China Winning The Race To 50 Cents

Includes: FSLR, KWT, TAN, TSL, YGE
by: Dana Blankenhorn

Energy Secretary Stephen Chu believes the energy industry, which you can invest in through ETFs like KWT (NYSEARCA:KWT) and TAN (NYSEARCA:TAN), will be transformed when panel producers get prices down to $1/watt, which means actual production costs need to be half that.

Thus, with apologies to Curtis Jackson, we're in a race to 50 cents, and right now the Chinese appear to be winning.

GTM Research says at the end of 2013 he expects Yingli Green Solar (NYSE:YGE) and Trina Solar (NYSE:TSL), both Chinese companies, to be within about a nickel of that goal, with American company First Solar (NASDAQ:FSLR) about a dime behind.

There are a few caveats. In Hawaii, where solar costs are already below grid costs, utilities are restricting the industry's growth. There's a great opportunity for those who want to use the resulting excess power, but for now that's a niche market. Installation costs, and paperwork, are hurting the industry's growth in other states.

Despite the continuing advantage of China, I think it's wrong to look at this industry through any steady-state prism.

  • Current estimates don't account for things like UCLA's solar windows. (here)
  • Note that First Solar is using CdT flat panel technology, which the Chinese remain devoted to standard polysilicon. Look across the chart and you will see several tier-one suppliers lagging badly on costs despite using polysilicon. There is more to costs than technology.

While this seems to be a market about manufacturing efficiency, in other words, it's really about intellectual property. And no country produces more of that than the United States.

The GTM Report itself concludes by saying "expect the unexpected," and I think that's the most important advice of all. The trend is important - you could even say the trend is set - but the trend is subject to change without notice, through disruptive technologies entering the market.

And disruption, the kind that drives down costs and drives the whole market forward, is an almost daily occurrence.

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