Solar's Long-Term Forecast Is Sunny

Since the beginning of the year, solar stocks have gone bone-chillingly cold. Even high-flying First Solar (Nasdaq: FSLR  ) is off nearly 53% in 2008.

Company

YTD Return

S&P 500

(32%)

Suntech Power (NYSE: STP  )

(75%)

Evergreen Solar (Nasdaq: ESLR  )

(80%)

SunPower (Nasdaq: SPWRA  )

(69%)

Akeena Solar (Nasdaq: AKNS  )

(67%)

First Solar

(53%)

Source: Yahoo! Finance, 12/31/2007-10/15/2008.

Hope springs eternal
Such bleak stretches can try the patience of even the most long-suffering investors. But the key for investors is to focus on what lies ahead.

Not easy to do, we know, but we would like to direct your attention to two recent articles that speak to solar's long-term potential.

In January's Scientific American, "A Solar Grand Plan" proposes a way for the U.S. to generate 69% of its electricity and 35% of its total energy from solar power by 2050. To put perspective on the potential growth this represents, understand that in spite of the sector's incredible expansion these past few years, solar generates far less than 1% of our energy needs.

Accelerating returns?
What's interesting about the Scientific American article is that its authors are conservative in their projections of technological advancement in the sector. They make a point of assuming no further progress in solar technology after the year 2020. (However, it should be noted that the plan's authors do call for sizeable government subsidies.)

Other solar proponents are not as reticent about the ability of solar companies to continue to deliver technological improvements. In another article, this one on livescience.com, noted technologist, inventor, and author Ray Kurzweil says the field of solar energy will advance exponentially, in accordance with his "Law of Accelerating Returns."

Under this "law," solar energy will follow a trajectory similar to Moore's Law and will double in efficiency about every two years, while also dropping in price at a comparable rate due to more productive and cost-effective manufacturing methods.

Kurzweil forecasts that solar will meet 100% of our energy needs in 20 years.

The truth lies somewhere in between
It is possible that solar power could fulfill such lofty projections, but, personally, we are not as confident. For starters, we haven't yet seen anything close to a regular doubling in the efficiency of solar cells.

Nevertheless, even if the solar sector meets only a portion of Kurzweil's projected growth, it would lead to a significant increase over today's production levels. And therein lies the good news for solar investors. In spite of the sector's current malaise, a number of scientific and techno-savvy individuals are very bullish on solar's future.

To be sure, solar investors must still be careful. Innovative private companies such as HelioVolt and Energy Innovations are developing everything from building-integrated solar modules to moveable solar mirrors. This implies that no company's technology -- be it Evergreen Solar's strong-ribbon technology, Suntech's new thin-film production methods, Ascent Solar's (Nasdaq: ASTI  ) photovoltaic modules, or First Solar's cadmium-telluride cells -- necessarily holds any long-term advantage.

Still, the overall trend is promising. Most of today's existing solar technologies are becoming more efficient and more affordable, and emerging technologies and manufacturing methods promise to keep the sector going strong.

So, even though solar stocks have taken a serious hit, that isn't a sufficient reason to sour on the long-term potential of the sector.

Our Rule Breakers team will soon visit Silicon Valley. To find out about new industries like Solar, get updates on the companies they visit, and learn about what they discover, you can sign up now, absolutely free.

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Prashant Rathore updated this article, originally written by Jack Uldrich and published on Feb. 28, 2008. Prashant does not have any financial interest in the companies mentioned above. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (2)

Comments from our Foolish Readers

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 October 16, 2008, at 11:41 AM, jeturcotte wrote:

    One thing to consider here is... unlike with nuclear, fossil fuels, water, and even geothermal sources, solar energy is the only source that is guaranteed to increase over the long haul (as the sun ages) ... granted, we're talking about a billion years here (by which time most water will be locked away under the crust, the plates will have largely stopped moving, and geothermal sources will be few and far between), but when you can KNOW for a fact that not only will the sun still be around, but will be outputting MORE energy than it is today... it's nonsense not to pursue its utilization (especially since it's doing most of the work for us!)

  • Report this Comment On October 16, 2008, at 2:09 PM, NICKELSNICKELS wrote:

    When I investigated changing to solar power/photovoltaic I could not locate a panel manufacturer that offered a warranty that came close to the payback period on my investment. The industry, as I see it, is a great investment for "tree huggers" doing their part, but solar energy has a long way to go before it is economically feasible for the homeowner

  • Report this Comment On October 16, 2008, at 10:51 PM, ivansyswht wrote:

    one company I know for sure, just off the top of my head, has a 25 year warranty on their solar panels - suntech solar power. This 25 year warranty provides ample time to watch the cost/benefit investment of a solar system payoff in terms of real money.

    Although they are a leading player in the solar market at this point, modeling their development in a more conservative fashion compared to the brand-new solar start ups, thus allowing themselves the freedom to back their solar products, I think it might be safe to say that your investigation (nickelsnickels) must not have involved much investigating.

    this may just be an internet board on which to post our opinions, however, please think before you speak with such confidence.

    oh yeah, one more thing, we might all be caught up in the crash of this market, but lest we forget, I'm pretty sure that the US is bracing to be the largest solar market in the world based on the fact that our government just recently approved an extended (and exhaustive) tax credit for those that invest in, and utilize alternative energies. For more information about how this new law affects solar investments, and actually makes investing in either a commercial or residential PV installation a feasible feat, please refer to the Solar Energy Industry Association web site - seia.com.

  • Report this Comment On October 17, 2008, at 11:28 AM, MyDonkey wrote:

    Wrong URL, ivan. It's seia.org not dot com.

  • Report this Comment On December 22, 2008, at 3:11 PM, sandywhit wrote:

    Dyesol is an interesting Co out of Australia.

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