore), which is not (yet) a pure solar play. EMKR will split it's fber optics and solar divisions into two separate companies later this year. The most intriguing aspect of EMKR, besides it's relative obscurity in the solar sector, is it's CPV technology, which claims 39+% efficiency, today. Do you know anything about CPV technology in general, or have any thoughts on EMKR? TIA!

[Jack Yetiv]

To Mr. Stinson:

You say:

I think I agree that solar has not yet achieved parity with fossil fuels for electricity generation, except possibly for large installations of mirrors focused on a boiler,

Can you tell me the basis for this? What facts in my article are faulty, or where is my analysis incorrect?

To Aurora:

CSIQ was my favorite 3 months ago (see article I wrote on SA I think Feb. 4). I like TSL better now. My article tomorrow will explain why in some detail.

As to EMKR and ASTI, those plays are speculative, and thus offer a lot more risk for not that much more upside, IMO. It's too hard to tell how likely any of these technologies are to make money.

I believe TSL easily offers a 50-100% upside this year with relatively low (20-30%) downside risk.

Jack

[REBEL]

An excellent article! It is refreshing to read the article and reader comments on the critical subject of Solar energy. I anticipate that Solar energy will grow by at least 25 times in the US, especially after I
read thar wind power is losing credibility with many investors due to negative environmental factors, (such as killing birds).

[ramgolfer]

Great insite into the solar area, but is your pick going to end up like Thornburg?

[Andrew Ling]

Jack, using solar water heaters as a example, just because a technology is economical doesn't mean it will catch on quickly. Solar water heaters are such a great value and have been for decades. But relatively few in the States have one. Then again, the Toyota Corolla is probably the most economical car on the market but again
it's not even the best selling car in the country.

Most of us agree that solar will take the lion's share of new energy generation 30 years from now due to economics, but how much share it has in 5 years will depend highly on the whims of people and governments.

[Andrew Ling]

Also, consider the adoption of past comparable technologies. In order to displace an old technology it's not enough for the new technology to be equal. It has to be far superior. I've always been an early adopter, one of the first 1% to switch to a new technology e.g. dialup modem to broadband, film to digital cameras, cds to dvds to blu-ray. But there is a major lag between when a product seems clearly superior to me and other early adopters and when the general public finally switch over.

A good example of this is the number of HDTVs that were still flying off the shelves last year that were NOT 1080p capable. By the year the prices for 720/1080i and 1080p were already comparable. People just weren't aware what 1080p was.

Another is when Intel introduced the Core Duo. Everyone that reads benchmarking sites knew this was the end for AMD. After a decade of having a superior product but being barely able to compete with Intel they now had an inferior product and nothing in the pipeline. The market is still discovering this as proven by the fact the entire market sold off when AMD missed but then rallied when Intel beat. This was to be expected.

[supershort]

With all due respect, the solar bulls here are not looking at what exactly is going on in the world ecomomy. The mortgage application rate is down again. Existing home sales are down again. Oil is up again. All this bodes poorly for speculative companies with high P/E ratios. All your article is, although well written with some good points sprinkled in, is a pipe dream. Nothing else. There are no companies currently offering a out of the box installation, and to bet on SPWR, or FSLR that don't make an out of the box solar panel for home use that is economical. The industry for the most part says that costs will not come down for these panels. You do not have a crystal ball, and most of your future predictions are highly hopefull dreams.

Your comments although nice and get people feeling nice, warm and fuzzy, but by buying these stocks you are doing nothing for global warming or the envirornment. Replace lightbulbs with high efficiency ones, carpool, take public transportation, buy American products, curtain spending on those frivolous plastic stuff made in China etc.

PS I love the comment that Wind Turbines are going to be out of favor because they kill birds, but what about the massive waste of land that the solar panels need. What noone cares about the insects, reptiles and other animals that live in the desert. There are animals there also. What is the environmental impact of using acres and acres of land to power a few hunderd thousand homes without solving the problem of using our fossil fuels in the first place.

