Depending on how you look at the solar sector, it was either an outstanding year or a disappointing one. Most solar stocks fell this year, but earnings are rising faster than New Year's Eve fireworks almost across the board.
So what's going to happen in 2011? Despite the chance that 12 months from now I could look really silly, here are my Foolish solar predictions for 2011.
Demand will show up … from somewhere
The demand question seems to rear its ugly head every few quarters in solar, but concern is especially high right now as analysts think demand will fall well below supply, causing prices to fall. Yingli Solar (NYSE: YGE ) , Trina Solar (NYSE: TSL ) , and a host of other companies are making big expansions, so even if demand stays flat, the added supply will put pressure on margins.
But we thought the same thing was happening going into 2009 and 2010. The U.S. has already taken steps that should help, and manufacturers are confident that modules will sell out. So am I. If demand does come through, the entire sector will benefit.
If you want a hedge, First Solar (Nasdaq: FSLR ) and SunPower (Nasdaq: SPWRA ) have built-in demand with development projects, so they have insulated themselves a little bit if demand slows.
Consolidation will begin
Manufacturers, especially in China, will be looking for a way to differentiate this year. That means the smallest technology advantage will be worth a lot in 2011. Evergreen Solar (Nasdaq: ESLR ) could be a target with technology that could lead to best-in-class costs, if it doesn't go belly-up first.
I also think this is the year the rest of the market realizes that solar is more than just a tree-hugger fad. NRG Energy (NYSE: NRG ) , a major electricity generator, has already made big investments in solar, and that's just the start. Oil, coal, and natural-gas prices have all risen recently, and I could see a big oil company buying its way into solar. BP (NYSE: BP ) has BP Solar, but buying another manufacturer could add more capability and be a positive public-relations move.
First Solar's cost per watt will fall below $0.70
The only way thin-film solar manufacturer First Solar can survive is by making panels that are cheaper than what its crystalline-silicon competitors make. Its lower efficiency increases the balance-of-system costs for the rest of a solar development, putting constant pressure on selling prices and, in turn, costs.
So far, First Solar has responded well, and I think this is the year the company breaks the $0.70 barrier. Right now, costs stand at $0.77 per watt, $0.10 lower than in the second quarter of 2009. I think that after a small cost increase in the third quarter of 2010, the company will get back on track in a big way in 2011.
An IPO will capture the market
It's been a while since a solar IPO made us dream of new possibilities. But this year, we could see a number of innovative companies hit the market, especially from solar thermal. BrightSource Energy has backing from Google and a host of other high-profile companies and has started construction on the 392 MW Ivanpah Project. eSolar is also another candidate from the solar thermal market focusing on licensing its technology to other companies.
Solyndra opted against going public in 2010 but decided on selling convertible notes instead. Investors will be itching to cash out eventually.
I would love to see a profitable CIGS company hit the market, because the technology has a lot of potential and it's been a long time coming.
The solar revolution begins
3M has put a lot of money into building a film manufacturing plant to supply thin-film solar with a barrier film, and it must know something is coming. I highlighted this as an unlikely revolution in solar, and in 2011 we will see this product make its way into panels. It could be First Solar with either CdTe or its underground CIGS research, or it could be an upstart making a splash in roll-to-roll manufacturing.
Foolish bottom line
There are always unknowns in solar, but 2011 provides a host of questions, and investors are going to have to wait to hear the answers. This Fool thinks that uncertainty translates into unreasonably low stock prices that are poised to rise in 2011. What do you think? Leave your 2011 solar thoughts in the comments section below.
Interested in reading more about solar? Add any of these companies to My Watchlist, which will find all of our Foolish analysis on them.
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