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As the price of oil has skyrocketed and the average citizen has become more aware of their environment, there has been a strong push for the development of renewable energy. The push for clean energy will benefit solar companies as demand increases for solar and other renewables. The need for companies to appear eco-friendly has resulted in large scale ad campaigns from energy giants like BP and General Electric, highlighting their investments in renewable sources of energy. Not only are the energy giants investing more in renewable energy, but the rising cost of natural gas and oil have forced electric prices higher and made the “eco-friendly” energy sources an economic alternative. Globally the solar industry has averaged 41% growth per year from 2001 through 2008, and it appears like the growth will continue.[1] In 2007 alone, there was 2,826 MW of PV solar installations, over a GW more than the 1,744 MW installed in 2006.[2] With the expansion of the industry and increased investment, PV solar energy has made great strides in the last five years as the panels have become more efficient and costs of production have decreased. According to the Department of Energy’s Solar America Initiative, they hope that with continued research and more companies entering the market, PV solar power will become a competitive source of commercial electricity by 2015.[3] The need for renewable energy becomes especially pertinent when one considers the world’s increasing demand for energy and limited supply of oil. For investors in solar, the holy grail is using solar power for on-grid electricity generation-- i.e., solar as a replacement for the coal, natural gas, and nuclear energy that typically provide electricity in the developed world. While other applications of solar energy, especially off-grid electricity application (e.g., for remote residential consumers or industrial consumers) or for consumer electronics, have been cost competitive for many years, only recently have the economics of on-grid solar energy become attractive enough to warrant commercial consideration.  The appeal of solar energy is obvious. It is a virtually limitless resource. It's free of greenhouse gas emissions, widely thought to contribute to global climate change. In developed countries using lots of air conditioners, it generates more electricity exactly when you need it-- at times of peak electricity usage (e.g, you run your air conditioners more during the hottest, sunniest days of the summer time). Once installed, solar systems can function for 30 or more years with little maintenance or oversight. Solar comes with limitations, however, most notably the poor efficiency of PV modules, which is further reduced by the need to convert DC from solar cells into AC current. Moreover, solar is weather dependent and intermittent, requiring storage or back-up systems to supplement during times of weak generation. Historically, and for the foreseeable future, solar power represents a tiny fraction of total electricity generation and energy demand (less than 1%). Annual installations worldwide were just under 1,500 MW in 2005 (which, given solar panel efficiencies of any where from 10-30%, really represents about 300 MW of capacity) for sales of just under $10 billion. However, growth has been rapid, and governments around the world have also encouraged solar energy through tax incentives. Germany and Japan, who have heavy subsidies for solar energy, have the largest installed base of photovoltaic systems in the world, with the U.S. ranking a distant 3rd.
[edit] Companies who stand to benefitAn investor can play the solar trend anywhere along the value train. At the start of the value chain is the polysilicon, which is then used to make silicon wafers, which in turn are used to construct solar cells or modules. These modules are then installed on-site. While there are some vertically integrated solar companies, there are also more "pure plays" along each part of the value chain. First Solar is largely immune to the polysilicon shortage is a larger player within the thin-film PV space. This new technology is not as efficient in coverting sunlight energy to electricity, however, the low cost of manufacturing the product is one of the primary selling points in addition to its ability to work under lower light conditions. MEMC Electronic Materials, and other major suppliers of polysilicon, are benefiting and should continue to benefit from a solar boom. Suntech Power, a recent IPO, is the largest solar cell and module manufacturer in Asia, using China as a low-cost production base. Suntech has secured several long-term, fixed-price contracts for wafers, and therefore can focus on expanding profitable production. SunPower is Mercedes to Suntech's Toyota, focusing