[zawy]

Your article doesn't take into account the upfront costs when calculating payback. You assume banks will give out 0% loans on the initial $30K investment, or that rich people who can afford the upfront costs are satisfied with 0% return on the investment. If electrical grid energy costs increase 3% per year and you or your bank are satisfied with 7% return on the $30K investment, you have to use a 7%-3%=4% depreciation factor. In this scenario, the $4.5/Wp installed costs you propose in a typical 6 kWh/day/m^2 location (this includes clouds!) at today's 13 cents/kWh, it will barely break even over the 25 year "efficiency-effec... lifespan of the solar cells. If it's in a new house where you can depreciate the home interest expense and are in a tax bracket of 25%, then the depreciation factor is 7*0.75-3=2.6% then payback can occur at $5.4/W installed which i believe is very doable.

There is no simple energy storage solution. The raw materials in EEStor supercapacitors cost $10/kWh, about 50 times less than current generation lithium-ion. See BCON for 10-hour energy storage with 25-year lifespan that could cost less than $1/kWh. Even at $1/kWh, storing half the energy of Jacks $30K, 7kW system in 6kWh locations will cost 7x6/2= $21K. Flywheels with carbon nanotube technology ($4/pound in 5 years) could solve the energy storage problem. They use vacuum and magnetic floating to keep 80% of the energy for 12 hours. Currently used in energy storage for cranes, trains (start/stop regeneration), and telephone systems.

[Jack Yetiv]

To Ramgolfer:

I lent out my crystal ball and it was not returned, so I cannot say if my pick (TSL) will turn out likie TMA. If you find someone who can give you guarantees in the stock market, you certainly don't need to waste your time reading my stuff. Of course, TSL could turn out like my recommendation of CSIQ (up 41% in less than 3 months) or HTE (up about 15%, plus about 5% in dividends from where I recomended it a couple of months ago). Including my TMA recommendation, I have broken about even in the past 5 months in the stock market. I would bet that is in the upper 10% of all professional money managers in the US.

The bottom line is--I write an article citing facts, and then I connect the dots. NOBODY has yet pointed out a wrong FACT in my articles. As to connecting the dots--everybody needs to do it on their own. I simply provide leads.

To Supershort:

I spend a lot of time very carefully crafting my articles. I did NOT recommend SPWR, nor did I say that there are "companies offering solar out of the box" TODAY. You correctly note I do not have a crystal ball--although I suspect every reader knows that, but without ANY factual or logical basis, you state,

"most of your future predictions are highly hopefull dreams."

Those kind of unsubstantiated comments help no one. I have made a case--please make yours using other facts or other analysis.

As to doing stuff for the environment, read my articles and bio to see what I have done. I hope you have done the same.

The problem for wind is two-fold: (1) the distributed model won't work due to NIMBYism and inefficient small-turbine production metrics, and (2) need for distribution. However, wind will be used where there is a good wind resource. Solar where the solar resource is best, until solar becomes so cheap it will sporint ahead of wind almost everywhere.

To zawy:

My article MOST DEFINITELY takes upfront costs into account.

2KW system, $10,000 installed ($5/watt; SCE is paying $3.50 for its 275 MW). Makes 360 KW/month (6 hrs per day of sun in best areas), 4320 KW per year. At 15 cents per KWH, $648/year saved.

Interest cost on $10,000--loan rates today, under 6%. Call it 6%--interest is $600/yr. Add in principal on a 30-year mortgage--just about equal to $648. And do you think electric will be 15 cents in 10 years? 20 years?

So, contrary to your statement, I DO NOT assume 0% loans.

Agree with your energy storage comments. We're not there yet.

But we don't have to be yet. Lots of need for peak-load power sources today, and solar fits that bill.

Jack

[solardeb]

i agree with rd mill what about the people that install we
have to start investing in those co.'s also.
you can make the product but you need someone
to install it also.

[solardeb]

And yes akns seems to be the way to go.

