2013 Is the Year of Solar

We're on the cusp of something huge, and Wall Street is just starting to figure it out. The most abundant energy source in the history of man has finally become economically viable and will soon become the most installed new energy source on the planet. You don't have to dig it up the ground, it doesn't give off harmful gases, and it can even generate power from your roof.

What is this magical power source? The sun.

How far we've come
More than a decade ago, Germany decided it was time to make a big bet on solar. The country heavily subsidized the industry in effort to make it economically viable long-term. The bet paid off -- if not for Germany, certainly for the rest of the world.

Today, highly subsidized markets are giving way to unsubsidized (or less subsidized) markets where solar can compete on its own with traditional energy sources. The cost to produce a module has fallen 54% in the past three years, and the cost to produce solar energy is now less than it cost to buy it from the grid in some places. Going green isn't just a political game anymore -- it's economic reality.

You don't believe me?
For solar electricity to be economically viable, it needs to be less costly than existing power. We should compare it with new, peak generation, since that is what it offsets, but the industry is held to a higher standard that requires costs to be less than what you pay to power a light bulb. Is solar cheaper than your existing power?

Today, in the U.S., the average residential electricity bill is for $0.12 per kilowatt hour, and in California the cost is more than $0.15 per kWhr. Based on those costs, solar is very competitive.

SunPower (NASDAQ: SPWR  ) won a contract to build a 100-megwatt power plant at a $0.104-per-kWhr rate last year. This year, First Solar (NASDAQ: FSLR  ) signed on for a project in New Mexico that will pay a 5.79-cent-per-kWhr rate, or about 8.5 cents per kWhr after incentives. That's still well below the cost of electricity in the United States.

Where we're going
Now that costs are competitive with the grid, the sky is the limit for solar. Reduction in panel costs have driven the past decade of overall cost cuts, but the next step is to reduce the balance of system costs, including things such as wiring, inverters, permitting, and land. As these costs come down, so will the cost to install solar from residence to utility.

Just how big the market can become in the next decade is anybody's guess, but it will be huge. China plans to have 40 gigawatts installed by 2015, Saudi Arabia is eyeing 100% renewable energy and is starting with a $109 billion investment aimed at installing 40 GW of solar, and the U.S. is likely to be a 10 GW-per-year country by the end of the decade. That's just three countries; imagine what the rest of the world will install.

The next step for panel manufacturers is to return to profitability. We're starting to see steps in that direction from SunPower, and First Solar is already there. When companies return to profit and the industry sheds the dead weight dragging down prices, we'll see an explosion in revenue and profits for the winners, which means rising stock prices. I think there will be at least three 10-baggers from the industry over the next decade. The hard part is picking which companies these winners will be.

Who wins?
Here's the hard part. A handful of companies will emerge from the industry when it's all said and done, but investors can still feel the scars from plunging stock prices in recent years.

My top pick for more than a year now has been SunPower. The company makes the most efficient panels in the industry, and as costs fall, efficiency becomes more important, because it gives you more power in the same space. Second on my list is First Solar, the low-efficiency and low-cost company. First Solar has remained profitable through the hard times, but it is falling behind on efficiency and may soon become a project company only.

Finally, SolarCity (NASDAQ: SCTY  ) is a dominant player in residential and commercial project building, the major growth venue for the industry in the United States. This isn't a cheap stock, but it should have a bright future.

I've laid out some key statistics for solar companies, showing that despite the run solar stocks have been on recently, there is a lot of room to move higher, because these multiples are very low for high-tech companies, particularly in the case of SunPower and First Solar.

Company

Market Cap

Price/Sales

Price/Book

Forward P/E

SunPower

$1.18 billion

0.47

1.13

19.8

First Solar

$2.89 billion

0.95

0.81

8.3

SolarCity

$1.32 billion

9.81

7.37

n/a

Source: Yahoo! Finance.

Who loses?
If there are going to be winners, there will also be losers. Solar stocks all seem to jump and drop in unison, but some are in fact falling behind. Three stocks I would stay away from right now are LDK Solar (NASDAQOTH: LDKSY  ) , Yingli Green Energy, and Suntech Power (NASDAQOTH: STPFQ  ) . These companies are nowhere near profitability, and they owe billions of dollars to state-run Chinese banks. Equity holders will likely be left in the dust by the time the Chinese solar market shakes out.

