Solar Is Just Getting Started

You might not have heard, but solar panel maker and Obama administration renewable-energy exemplar Solyndra declared bankruptcy this month. It wasn't the first solar manufacturer to go belly-up, and I'd be astonished if it were the last. But the recent failure of several solar startups doesn't mean that regular progress isn't being made, and in no way heralds the coming demise of the solar industry. Solar is far from the first -- and will not be the last -- industry to undergo such a shakeout, but the few companies that survive will be the ones best-equipped to lead us toward a new energy paradigm.

Shine a little light
Early industry turmoil hasn't prevented American panel makers First Solar (Nasdaq: FSLR  ) and SunPower (Nasdaq: SPWRA  ) from carving out valuable slices of the market. First Solar offers the lowest cost per watt, and SunPower boasts the highest panel efficiencies. They face tough domestic competition from GE (NYSE: GE  ) , which could consolidate the industry on its own by swallowing up both companies and still have enough cash left over to go on a real spending spree. GE has already absorbed Prime Star Solar and developed a more efficient iteration of First Solar's thin-film panels, though it hasn't yet proven it can beat First Solar on cost per watt.

Of course, GE is far from the only big dog in the fight. China's solar manufacturers have benefited enormously from their government's deep pockets:

Source: Ryan Cunningham.

LDK Solar (NYSE: LDK  ) and Suntech Power (NYSE: STP  ) , despite a combined loan offer of $18 billion, took in less net income combined last year than unsubsidized First Solar. Even JA Solar (Nasdaq: JASO  ) , receiving the low end of this outpouring of Chinese generosity, got eight times as much funding as Solyndra's $535 million federal loan guarantee. The backing helped them return to profitability from a disastrous 2009, but if Solyndra's tragic tale offers any wisdom, it's that funding a floundering company only delays the inevitable.

The more things change, the more they stay the same
Solyndra didn't fail because solar energy is just a "cute" diversion from real solutions, but because it made the wrong business decisions and pursued the wrong ideas. Instead of the typical flat panels you're used to seeing on your hippie neighbor's roof, Solyndra made cylindrical solar tubes. This strategy fell apart for a few reasons, all of which boil down to the unprofitability of its manufacturing process. The company booked a loss on their cost of goods sold, so they were already in the red before accounting for other expenses. In 2009, Solyndra's estimated cost to manufacture one watt of solar capture was $6.29. First Solar's is well under a dollar now.

Researchers recognized the same early struggles in the auto industry nearly five decades ago. They found that automobile production increased nearly 50,000% from 1899 to 1919, but that the number of automakers declined by 77% in the same period. Many lesser companies were shaken out with such speed that the average automaker's life expectancy during this time was less than six years. To keep things in perspective, Solyndra was founded six years ago.

There were plenty of detractors then, just as there are today. The president of the Michigan Savings Bank once told Henry Ford's lawyer, "The horse is here to stay, but the automobile is only a novelty." Oil and gas investors might want to believe that solar is a similar novelty, but history tells a different story. Worldwide solar power generation has increased 15,000% in the past 27 years.

Are things different now?
The political will to support solar is nowhere near that which won the Space Race, introduced the microchip to the public, and developed the Internet. It doesn't need to be. The modern solar industry is no Wild West. The technology is proven and improving, investors are funding multiple competitors, lumbering conglomerates are throwing their financial weight behind solar, and America is actually a net exporter of solar products, which doubled in the past year alone. GE's global research director believes that solar power will be cheaper than fossil fuel and nuclear power within five years, and the Department of Energy's solar program shares that goal. It's an attainable goal, and one that should have "old energy" corporations and utilities very worried.

Fool contributor Travis Hoium feels that continued Chinese subsidies for solar production are a global good, but American innovators are already showing that you don't need the government's bankroll to come up with great ideas. MIT researchers can now print solar cells onto ordinary paper or fabric. A California start-up is working on 3-D solar cells that promise to greatly improve light-to-energy conversion efficiencies. 

What happens next? The Law of Accelerating Returns suggests that the entire planet can meet its energy needs with solar power within 20 years. Imagine a world where BP (NYSE: BP  ) doesn't risk oil spills because no one needs the oil. It sounds fanciful, but so did a world full of automobiles a century ago.