[roysy s]

This is my first time to read your comments, and the responses you receive. I found them to be informative and entertaining - especially some of the responses. I recently became interested in aternative energy/solar. My investments so far are on the cautious side. I am interested in ETF's rather than individual stocks. I like the spread of risk. I feel solar's future is fantastic!.

[solardeb]

roysy s-
I am also very new to the market and to solar.
Read everything and listen to what others say.
make sure you are doing a little research.
I have heard that solar is a long time
investment.
Good Luck
Go solar
Check out akns they install the solar
and we do need someone to do that.

[Tao Man]

Jack, what do you think about AKNS? How does it play into the future you depict and does it make sense to invest in this company?

[Jack Yetiv]

Re AKNS:

Unfortunately, it has not made enough money to establish a track record, putting it in an entire different category than companies that will sell near a billion dollars of product in 2008 and make dollars per share earnings.

Companies like AKNS often fail to make anything. Whether AKNS is one of the minority that will give its investors a good return--your guess is as good as mine.

There may well be a lot of money to be made in solar installation, and maybe Andalay is truly the be-all and end-all. I haven't studied it enough to give a valid opinion about it, but my question is this:

If I were IPO'ing a plumbing company, would it be worth a lot? plumbers charge $50-100 per hour, and solar installers probably don't charge more. So it comes down to, Does Andalay really present such an advantage? And will nobody be able to easily improve on that design?

Since I don't know the answer to those questions, I cannot intelligently evaluate AKNS.

Jack

[globalmacro]

Jack, I admire your carefully measured responses to the asinine commentary offered by some posters on this board. Of course no one gets it right 100% of the time. The fact that you made one mistake is not a sign that somehow solar will not be adopted. That's insane. Look at all the big time money managers with 20 year+ market crushing track records who were long Countrywide, for example. Your restraint only increases my esteem for you and your forward looking insights. Thank you.

Disclosure: Very Long (1M+) STP

[zawy]

Jack, you changed the input data to "prove" your point. We were talking about 13 cents/kWh and you're using a gracious "effective-effici... of 30 years instead of the standard 25 years. A 3rd source of fudging is that you didn't do APR correctly. Even with your gracious 30-year effective-efficiency-l... monthly payments would be $60, so the rate is 16.4 cents/kwh instead of 15.

If you'll look at my comments, you'll see that i similarly found that $5.4/W is break even for 7% loan and if electricity costs rise 3% a year and if we can get a interest deduction, so we're not really in disagreement. I just want the math and assumptions to be correct and precise. Being off just 1 cent/kWh over 30 years is $3,900 on a 6 kW system (about $2000 in today's dollars when adjusted for inflation).

[Jack Yetiv]

Zawy, I am NOW paying 13 cents. I rechecked prices yesterday (powertochoose.org) and the mean is closer to 15 cents. One poster said he was paying 22 cents. Of course, nobody in Europe pays under 20 cents.

And I GUARANTEE you that given where coal and nat gas prices are going, and the need to build clean plants, EVERYONE in the US will be paying 15 cents within 3 years. And what about in 5 years? 10? 20?

Using 15 cents is very much PRO your side. The more realistic number over the next 20 years in probably over 20 cents.

Jack

[Andrew Ling]

Supershort you're missing the point completely. A major reason the economy is in such bad shape is due to rising energy prices which benefits solar stocks. Would you also short agricultural stocks, energy, and mining due to the economic downturn?

[special1person]

"...Although the US isn't among them, quite a few countries are aiming for the vast majority of their electricity to be renewably-generated, and several countries are well on their way (Germany and Spain come to mind)..."

In June, 1979, President Jimmy Carter proposed a “new solar strategy” to “move our Nation toward true energy security and abundant, readily available energy supplies.”

Carter installed solar hot water panels on the roof of the White House to heat water for the staff mess and other areas of the White House.

In 1981, Ronald Reagan ordered the solar panels that Carter had installed on the White House roof torn off.

Reagan rolled back fuel standards for automobiles.

Reagan killed federal wind and solar power incentives.

Reagan's efforts fueled the current oil addiction that has us, in the words of Robert F. Kennedy JR
"acting like a crack-house junkie rolling old ladies for drug money".