The year of solar
Solar stocks have been rising all year, but I think it's just the beginning. Financial conditions are improving, more financing options are opening up, and as costs fall, more markets open up to solar. This is the recipe for the big returns investors are hoping for. I've made my bet. Who do you think will win the year in solar?

What will First Solar become in a decade?
First Solar was built as a module manufacturer, but its modules are being overtaken by more efficient alternatives. A decade from now, the company may just be an installer of modules made by others. Is this good for investors, or is the company on life support? Our brand-new report details every must-know side of this stock and comes with updates when breaking news occurs. To get started, just click here now.


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  • Report this Comment On February 13, 2013, at 2:06 AM, Ste11888 wrote:

    One of the first things investors should know about LDK is that — when it comes to solar — they don’t come much bigger than LDK. The company is China’s second largest manufacturer of the wafers that are used in solar panels — Suntech Power (NYSE:STP) is first. The two companies are the world’s two largest solar manufacturers. As solar demand grows, LDK will likely be one of the biggest suppliers meeting that demand.

  • Report this Comment On February 13, 2013, at 2:11 AM, Ste11888 wrote:

    the report Credit Suisse released ----They also note that China’s steps to boost demand and the possibility of converting U.S. solar stocks into MLPs or REITs might be boosting investor sentiment (although the latter might be more fiction than fact).

    The rally has come despite the fact that China is expected to launch its own tariffs on Feb. 20, in response to measures targeting China’s manufacturers instituted in the U.S. and Europe. The tariffs “would increase costs slightly for China wafer/cell/module manufactures,” including Trina Solar (TSL), Yingli Green Energy Holdings (YGE), Suntech Power Holdings (STP), JinkoSolar Holding (JKS) and JA Solar Holdings ( JASO), Credit Suisse notes. The market, however, doesn’t seem to care.

  • Report this Comment On February 13, 2013, at 10:33 AM, Ste11888 wrote:

    China's total foreign trade slightly surpassed the United States is becoming the first ultra-largest country into the World Trade

    According to trade statistics released by the U.S. Department of Commerce, the total merchandise trade in 2012 compared to the previous year, an increase of 3.5%, to $ 3,862,859,000,000. According to China Customs data released in January of this year, China's total trade in 2012 was 3.8667 trillion U.S. dollars, has been slightly surpassing the United States.

  • Report this Comment On February 14, 2013, at 2:04 PM, paddlinfaster wrote:

    I bought a little last July at $4.55.

    I feel like Charlie in the elevator with Willy Wonka when it goes up & up & up & CRASHES THROUGH THE ROOF & FLIES! Oompa Loompa, baby!

    If only I had gotten around to buying the rest I had planned! But I kept waiting for it to come back down close to where I bought. Sigh.

    Question - Now what?! Up til the "elevator" starting taking off again last week, I had decided to just go ahead & buy some more but I don't know what to do now. Wait?

  • Report this Comment On February 14, 2013, at 2:04 PM, paddlinfaster wrote:

    Woops, meant to say I bought SPWR.

  • Report this Comment On February 15, 2013, at 6:29 PM, marvsehn wrote:

    You should double check your price comparison. I believe the wholesale price for power is 5 or 6 cents. You may be comparing the consumer price to the solar cost to produce estimate which is typically even lower than the wholesale price.

  • Report this Comment On February 15, 2013, at 6:36 PM, jackba57 wrote:

    As marvsehn said, check your numbers, solar is far from competitive. And the payback right now on investment is 20 years, about the time the panel goes belly up.

  • Report this Comment On February 15, 2013, at 6:44 PM, bpaluch777 wrote:

    The best solar panels are rated at 12% efficient in electricity generation. (Energy in/energy out.) A conventional fossil fuel generating plant has about a 33% efficiency. If you were an investor, would you put money into a technology that is 2 1/2 times less efficient? Next, how would electricity be generated after dark???? How would street lights, park lights, airport runway lights, etc., function after dark?