Do you think solar can take over the world? Let me know by leaving a comment.

There's a lot more to the technology revolution than solar energy, and the Motley Fool knows which companies are set to soar -- find out more about this transformation in our free report.

Fool contributor Alex Planes has no financial stake in any company mentioned here. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (12)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2011, at 11:06 AM, dsong wrote:

    Exactly, solar is the future of energy and it is just started

    We have noticed Moley has published a number of good articles regarding solar.

  • Report this Comment On September 22, 2011, at 12:13 PM, sailrick wrote:

    According to the latest report from the IEA, fossil fuels received over $400 billion in subsidies in one year, globally.

    In the U.S., oil and gas industries received $44 billion in one year.

    You could loan 80 solar companies the amount loaned to Solyndra with that much money.

    The bluster from the right over Solyndra is coming from the same GOP congressmen who are global warming deniers. These are the same scientifically illiterate individuals who are carrying on a witch hunt against honest scientists.

    We cannot continue businsess as usual with fossil fuels.

    There is no debate among scientists over whether global warming is being caused by greenhouse gases from human activities.

    Anyone who thinks otherwise is ideologically incapable of accepting facts.

    We are subsidizing our own doom. And these idiots want you to think clean energy is the enemy.

    Solar is actually one of the bright spots in the economy. Solar now employs 100,000 people in the U.S.

  • Report this Comment On September 23, 2011, at 1:47 AM, webmind wrote:

    Great article. Green energy is the future, and it had better be sooner rather than later. Can't wait for the collapse of the coal and oil energy mafia.

  • Report this Comment On September 23, 2011, at 3:15 PM, davidm8797 wrote:

    I agree with the premise of this article. Solar may not be the best or even that great, but it is new and we should always be plowing forward. If solar fails, then it will be the catalyst for better technologies. What is important is that we try it so that we can see it fail, or perhaps, succeed

  • Report this Comment On September 23, 2011, at 4:58 PM, TMFBiggles wrote:

    Sailrick,

    Excellent data points. Thank you for adding to this discussion! It is undoubtedly true that solar receives a minuscule fraction of the total subsidies allocated to energy production, and this is something most people (including myself, apparently) tend to overlook when writing about it.

    Alex

  • Report this Comment On September 24, 2011, at 4:37 AM, JackCaps wrote:

    When the solar industry produces revenue growth based on unsubsidized organic growth, then it may be compared to the automotive industry's growth through the 20th century. But there seems to be no Henry Fords in the solar industry right now. The cost to benefit ratio of solar technology has not sufficiently evolved to supplant most carbon and nuclear based electric generation. Until solar grows up and stands unassisted on its own without government subsidies, it will share more in common with the ethanol industry than one that is economically viable on its own.

  • Report this Comment On September 24, 2011, at 8:19 AM, TruffelPig wrote:

    In general I agree but when is a good time to buy stock? And which company is top dog? TOT after their acquisitions? O FSLR as a pure play?

  • Report this Comment On September 28, 2011, at 3:08 PM, mountaincouger wrote:

    To answer your question, in my humble opinion, I think the time to buy solar stocks will be after Greece defaults on its debt, then sell, and then buy again when Italy defaults. Another good time to buy will be when the Euro zone is officially in a recession again. Each one of these will play havoc on the stock. I think the European recession will happen first because they will play pretend with Greece and feed the sickly child for a few more months to a year. Boy!!! if the Euro zone goes into recession get ready snatch up those solar stocks and bottom of the barrel prices. My humble opinion.

  • Report this Comment On October 04, 2011, at 2:04 PM, Valorale wrote:

    Great article, just wish honest discussion about solar could commence in the public arena without it being hijacked as a political weapon so frequently.

    The potential for this technology has barely scratched the surface. The cost per watt being under $1 is huge, but it still has a long way to go to achieve parity with non-subsidized alternatives. When (not if) it gets to that level would be the time when I would look into investing.

    The entire conversation about solar needs to change from a renewable energy to an energy independence topic. You're not going to win over the masses with warm fuzzy feelings of saving the planet. You will win people over by savings to their pocketbook and if they just happen to be saving the planet at the same time, all the better.

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