Jack Yetiv

The Current State of the Solar Energy Sector

As someone who closely follows the solar space and holds a large position in Canadian Solar (my favorite solar stock based on valuation--see my article on the topic under CSIQ banner), I agree with much of what has been said above. I want to highlight a few points.

First, grid parity will come in stages--not all at once in x number of years--and indeed, we are at grid parity in some areas already (see my article on grid parity). Second, achieving grid parity will be helped MORE by the difficulty in building coal-fired power plants THAN BY decreasing cost-per-watt of solar (although, of course, that is very important). For various reasons, it is going to become much harder to build coal-fired plants, and the ones that do get built (many won't) will cost a lot more. That process will help get us to near-universal grid parity faster than most people realize.

I believe FSLR's cost advantage will decrease much faster than others do. Poly is at $200 per kilo or more these days. Many people expect poly to reach $50 per kilo within 2-3 years, and when it does, the price of silicon panels will be much closer to FSLR's panels than most people seem to be thinking. In addition, because FSLR's panels will probably be 11% efficient in 2009, and silicon panels will be in the low 20's, you need twice as many FSLR panels to make the same amount of electricity as silicon panels. This means that some of FSLR's remaining cost advantage will be eaten up by material (aluminum for frames, etc) and manufacturing costs involved in making two panels instead of one.

However, I think the demand will grow sufficiently that many (if not most) solar companies will be able to ramp revenues 50% and more annually (depending on execution) for the next several years. I want to highlight something that is not widely appreciated--it seems that some folks believe that FSLR will steal sales from its competitors, but in fact, although FSLR has a cost advantage, it simply does not play in the residential solar space, and I believe that growth in residential demand in 2008 and 2009 will be substantial. That means that there is a big and growing residential pie to split among the companies making silicon-based solar panels.

I agree that utility use of solar is an extremely exciting prospect but want to underline that 2008 will only be the pilot-demonstration stage for this. I doubt any significant quantity of solar power plants will come online before the end of 2009, and more likely, it will happen in 2010.

I also agree that federal solar tax credits will be extended and I believe that many states will roll out their own incentive programs as more citizens object to coal-fired and even nuclear power plants. In addition, other countries will roll out solar incentives--Italy comes to mind, and some countries will continue to (or begin to) heavily subsidize solar in other ways (Israel comes to mind because there is a strong political incentive in Israel to help the world wean itself from OPEC oil).

In sum, the size of the solar pie will grow enough such that I believe that all well-run companies in the solar space won't be hurting for customers for the foreseeable future. We may see some consolidation (mergers and acquisitions) to achieve larger scale, and certainly, marginal players will fall by the wayside.

But generally, I think the prospects for solar in the next few years are exciting indeed.

Jack Yetiv