  • Report this Comment On February 15, 2013, at 7:14 PM, TMFFlushDraw wrote:

    @marvsehn

    I am comparing to the residential rate, not wholesale. The reason is that it's much harder to compare against new generation or peak generation, which changes every day than what people pay, partly because that number is something you see every month (it's relatable). The 5 to 6 cent number you quote aggregates coal plants built in the 50s with dams built in the 30s with nuclear, etc. With that said, you can see that solar is approaching competitiveness with wholesale, as my figures show.

    The true comparison should be versus new peak generation because that's when the sun is shining and that's what solar offsets. The comparison is difficult for many reasons but Lazard has done a good job of in the report linked below giving some ranges. Keep in mind that this is almost two years old and costs have fallen ~20% per kW-hr since then.

    http://votesolar.org/wp-content/uploads/2012/07/Lazard-June-...

    @jackba57

    See the answer above and the link to Lazard's work. If you'd like to discuss further please provide data about why you think "solar is far from competitive" and I'll be happy to respond. It's difficult to know how to respond to such broad comments without data.

    My data is listed above and I can point you toward a number of of other sources for cost and cost trajectory if you'd like.

    Thanks,

    Travis Hoium

  • Report this Comment On February 15, 2013, at 7:21 PM, TMFFlushDraw wrote:

    @bpaluch777

    I'm sorry but you're completely wrong. Even thin-film panels (the least efficient) are often more efficient than 12%. Below I've attached the data sheet for a SunPower panel that's 20.1% efficient to use as an example.

    http://us.sunpowercorp.com/cs/Satellite?blobcol=urldata&...

    The answer to the second part of your statement is energy storage. But we're a decade or more from needing that and Germany doesn't even have mass storage (despite much more solar than the entire U.S.). Solar currently generates about 0.02% of the country's energy. When we get to 5%, energy storage will be a hot topic but when we get there solar investors will be very wealthy because that would mean we've installed about 200 GW of solar, 7 times what the entire world installed last year.

    Travis Hoium

  • Report this Comment On February 15, 2013, at 8:51 PM, Capn10 wrote:

    The article and posts here are comparing apples and oranges. While solar costs have plummeted, they still have a ways to go before they can compete with fossil fuels or even windpower. If FSLR for example is selling a plant at $2.60 per Watt/peak (includes panel and BOS), then that equates to a generation cost for a utility in the Southwest USA of about $0.13 per kWh. You then need to add about $0.04 for transmission and distribution costs which totals out at around $0.17 per kWh. I believe this is well above the current electricity rates in all the contiguous states. By contrast, the generation costs for a new coal plant is around $0.07 per kWh or about $0.11 retail..

    While solar is not yet competitive with basepower rates, It is competitive with peak power generation rates; this I believe will be solar's sole market on the grid for years to come - in the USA anyway.

    The above ignores government subsidies and environmental costs which are born by consumers elsewhere. If the gov't maintains a 30% tax credit on the capital costs of solar then it is going to be competitive in some US markets beyond peak power, but to a limited extent until power storage also becomes less costly.

  • Report this Comment On February 15, 2013, at 8:52 PM, ryanalexanderson wrote:

    The efficiency question is irrelevant anyway, comparing fossil fuel to sunshine.

    If you don't use the sunshine, it's not as if you can store it and save it for later, or for specific applications.

  • Report this Comment On February 15, 2013, at 8:53 PM, bobt01 wrote:

    In Australia our power generation costs are difficult to find out as the energy is bid for and therefore bears no realationship to costs. I did speak to one of our older systems the Snowy Mountain scheme and was told the actual cost of production is less than 1c but that there was a brown coal facilty in Victoria State that is cheaper than that.

    We currently pay about 28c a Kwh and I am sure we are being ripped off. The Carbon tax has not added a lot but the government sell off has built a mini Enron of Australian power and we have old people who can't afford to turn on anything apart from a light and a fridge.

    Solar is still a pipe dream here with the cost of installation for a house being around 40,000 and is you have no grid back up it can get tricky.

