Introduction to Investing in Solar Energy Stocks

The amount of power produced by the sun could in theory provide all earth’s energy needs many times over. The problem of course is harnessing that energy cheaply and efficiently, which has proven an immense hurdle. However, solar energy is gradually becoming competitive with mainstream power generation. Thanks especially to government incentives, a growing number of companies are at work in this field.

Key Issues

* The power of the green movement must not be under-estimated. It has helped sustain a wave of enthusiasm for solar power, even during those periods when mainstream fuel sources were cheap, with many consumers prepared to pay higher prices for their power if it “green”.

* Government subsidies and support are a key factor in solar power developments. Germany and Japan have been particularly strong in support, and it is no coincidence that companies in those countries are among the leaders in this field. Varying degrees of support come from other countries, and China is seen as supplying strong future demand. Nevertheless, up to 80 per cent of global demand has been from just three countries – Germany, Japan and the US. At present the world gets well under one per cent of our power needs from solar. Some estimates say the figure could be 30 per cent by 2030.

* As technology advances, prices tumble, which in turn helps boost demand. Photovoltaic cells cost roughly $2 to $3 to manufacture, per watt (which is down from $22 in 1980), but it is thought they need to come down further to under $1 per watt before they will rival mainstream fossil fuel power.

* Advancing technology may be bringing lower prices, but this is sometimes – at least partially – offset by higher raw materials costs. For example, the sharp rise in production in recent years has led to price rises for silicon, used in many photovoltaic cells.

* Investors should be sure to look not only at the manufacturers of solar cells, but also at the suppliers of raw materials and components, at manufacturers of production equipment and at specialist solar cell installation companies.

Technologies

1. Solar Thermal

This is an old technology that uses the heat of the sun to provide hot water and heating, using plates, mirrors and lenses. High-temperature systems - known as concentrating solar power plants - can be used to generate electric power.

A grouping of nine such plants in the Mojave Desert in California is the world’s largest solar plant system. As technology advances and costs fall, increasing numbers of other plants are being developed in various countries.

2. Photovoltaic Cells

These are cells that convert sunlight into electricity. This has been possible for some time, but it is only in recent times that costs have fallen to the extent that the cells can be used widely in other than specialised (such as for space satellites or to provide power to remote communities) applications.

Most PV cells are made from silicon, but there is also rapid growth being experienced in an alternative technology, thin-film products.

A key issue is cell efficiency. At present, solar cells have an average efficiency rate of less than 20 per cent, which means that, effectively, less than 20 per cent of the sunlight hitting the cell is converted into electricity. Working to increase that ratio is one of the pressing tasks for researchers.

Companies

The leading producer of solar cells is Japan’s Sharp, followed by Q-Cell of Germany and Kyocera of Japan. Other prominent producers include Sanyo, Mitsubishi, BP and Suntech, along with a growing number of Chinese manufacturers, such as JA Solar Holdings, LDK Solar, Solarfun Power, Trina Solar and Yingli Green Energy.

Thin film specialists include First Solar and DayStar Technologies.

MEMC Electronic Materials is one of the leaders in silicon wafer supply. Applied Materials – a prominent provider of semiconductor manufacturing equipment – is moving strongly into the business of supplying solar manufacturers.

February 23rd, 2008

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