Want to know why we're paying $3.556 (AAA national average) for gas?

Want to know why the United States is behind Germany and Spain in solar power?

Want to know why we're paying $3 Trillion dollars in order to control Iraq's oil spigot?

Actions have consequences.

When will they admit they were wrong?

NEVER, EVER, EVER...not now, not ever.

[jajagabor]

This was a great article, Jack. Although it is somewhat on the sanguine side -- that side is an absolutely necessary one!

Regarding some of the more cautious/constructive comments, I liked Andrew Ling's the best. Like Mr. Ling, I have often found myself "ahead of my time" (so to speak) in regard to new technologies.

Four years ago I put together my first solar installation (battery, inverter, charge controller, panels) and have never regretted it. But the interest from others has always been very lukewarm, even after I have upgraded the original system and put in another one, and despite the fact that electrical rates have increased around 20% in just the past couple of years in my state of residence, and are bound to increase even more in the near future.

People always seem to love putting down new, innovative things -- and I think there is a certain obvious envy involved. Hence the usual nit-picking comments and questions. The fact that people spend money -- lots of it -- on such useless, quickly-depreciating stuff rather than on things that actually produce/save energy (and thus save money) shows that most of them are not really interested in any real "payback" in the first place, of any kind, whether for themselves or the environment etc. they live day to day, and although nice, good people, they never understand the idea of "planning ahead."

Example: buying a new car or SUV -- unless it is really needed -- is often a complete waste of time as it results in so many incidental costs: 1) insurance cost usually increases, 2) tag/title costs usually increase 3) and lastly, vehicles often depreciate at least $1500 - $2000 as soon as they leave the dealers' lots (and even more within a mere year). Thus, money is burned for having a shiny vehicle -- for a few months (after which, perhaps it is so shiny). What kind of thinking person would eschew solar for something so wasteful? Well,
the kind of person who doesn't really plan ahead -- i .e . most people!

Yet the critics, even supershort, do have a valid place, for even if their comments are sometimes asinine, for they show how many out there really think.

But seriously, if people did think, they would have been listening more deeply back when the "Owens Magnetic" automobile was produced back in the early part of the 20th century -- what (I think) was the world's first hybrid (gas/electric) car. According to Ed Begley, the Owens Magnetic got 50 mpg!

Likewise, they would also have paid attention when Aldous Huxley, in his novel AFTER MANY A SUMMER DIES THE SWAN (first published 1939), discussed the work of the Smithsonian Director, Charles Abbot Greeley, and his work with solar thermal. In the novel, one of the main characters uses a solar thermal device to heat oil and produce steam, which in turn is used to generate electricity, and thus lives off the grid. But the novel was probably a far way off from the NYT's bestseller list, and today very few people seem to be aware of it, despite the fact the Huxley was himself part of a well known English family, and the fact that his novels (especially BRAVE NEW WORLD) are still read and published today.

I could give many more examples of how "civilization&quo... has "missed the boat" . . . but won't.

Instead -- to the positive:

What was obvious to me when I installed that first solar system (and actually, long before that), and is even more obvious now, is that whatever delays are encountered in the acceptance of solar power and other alternative power sources, the bottom line is that it is inevitably going to go "gangbusters"... at some point (as it has to some degree already in much of Europe, though that potential is hardly at its full potential).

In terms of investing, I made quite a bit investing in ESLR back in 2003 (or was it '04? -- I'd have to look it up) when it was trading between 2 and 3. I bought over $20,000 worth, and sold half when it reached 7 within a couple of years, and then sold another 1/4 of what was left when it hit 12. I still retain 1/4 of that original investment and plan to hold it for a long time.

Since that time I've mostly traded very sporadically in solar and wind, usually (and unfortunately) selling short rather than long. Although I have almost always profited, I would have made a LOT more if I'd gone long (most of the time, anyway).

Still, I feel good. Making money rather than losing it is far better than hitting home runs (unless, of course, you really do hit home runs most of the time).