    Think it is still 20 years away.. Look to Nuclear for a better solution but it will upset the green lobby!

  • Report this Comment On February 15, 2013, at 9:23 PM, varptr wrote:

    Since solar electric has a generally negative cash flow and an efficiency less than 1/20th that of solar thermal. And since solar thermal has a positive cash flow and often an ROI above 15%, why on earth would you expect any long term result other than crash and burn for solar electric? The 15 kva to heat a typical home takes over 350 square meters of collective surface, solar thermal less than 20 square meters. And evacuated tubes can last for centuries as opposed to a less than 20 year shelf life for solar electric. What am I missing, the Solyndra's of the world are DOA!!

  • Report this Comment On February 15, 2013, at 10:02 PM, RonSarson wrote:

    Barring harnessing solar by focusing the rays in space or huge advances in storage media, solar power is impractical in a large portion of the world. It may be competive in the tropics, and desert areas, but in few other places. It may make sense in parts of the middle east and Africa. I won't be "investing" in solar companies, thank you.

  • Report this Comment On February 15, 2013, at 11:29 PM, egastrophe wrote:

    The cost comparison should be done relative to peak wholesale cost. Electrical rates fluctuate during the day and the year. Off peak power is lowest at 3 to 5 cents/kwh but occurs at night. Peak power occurs during the day when the sun shines and prices fluctuate in the summer from 8 to 15 cents / kwh. Solar power can offset peak load. Storage is not needed. Solar without incentives is not at grid parity. Costs for panels have come down but balance of plant cost remain high- land, labour, inverters, transmission lines, regulation costs. Systems are cost effective in high insolation Most of the worlds population lives around the equatorial regions where the sun shines. Solar will slowly build not skyrocket.

  • Report this Comment On February 15, 2013, at 11:34 PM, kgrahamprinter wrote:

    Get serious - this is the year of the LED bulb which will save 50% of power of Fluorescent bulbs and if made in a reputable way would last 20 times longer - though some idiot will allow them to fail with the 1st led of 100 failing. After reducing our lighting power requirements by 50%, then look at what you would be willing to pay if you have no power - that's where a inverter plus auto switching that works with both the power company and to a local emergency battery system would be worth several times the utility rate. whether solar or wind powered or both.

  • Report this Comment On February 16, 2013, at 12:16 AM, MidasInvestor wrote:

    Without federal subsidies, solar power is not even close to being cost competitive with coal, natural gas, and especially nuclear energy which is less than 4 cents per kWhr and the reactors will last much longer than solar panels will. While I think solar power has a bright future (pardon the pun), it is still too early and much more research and innovation needs to be done before it will be able to compete with other energy sources without the help of Uncle Sam.

  • Report this Comment On February 16, 2013, at 1:32 AM, dgmennie wrote:

    As others have already pointed out, solar power has been (and continues to be) a heavily subsidized energy-generation scheme that, despite its politically-correct backing for decades, has failed to become a major source of usable energy. The problem is mostly technical. Nobody is saying the sun does not throw off more power than any civilization can possibly consume. The basic issues are collecting this energy and then somehow storing it to use when you really need it. Otherwise you just have a nice toy that only performs well in the daytime when the sky is clear. I see no posts here giving any clue about successfully handling these key technical issues.

    This is why fossil fuels, hydroelectric dams, and nuclear reactors continue to be our main sources of energy. Until solar technology can make a profit in the open market offering competitive pricing without government subsidies, it should not be considered investor-ready.

  • Report this Comment On February 16, 2013, at 4:31 AM, ostreger wrote:

    No mention of the future: film, replacing plaquettes, with the associated potential for mass-production; this is liable to wipe out manufacturers sticking with today's technology.

  • Report this Comment On February 16, 2013, at 7:07 AM, beyondo1 wrote:

    I have a question for all you "power generation" gurus;

    How long does it take for the average new power plant to "break even"? When has it completely paid back all costs and investment? What are the profit margins on fossil fuel plant in general?

    I've never see any of this info (for fossil) in these discussions, although I always see it mentioned with regard to solar.

    Just wondering?

