Friday, December 09, 2005

Solar bullrun!

Photovolatic (PV) cell producers Evergreen Solar (Nasdaq: ESLR, $11.70) and Sunpower Corp. (Nasdaq: SPWR, $27.50) have made nice gains recently as benficiaries of the peak oil consciousness that has been stirred by rising oil prices and Hurricane Katrina. Both stocks were also boosted by bullish calls by Jim Cramer on CNBC's nightly Mad Money program on December 7; the solar industry may be big winners if the California Public Utilities Commision decides on December 15 to move forward to implement key elements of Governor Schwarzenegger’s failed Million Solar Roofs Initiative.

As Jim Cramer pointed out, ESLR and SPWR both have their own advantages. ESLR has entered into a 7 year agreement for the supply of polysilicone, a key ingredient of PV panels that is in short supply. What is not clear, however, is if ESLR has been able to lock in prices for these supplies (which if locked in at a favorable rate, would be advantageous for ESLR), or if they will be supplied at a then-prevailing market rate, which is on an increasing trend given its scarcity.

SPWR, on the other hand, has a slick black design that may be more aesthetically pleasing for the homeowner to install, and also claims to have the most efficient PV panels in the industry (20 to 21%). Neither ESLR nor SPWR are profitable just yet.Another solar hopeful is Suntech Power, a Chinese PV company that that makes its New York Stock Exchange debut when it launches its IPO next week. Unlike ESLR and SPWR, Suntech is already profitable. The Chinese market is surely lucrative not only for its size but also since the Chinese government passed its first Renewable Energy Law this year, requiring state grids to purchase a certain amount of renewable energy each year.

While on a large scale wind energy is in general the most commercially viable source of renewable energy, solar energy has an economic advantage in some contexts. Solar roofing gets an economic headstart over wind energy because while wind energy has to compete with the cheaper wholesale prices of fossil fuel energy, solar PV cells are installed at the retail level, on the roofs of homes and office buildings. As The Economist ("Sunrise for Renewable Energy," Dec 8, 2005) put it:

[T]he most efficient modern wind turbines can produce electricity at a wholesale price (the price at which electricity producers buy and sell power on the grid) competitive with non-renewable sources. Solar panels cannot produce power at such low cost, but comparing their cost-per-kWh with wholesale prices is arguably not the most relevant comparison. That is because in general, solar panels are used not by electricity producers selling power to the grid at wholesale prices, but by consumers who use solar power to supplement or replace power bought from utility companies at retail prices (typically 8 to 20 cents per kWh). So solar power need only match these higher retail prices in order for homeowners and businesses to start to consider it as a viable alternative. And it turns out that the most efficient of today's solar panels do indeed match the retail price of electricity in some parts of the world with high retail prices, such as Japan (which is now phasing out its solar subsidies).

Solar power has potential applications beyond retail stationery sources of energy. Solatec LLC has created a photovoltaic kit that can be mounted on the roof of the Toyota Prius Hybrid, boosting its mileage by 10% to 55 mpg city and 62 mpg highway.

As Paul Roberts, in what is perhaps the best book on the energy problem of the 21st century, The End of Oil, astutely observes, solar power, like other forms of renewable power, is disadvantaged in several ways: low energy density (the power prooduced per square foot of facilty) compared to coal technology, intermittency, and challenges to storing it. But it does, like other renewables, have some things going for it: there is no associated fuel price risk (solar input is free, unlike the cost of crude or coal which are subject to the unpredicatbilities of the commodity market), and modular nature of production (it can function on any scale, from just a few PV panels to a vast assemblage of it, compared to say a coal plant, which requires a certain minimum size and massive up-front financial commitment to gain economies of scale). The modular nature of solar energy also makes it much more amenable to decentralized power generation and hence a more viable solution in remote areas.

While solar power may not be a magic bullet to resolving the energy crisis, the technology has matured to a stage of serving as a commericially viable complement to fossil fuel sources, providing important offsets to fossil fuel use and emissions.