on higher cost, higher efficiency, and higher quality solar cells. SunPower has recently acquired PowerLight, which has virtually locked up the market for top-quality commercial and industrial installations of solar systems. Unlike Daimler and Chrysler, the pairing seems to fit SunPower's strategy perfectly. Amtech supplies horizontal diffusion furnace systems used for semiconductor and solar (photovoltaic) cell manufacturing. The Company's customers use its furnaces to manufacture semiconductors, solar cells, silicon wafers and microelectromechanical systems. On 7/30/2007, Amtech received a $4.9M solar order from a new customer in Asia. Sharp, Kyocera, and BP are also large manufacturers of solar modules, but this business represents a small portion of the larger conglomerate's profitability and earnings. [edit] Companies who stand to loseApplied Materials, the much beleaguered and recently resurgent semiconductor company, might fear the inevitable price increases in silicon, let alone supply shortages in wafers, that can result from continued rapid growth in solar. As the second-place player in semiconductors, the company is more likely than Intel to face pressure from its suppliers. It should be noted, however, that the company has made a bold move into solar, shifting massive amounts of production into making solar cells-- thus a competitive threat becomes a business opportunity. Ironically, the economies of scale inherent in solar suggest that first-movers can be penalized for taking the leap into solar too soon, locking them into electricity costs that are higher than their competitors, who are buying next generation technology (think of the U.S. mobile phone market, which was to some extent hampered by getting to mobile phones too soon and locking in to the wrong technologies, thereby surrendering technical superiority to other markets such as Japan, South Korea, and the EU). Watch out for the first major corporation to announce 10% of energy to be procured from solar sources-- this might be a good company to watch for negative exposure to the rise of solar. [edit] Economics of solar power  Solar power generation has several unique features. Because it does not need to be connected to the grid, it can compete with retail energy, rather than wholesale--therefore, to be cost-competitive, solar only needs to be cheaper than what you pay your local utility company on your monthly utility bill. Like nuclear energy, the major driver of solar energy generating costs is the capital cost of installing the solar system. Unlike nuclear energy, however, the driver of the cost of the solar system (more than 50% of total cost of the system) is the photovoltaic (PV) module, which can be manufactured. As a result of the high capital cost of solar, solar power generation experiences significant economies of scale-- as solar demand ramps up, and manufacturers of PV modules are able to increase their production, the cost at which they can produce PV modules declines, so the end-user cost of solar systems declines. Cambridge Energy Research Associates estimates that every doubling in production capacity of PV modules should result in a 20% cost decline, prompting comparisons to personal computers and semiconductors, both of which have benefited from Moore's Law. Governments have leveraged these facts to implement powerful incentives to develop the solar industry. Germany, for example, has created a "feed-in" tariff system that requires utility companies to purchase solar energy from generators at the price of Euro 0.57/kwh (in 2004), or more than five times the maximum retail price for electricity in Germany. Essentially, this allows individuals and businesses to install solar systems and sell their solar energy back to the grid. U.S. encouragement for solar has been more subtle, focusing on tax breaks for the capital cost of installing solar systems and, in some states such as New Jersey, Renewable Portfolio Standards to ensure that solar constitutes a certain percentage of energy purchased by utilities. The chart illustrates the battle that solar continues to face, especially in making inroads into the wholesale (i.e., on-grid) electrical market. However, the next chart illustrates the trend in solar pricing, and gives optimism to those making long term bets on the industry. Solar, like all sources of energy other than perhaps wind, does require valuable raw materials, whose scarcity can often increase costs. In the case of solar, this raw material is silicon, which is used to make the thin wafers for crystalline solar cells. Scarcity of silicon, which is also used to make wafers for microprocessors in your PC, has mitigated the downward spiral in the cost of solar systems. See, for example, the chart of the retail price of solar modules over the past six years.