  • Report this Comment On February 16, 2013, at 8:55 AM, shlitz wrote:

    what about natcore tech ntc.xf 38% eff.and graphite tech? Comment please, thanks

  • Report this Comment On February 16, 2013, at 12:53 PM, enthuskeptic wrote:

    Forget the developed northern countries. There are billions of people where there is lots of sun. Maybe natgas or even coal could be used in the night.

  • Report this Comment On February 16, 2013, at 3:05 PM, pixal wrote:

    I'd suggest you check your facts with the Energy Information Administration. In the past, I've evaluated a lot of energy options. While there are some good, cost-effective applications for solar power, I wouldn't consider it commercially viable until facilities are being built without major tax incentives from our government.

  • Report this Comment On February 17, 2013, at 3:01 PM, lowmaple wrote:

    What would be the costs to run coal powered plants if they had to environmentally sound? It's a bit shady to compare without these facts.

  • Report this Comment On February 17, 2013, at 7:48 PM, chris293 wrote:

    It seems that the government is promoting solar as another way to support their spending (while taxing us) with some pie in the sky dreams. Our economic history is proof that the free market is the best answer for developing green energy solutions (solar) that will make 'solar panels' of today look like the days buggy whips did when the car was first mass produced. Politicians and government employees need to stay out of making business decisions best made by businessmen, scientists, or the inventors who have to live by their own honest efforts. When the government gives money to someone or company is it a payoff or a bribe?

  • Report this Comment On February 18, 2013, at 3:02 PM, mikecart1 wrote:

    " The most abundant energy source in the history of man has finally become economically viable"

    Disagree on this completely.

    Also it really comes down if investors want to gamble where the odds are heavily against them. Look at the dot com era. You had a choice to invest in Amazon or the 'other guy'. There are far more 'other guys' than there are Amazons that will make it out of the Solar era. In 20-30 years, the ones that make it out are the ones that are overlooked today.

  • Report this Comment On February 19, 2013, at 8:27 AM, Jamesband wrote:

    If government stays involved the private sector advancements in solar will be stymied. The faster they are out of the picture the faster solar as a technology, and renewable energy source will thrive. The government’s grandiose solar replacement of fossil fuels in our current day-in-age was foolish, go figure. However, the private sector will slowly fall in love with solar, one house, and one building at a time. The government is responsible for the delay in solar expansion and acceptance in this country. If we can get their big toe off the electric car ; it’s not the battery, it’s the charging system technology that’s the problem. Intergrade a Capstone micro turbine in the vehicle for a continuous charging system and you have the problems solved. Alas, government will make everyone beat their heads on a rock to move everyone in the wrong direction i.e. ETHENOL!

  • Report this Comment On February 19, 2013, at 10:29 AM, gsned57 wrote:

    Lots of comments saying that solar is NOT cost competitive. Lets take a look at a complete system that I can buy online today (25 year warranty) http://www.dmsolar.com/7grwienm2per1.html . This is a complete grid tied setup including the panels, inverters, mounting equipment, basically everything you need for $15,000. I can’t get a quote for installation cost but with the Enphase microinverters DIY installation is relatively easy and free. In the midatlantic we get an average of 4.5 hours of sun a day over the year < http://www.usasolarstore.com/images/solarhowto/Avail.pdf>.

    7.5KW system X 4.5 hours/day X 28 Days/Month = 945 KWH/Month generated from my system. I pay 14 cents/kwh but I’ll use the national average of 12 which is $113.4 per month savings or $1360.8 a year. This comes in at 11 years before the system pays for itself. This is assuming DIY which most people won’t do and to be honest that will probably double the cost. It also doesn’t include the FED 30% rebate or the PA state rebate worth about $7500.

    The point of this exercise is to show that joe homeowner can get free electricity after 11 years with no subsidy and a spare weekend. 5 years with subsidies or 11 years with subsidies and a professional installation. If Joe homeowner can do this shopping online I have to assume a big installer putting in megawatts of capacity can do it cheaper. Even better, solarcity which was the third recommendation does everything and joe homeowner gets locked into a lower rate electric rate for the next 20 years. I think this article is well timed and folks should realize that solar has gotten a lot more affordable.

