The wind and solar industries are often lumped into the same category when discussing renewable energy. They're two of the most natural energy sources we have on Earth and are two of only a few truly renewable sources of energy we have.
There are big differences between wind and solar, though. Differences that investors should consider when looking at renewable energy stocks. Let the battle begin.
The sheer area it takes to generate renewable energy is one of the drawbacks compared to traditional fossil fuel sources. Anyone who's driven past wind farms in Iowa, Texas, or California has seen just how expansive they can be.
Below I've outlined the size density of four renewable energy projects to show how much energy we can get from the land (or sea) we have available.
Energy per Area
|Cape Wind||Wind||468 MW||25 sq. miles||18.72 MW/sq. mi|
|Roscoe Wind Farm||Wind||781.5 MW||156.25 sq. miles||5 MW/sq. mi|
|California Valley Solar Ranch||Solar||250 MW||2.34 sq. miles (for solar arrays)||106.8 MW/sq. mi|
|Topaz Solar Farm||Solar||550 MW||5.47 sq. miles||100.6 MW/sq. mi|
Solar clearly packs more power into the space it has available, but wind has its own advantages. Much of the space under a wind farm is still available for farming or other uses, while solar plants aren't really multipurpose plots of land.
The land viable for building solar and wind plants is also very different. Wind development has been focused on a relatively small sampling of land where wind blows consistently. Solar, on the other hand, is generally viable in more locations.
Base load vs. peak power
Wind and solar have different power-generation profiles that depend on the weather and how the world turns. Both require backup power or energy storage to smooth out generation peaks and valleys. But how should we look at their generation profiles?
Wind is more comparable to a base-load power source because it can generate power 24 hours a day. Solar, on the other hand, generates power only during the daytime hours, making it a perfect peak power source. This doesn't make one better than the other, though; in fact, it means they complement each other quite well.
Costs have been falling for both wind and solar, but the trajectory of solar has definitely outpaced wind in the last 12 months. According to GTM Research, solar module prices will fall from $1.80 per watt at the start of 2011 to $0.70 per watt by the end of 2012. As innovations like tracking, integrated inverters, and more efficient cells spread through the market, costs for modules and the balance of the system will continue to fall.
Wind, on the other hand, is a relatively mature energy market by comparison. Onshore turbines from General Electric (NYSE: GE ) , Siemens, Vestas, and other manufacturers aren't seeing costs fall 50% per year like solar, and improvements are made by making wind turbines bigger.
American Superconductor (Nasdaq: AMSC ) as well as other manufacturers have their eyes on turbines up to 10 MW for offshore markets. For now, a project like Cape Wind is providing electricity to the grid for $0.244 per kWh, partially elevated because the infrastructure for offshore development isn't as strong as onshore. Nevertheless, the cost trajectory of wind just isn't on the same steep downward path as solar.
Will solar crash like wind?
The similarities between the development of wind and solar technologies, as well as wind and solar companies, are striking. Both were initially developed in the U.S. and Europe, where most of the demand has been for decades. China entered both wind and solar at a fast and furious pace over the past decade, taking market share and putting pressure on older manufacturers.
That's left many of the traditional wind manufacturers struggling in the current environment. Vestas recently reported that 2011 revenue fell 16% from a year earlier, partly because of competition, but also because wind installers have exploited the easy-to-develop areas. Future developments offshore and further off the current grid require more infrastructure, which will impact both wind and solar.
Solar manufacturers will have to continue cutting costs to make sure the industry doesn't stagnate the way wind has in recent years. First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWR ) , established U.S. manufacturers, have felt the pressure from Chinese manufacturers just like GE, Vestas, and Siemens have in the wind business, and the pressure will continue. But there are ways for investors to profit from this pressure, including top-tier suppliers Trina Solar and Yingli Green Energy.
I think the big difference between the industries is how technology impacts them. This might save U.S. solar manufacturers from suffering a fall in demand long term like wind manufacturers have.
Betting on the future of energy
No doubt, wind will play a role in our energy future. But based on the cost trajectory, energy density, and diverse installation applications, I think solar is the real future of renewable energy. Investors should look for companies differentiating themselves on cost or technology to find winners in the industry.
Trina Solar and Yingli Green Energy are both low-cost leaders in China, benefiting from easy money there. In the U.S., SunPower provides the most efficient panels and has a large pipeline of projects. It's also my pick as top energy stock for 2012.
For another top energy pick from our analysts, check out our report: "The Only Energy Stock You'll Ever Need." It's free, while it lasts.