[edit] Concentrated Solar Is More Competitively Priced than PV SolarConcentrated solar is a technology that concentrates solar energy to heat liquids into steam, which is then used to drive turbines to produce electricity. The technology provides an alternative to PV solar, one that is less expensive and more versatile. Since concentrated solar uses existing generators, piping and mirrors, the production costs are much lower than PV solar and don’t require special production facilities. The industry also does not use any rare or dangerous materials that have the potential to hinder production or face governmental restriction. Concentrated solar can also store the heat that is generated during the day, and use it at a later time when the electricity is needed. Storing heat is much more efficient than most forms of storing electricity, and does not require expensive equipment or large tracks of land. A Sandia National Laboratory study in 2008 projected that concentrated solar would reach the competitive level of 8-10 cents per kilowatt hour when international production reaches 3000 MW. The same study expects production to be double that by 2013, a full two years before DSTI expects to reach competitive pricing.[16] [edit] Drivers of solar power[edit] Silicon SupplyIn the past, companies like MEMC Electronic Materials (WFR) produced silicon wafers for the semiconductor industry. Now, with the advent of solar power and its rapid growth, demand for silicon has increased greatly, leading to its under-supply as production capacity is not enough to meet current demand. This under-supply has led to rising prices for solar equipment which in turn raises the price of solar power compared to other clean energy production technologies such as wind and ethanol. Furthermore, higher silicon prices mean higher production costs for solar companies - and lower margins. One metric ton is 1000 kilograms, or one million grams. Prices are hovering around $0.45 per gram, thanks to the current supply bottleneck, and with a conservative estimate of 10 g/watt, one kilowatt of solar panels requires $4,500 worth of silicon, making silicon a big reason why solar power cannot compete with traditional forms of energy without subsidization. Many solar companies are focusing on reducing their dependence on silicon, though, and some are even claiming that they can produce with as little as 2.5 g/watt, which would reduce silicon costs to $1,125 per kilowatt. Furthermore, assuming an industry average of 10 g/watt (very conservative), there are 5.5 gigawatts worth of silicon expected to come into supply in 2009, and 7.5 GW in 2010; given than 2007's entire supply of solar panels was around 3 GW, and solar companies are constantly developing less-silicon intensive panels, it's likely that the bottleneck will end early in the next decade and a glut will actually occur.[17] On the other hand, increasing adoption of solar power, combined with a flood of companies into the solar market, may actually allow the industry to reach a relative equilibrium, as price competition make solar panels much more accessible to the general public. [edit] Renewable Energy DemandShifts in energy demand are a major driver for the solar market as a whole; increasing demand for alternatives to oil, coal, natural gas, and other fossil fuels have the potential to cause a paradigm shift for the renewable energy industry as a whole, and solar is well prepared to ride the wave. Two major drivers of this shift, climate change and peak oil, are becoming increasingly important in the eye of the public. [edit] Climate ChangeWith Al Gore and the IPCC winning the Nobel Peace Prize in 2007 for their work spreading awareness about climate change, more people than ever are aware of global warming and its potential effects, and fear of the repercussions of a carbon-based energy scheme is driving consumer demand for alternatives like solar. [edit] Peak Oil and Energy IndependenceOil prices are at record highs and it is becoming more and more difficult to find oil and coal reserves. Many suspect that we have reached or will soon reach peak oil, a condition that will drive energy prices through the roofs. Furthermore, a large part of the world oil supply can be found in politically turbulent countries; with OPEC having dominant control over world oil supply (and, therefore, prices), many countries desire energy alternatives in order to break dependence on geopolitically unstable nations. [edit] Economies of scaleAs illustrated by the cost curve for solar power, economies of scale are a powerful force in driving both the historical and future prospects for solar power. As solar reaches "critical mass," these economies of scale should offer a powerful lever to drive down solar costs. Witness, for example, the rise of Suntech Power, the low-cost manufacturer of PV cells in China, which could not exist without large-scale customers around the world. [edit] Government incentivesThus far, governments have been major drivers of the solar industry. For the foreseeable future, government intervention looks likely to increase, with the advent of both increased Renewable Portfolio Standards and some form of carbon trading system or carbon tax in the U.S. Both should favor solar energy. Spain, however, has announced reductions in its solar incentives, with a drop in the electricity rate paid to solar installations of 35%, a limit on new installations for 300 MW for 2009, and reduced tariffs from 0.45€ per kWh to 0.33€/kWh for roof installations and 0.29€/kWh for ground panels.