  • Report this Comment On February 19, 2013, at 10:43 AM, StopPrintinMoney wrote:

    eh... solar is dead and won't survive without taxpayer's subsidy!

    I have one word of advise for you - SOLYNDRA ...

  • Report this Comment On February 19, 2013, at 11:51 AM, TMFFlushDraw wrote:

    Everyone should note that solar has grown tremendously in the U.S. while government support has been cut year after year. The cash grant program died last year and solar installations doubled. The investment tax credit will run out in 2016 and is unlikely to be renewed. Globally, every country with a FIT has cut it, often multiple times per year to keep up with falling costs.

    Meanwhile, states are giving incentives like no sales tax, something that has been used for such crazy purchases as clothing and food.

    Citing Solyndra shows absolutely no knowledge about the solar industry, just as the Obama administration did when that loan guarantee was made. Solyndra was never cost competitive and used technology that stood very little chance of surviving.

    The reality is that costs are falling rapidly and in five years solar will be a growing part of our energy picture -- government help or not. Invest now or let it pass you by (IMHO).

    Travis

  • Report this Comment On February 19, 2013, at 12:26 PM, DonkeyJunk wrote:

    "eh... solar is dead and won't survive without taxpayer's subsidy!

    I have one word of advise for you - SOLYNDRA ..."

    Anecdotes as evidence are the best. Everyone knows if ONE attempt doesn't work, there's no point in ever trying again. It's why we don't have rockets, planes, cars, or any other form of technology to make tasks easier.

    Everyone also knows that government subsidized failures equal disaster for the country. Just look at the internet, military spending, and the space programs. None of which has ever resulted in anything positive or useful. I mean, why do we spend money on anything?

  • Report this Comment On February 19, 2013, at 1:40 PM, ibuildthings wrote:

    Solyndra wasn't a scandal because it failed. Experiments and investments don't always work out. It was a scandal because the well-connected principals were allowed to get a second-round investment from the taxpayers because of their connections, so they could pull their own losing investments out before it crashed. That was the crime, and it won't be investigated, just like the other financial crimes of the last few years.

  • Report this Comment On February 19, 2013, at 4:34 PM, hbofbyu wrote:

    Good point. George Mallory is dead.

  • Report this Comment On February 19, 2013, at 10:52 PM, 1GregF wrote:

    "<i>I'm sorry but you're completely wrong. Even thin-film panels (the least efficient) are often more efficient than 12%.</i>"

    The data sheet efficiency is at Standard Test Conditions (STC). Irradiance of 1000W/m² and cell temperature 25° C. Cell efficiency drops with increasing temperature. Under real world conditions the cell temperature is going to be much higher than 25° C at 1000W/m². I have looked at the real output of dozens of solar installations and found they usually fall in the 10% to 12% range.

    "<i>7.5KW system X 4.5 hours/day X 28 Days/Month = 945 KWH/Month generated from my system.</i>"

    Not going to happen. The output will be much less. Your calculation is based on Standard Test Conditions which you will never get in the real world. My advice to anyone considering solar is to find a installation local with at least a year of data. That will give you a better idea of what to expect.

  • Report this Comment On February 21, 2013, at 8:03 AM, StopPrintinMoney wrote:

    ***Anecdotes as evidence are the best. Everyone knows if ONE attempt doesn't work, there's no point in ever trying again. It's why we don't have rockets, planes, cars, or any other form of technology to make tasks easier.

    Everyone also knows that government subsidized failures equal disaster for the country. Just look at the internet, military spending, and the space programs. None of which has ever resulted in anything positive or useful. I mean, why do we spend money on anything?***

    How did any innovations happen before the govt assumed the role of money spreader ? For example - did Ford need taxpayers money to revolutionize the industry?

  • Report this Comment On March 29, 2013, at 9:19 PM, DonkeyJunk wrote:

    "How did any innovations happen before the govt assumed the role of money spreader ? For example - did Ford need taxpayers money to revolutionize the industry?"

    It's a relief that we just need to wait for the wealthy to find a way to make money in order to take steps forward.

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