A Sharp Elbow to Your Solar Stock

Talking about gigawatts: Did anyone catch Sharp Corporation's announcement this weekend? The world's leading solar cell maker just broke ground on a gigantic manufacturing complex that will primarily produce large-screen LCD panels. That, and 1,000 megawatts of thin-film solar cells. The facilities should be up and running by early 2010.

After surveying the field of current contenders, I can say that few possess the ability to achieve this kind of scale in the next few years. Suntech Power (NYSE: STP), which is powering its way into the gigawatt club by the end of next year, is in good shape. First Solar (NYSE: FSLR), a thin-film firecracker targeting 900MW of capacity by the end of 2009, can also hang. But my confidence wavers when it comes to many of the other names in the space.

Solar technology is changing remarkably fast. Just last year, Sharp's thin-film modules were achieving 8.5% conversion efficiency, and now they're at 10%. It is my sense that more traditional silicon-intensive business is going to get blown out of the water, not only by today's thin-film technology, but by even more cutting-edge advances such as solar printing.

There are two ways, then, to lose to a giant like Sharp. Your solar company can fall behind in its ability to reach economies of scale, and it can fall behind in the technology race. The two are, of course, completely intertwined. The point of any bleeding-edge solar technology is to enable massive scalability that will enable the manufacturer to reach parity with fossil-fuel-derived electricity.

I'm not proclaiming to know who's going to win this race. In fact, knowing that I don't know is about enough to keep me from investing in the likes of SunPower (Nasdaq: SPWR) or Evergreen Solar (Nasdaq: ESLR). I just want to urge those of you riding this wave to give your chosen solar company a good, hard look, and make sure the business isn't going to crash under the waves of innovation to come.