[18] Fortunately, the experience of Japan, where subsidies are being phased out, suggests that solar can stand on its own after a period of government intervention, especially in areas where retail prices for electricity are naturally quite high. [edit] TechnologyTechnological advancement in solar power is coming at a rapid fire pace. All along the value chain, manufacturers and suppliers are pushing to squeeze more solar energy out of every dollar invested in solar equipment. Innovation has focused thus far on incremental improvements to the crystalline silicon manufacturing process for the typical PV cell. Advancements have included increasing cell energy efficiency, utilizing thinner wafers, and increasing generating power in low-light. In June 2008, for example, National Semiconductor announced a new technology called "SolarMagic" that can reduce the generating loss from partial light (caused by, say, a cloudy day) by 40%.[19] Going forward, however, the advancement of string-ribbon technology and thin-film technology, two new manufacturing processes designed to drastically reduce the silicon required to make PV cells, could dramatically decrease the cost of new PV cells. [edit] Trends in the Solar MarketThe solar industry is faced with a huge oversupply of solar panels planned for production in 2008. However, shares in many solar companies such as Evergreen Solar (ESLR) , First Solar (FSLR), SunPower (SPWR), and Suntech Power Holdings (STP) have surged with the booming solar market. In the past few years, we have witnessed a stampede of startups entering the solar cell market using thin film technology because of a shortage of polysilicon material used to make crystalline cells. At the same time, existing thin film solar suppliers have announced large expansions as a means of reducing production costs and gain a competitive edge. This has resulted in thin film solar panels reaching 9.4% of the 3.8 gigawatts [GW] of power generated worldwide in 2007, up from 7.6% of 2.5 GW produced in 2006. In 2008, worldwide solar power generation will grow 50% to 5.6 GW, but thin films as a percentage of panels will grow to 14.4% At the same time, polysilicon suppliers have also initiated competitive capacity expansion plans. 2008 will be the turning point when polysilicon capacity actually exceeds demand by a mere 4,700 metric tons using a calculation that thin film panels at 14.4% of the market. If thin film solar continues at its same growth rate, in 2009 thin film will make up 17.8% of all solar power generation. That would leave a capacity of polysilicon exceeding demand by 17,000 metric tons, based on capacity expansions announced by the polysilicon manufacturers. Traditional monocrystalline and polycrystalline silicon solar panels with efficiencies between 15% and 22% compare to thin film amorphous silicon of 6% to 7%, which will possibility increase to 10% efficiencies in 2009 using bilayer micromorph structures. CdTe (cadmium telluride) technology, led by First Solar, is already achieving 10% efficiency. Thus, amorphous silicon is two years behind CdTe. Moreover, its estimated that in 2008, the production of polysilicon would be such that even if all the upcoming solar panels were made of polysilicon, 5000 metric tons would still be in excess. Plus, the high equipment costs to make an amorphous silicon thin film panel. Up the food chain, solar thin film equipment suppliers such as Applied Materials (AMAT) of the U.S. and Oerlikon of Switzerland are selling amorphous silicon technology. Equipment costs in the neighborhood of $200 million to make 60 MW of panels. Add to that the costs of consumables. Cost to manufacture panels of amorphous silicon is about $1.70 per watt, depending of the size of the factory (First Solar, which uses cadmium telluride, has reduced its cost to $1.20 per watt). The profit for a panel selling for $2.50 per watt would be $0.80 per watt or $50 million per year. But with the equipment costing $200 million, it would in reality take 4 years just to recoup the equipment costs. And as more capacity is added, competitive pressures will drop the selling price further, not to mention Chinese manufacturers selling their product at under $2 per watt. The overcapacity should impact equipment and materials sales in the amorphous silicon thin film area. As the shortage of polysilicon dissipates, due to ramped production and a semiconductor slowdown, prices of mono and polycrystalline silicon solar panels will drop and become even more economically competitive with thin film technology, further exasperating thin film equipment sales and the thin film solar market. With the industry having twice the capacity as it needs, expect some rethinking on the part of investors [edit] Notes
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