But what I really wish for is when solar stocks become the normal "blue chip" stocks, and investors can make a steady -- albeit modest -- amount of money mostly from dividends, rather than trying to outshine other investors with their special picks. That is fun . . . yes, but isn't really what "sustainable"... implies, is it? Sustainable is really connected with words like "relaxed," or "steady, stable" etc. and is not meant to be so volatile. But the reason these companies are more volatile is our culture and "the system," not the nature of renewables itself.

Well, bla bla bla -- I talk a lot. Have a good one!

[Jack K]

Wonderful article. It is obviously a very important concept for our future. More so than just regarding making money on stocks. But in that area, as someone who likes to find companies to buy and keep for a while, it seems hard to buy such expensive companies. My concern is that some private company will come along with disruptive technology and by the time the average Joe knows about it, these stocks will have tanked. If you are in the field, you will recognize it sooner, but if you are not, it is easy to be too late. Buying these stocks now seems like momentum investing. Okay if you know when to get out.

[Jack Yetiv]

Jack K,

I certainly agree with your comments re: FSLR or even SPWR.

But buying at a PE of 12 a company like TSL--that is expected to more than double its earnings this year--geez, that seems to me to be VALUE investing, not momentum investing.

Jack

[Jeff Roundy]

Jack: I appreciate your prospectus of the growth of the industry, and I agree to the potential growth. However, by almost any reasonable criteria, solar is nowhere near parity to the average utility grid. Some claim we are near parity but in order to make that comparison they claim the additional costs to the environment from co2 emissions. This can not be quanitified by science. However your beliefs about global warming, there is zero evidence of damage to the environment from emissions produced by the different types of utility grids, and in any case a company doing the comparison in order to decide whether they go solar instead of the standard grid, would certainly not be considering co2 emissions. Also, keep in mind that if you make a parity comparison of solar vs. a coal generation power grid(which is the most common and efficient power grid) the cost of solar is over ten times greater according to the DOE.
Having said all that, I am also an investor in solar stocks, and believe strongly in the advancement of renewable energy sources. Let's just keep our facts accurate and not be advancing solar efficiencies way past what they realistically are at the present.
By the way, if we were even close to being at parity to the most expensive power grid, let alone the least expensive, all analysts would not include the disclaimer, that all growth in the solar industry is based on current government subsidies. If subsidies were to be reduced either in Europe and/or U.S. solar stocks would be toast! I mention this, only so that your readers, and perhaps yourself will have a little more reasonable investor perspective on the upside and potential downside to investing in the solar industry. As is the case with most investment trends, especially in technology, people can get ahead of themselves and when the market conditions change, you can really get hurt.

[Jack Yetiv]

I completely disagree with you, Jeff. My article is FORWARD-looking, not backward looking like the DOE, which under the current administration has been negative on renewable energy, and has been awful at predicting oil and gas prices.

In other words, in my article, I was NOT comparing present solar to present conventional power that does not take environmental costs into account.

I am looking at the question of, What kind of power plant do we PLAN today to produce future power, which is the ONLY logical way to look at it because what is already built does not require decision-making.

You also misunderstand my environmental perspective. I said NOTHING about MY beliefs about CO2 or global warming, nor about nuclear, coal or nat gas--although you can certainly guess what my own views are. I did not express MY views because what Jack Yetiv thinks is irrelevant to a utility that is trying to decide what to build. The utility needs to look realistically at the costs and political climate for various alternatives.

And I believe that utilities are quickly realizing that old-style polluting and carbon-belching coal plants (on which DOE bases its useless cost numbers) ARE SIMPLY NOT GOING TO GET BUILT IN ANY MEANINGFUL QUANTITY IN THIS COUNTRY, and the same probably will apply to nuke plants. Whether you think it should be this way is irrelevant--I believe it is clear that this is the way IT IS.

Nat gas plants (DOE cost on those is probably based on gas at $6.50/MCF, while gas is now trading at almost $11/MCF) are also problematic because they are going to be very expensive to run--and still have the CO2-production political problem.

My article was meant to be revolutionary to our thought processes going forward, so what DOE says or what disclaimers are published by analysts don't mean much.

Jack

[Zomboe]

Here on Maui, residential rates are $0.30+/kWh and solar is really taking off. A quarter of the houses already have solar hot water systems, as do practically all new construction. PV is growing quickly, though unfortunately peak demand here occurs in the evening, rather than during the sunnier hours.

The company I work for, HNu Solar, is a small startup that is planning on offering "out of the box" PV kits just as Jack describes. What's really nice is that the state tax credit here can be earned for solar bought every year, so a strategy we are pursuing is to offer a small starter kit in year one that can be upgraded to higher capacity a year later, etc. We are also working on our own panel designs but even conventional systems have relatively quick payback periods here in Hawaii. And electricity rates have increased far more than 3% per year here in the last few years.

I've heard that a local bank here will finance solar PV installations and that the monthly payments are the same as your former electric bill. I'm not sure of the specifics though.

[drugal]

I just contracted for a 5.7 KW solar panel installation on my roof. My cost is $17,500. The local power company kicked in about $17,000, the state gives $1,000 tax credit and the feds $2,000. The Fed tax credit will go away on Jan. 1, 2009. We need a renewal of this incentive.
The house passed renewal legislation 3 times and it failed in the Senate 3 times. One AZ senator voted no 3 times and one missed all three votes. Go Figure?!?!?

[Jack Yetiv]

Drugal,

Congrats! Total cost is about $6.50/watt, just about right. Net cost to you is about $3/watt, excellent.

What panels and inverter did you go with? How manu strings running at what voltages?

I'm running 4 strings of 9 panels each, pushing 550 volts DC when the sun is strong and the temp is low.

Jack

[supershort]

jajagabor,

I am as asinine as you are. Your comment about buying a "not needed SUV" in your opinion should be replaced by a solar panel sytem, which is needed in your opinion. Sure, will people to buy something else they don't need nor want. If people wish to "go solar" they can, just don't pass judgement on those that are skeptical.


Solar power in it's present form and what is offered today is not cost effective, nor is it sound. These systems require great surface areas and vast qquantities of land in order to build power plants. They also reqquire back up power, or have to use batteries which for the most part are detrimental to the envirornment. They are very costly. And as I have said before and Jack Y has just admitted, they are not as efficient during the warmest part of the day, generally when there will be the greatest load placed by the air conditioning use.

I am glad you made money with these stocks, but at the present they are trading at absurd ratios and to pump these stocks is a disservice to investors. You are right in that many don't understand the solar industry, hence why they have these "pops" when oil surges, when oil has little to do with the price of electricity. Bottom line, a lot of these companies are China companies, with a pegged currency and owned by a government that has shown to not care about the truth or free trade, and will push their agenda with whatever menas it sees fit. So all those stocks are out. Which leaves a few other companies which i believe have had their run, given the macroeconomic picture and the fact that solar ennegy with it's current technology, is probably more wasteful than good much like ethanol. Maybe in a few years it may change, but I don't see these present companies as the major players.

Drugal,

Nice to hear that you went solar. Unfortunately, most people will not be able to afford that extra 17K nut, especially when the credit markets are locked up and the home prices are falling, and people are losing their jobs. I just don't see it being a major growth area in the next two years.

[drugal]

Hi Jack, I am using Kyocera panels and an SMA inverter. I have not seen the drawings for my design. The contractor is coming to my house on Friday May 23 to begin design. The Utility company requires a complete design for each house. I'll respond again, when I have more information.
Drugal


On May 06 01:35 AM Jack Yetiv wrote:

> Drugal,
>
> Congrats! Total cost is about $6.50/watt, just about right. Net cost
> to you is about $3/watt, excellent.
>
> What panels and inverter did you go with? How manu strings running
> at what voltages?
>
> I'm running 4 strings of 9 panels each, pushing 550 volts DC when
> the sun is strong and the temp is low.
>
> Jack