Innovation is a way of life in the solar industry. Companies have to find new ways to cut costs, improve efficiency, and build new form factors or risk being replaced by someone who is thinking about how we can better use solar.
There are a number of innovations that have caught the media's attention and the curiosity of consumers. Here are a few of those ideas and a look at how investors in solar technology should look at those trying to upend this industry through innovation.
Technology that has the world excited
The last few weeks have brought a number of interesting innovations to the solar industry. Here are a few that caught my eye.
- Researchers at Michigan State University recently announced a transparent solar panel that could someday replace glass. The research is still in early phases, but it's already 1% efficient and researchers think 5% efficiency is possible.
- Solar Roadways has designed an entire road that could generate solar energy and builds in the flexibility of dynamic lighting for divider lines, lane markings, and other alerts to drivers.
- An engineering team at the University of California, San Diego also recently announced a nanoparticle-based material that can reportedly convert 90% of the sun's energy to heat and withstand temperatures of more than 700 degrees Celsius.
- A solar bike path opened recently in Amsterdam, creating solar energy from a 70-meter stretch of path.
These are just a few of the interesting ways researchers are innovating in the solar industry. It's possible that in the future we'll be generating energy in everything from windows to roadways to car roofs.
Before you lose your solar minds
Does all of this innovation mean that traditional solar power companies like First Solar (NASDAQ:FSLR), SunPower (NASDAQ:SPWR), and SolarCity (NASDAQ:SCTY.DL) are in trouble? After all, they're using traditional solar technology and not these new approaches that are coming out of universities around the world.
The reality is that there have been innovative approaches to solar energy being tested for decades. Solar paint, solar shingles, and flexible sheets of solar panels are just a few that have been tried, but none has gotten past the idea phase to mass scale production. Instead, the traditional solar cell has dominated the solar industry, and that's what's being installed on thousands of rooftops, in fields, and in deserts around the world.
While a lot of these ideas are interesting and show how solar energy could be used in the future, there's little indication they'll pass the test when it comes to cost-effectiveness.
The solar bike path in Amsterdam cost $3.7 million to build and will reportedly generate enough energy to power two or three homes. An equivalent solar system from First Solar, SunPower, or SolarCity would be about 6.1 kW in size and cost at most $53,049 based on SolarCity's recently reported cost structure ($2.90 per watt). Larger-scale systems from First Solar and SunPower would be far less. That's 1.4% of the cost of the solar bike path.
Even if transparent solar windows can generate 5% efficiency, they'll have a hard time competing with a 21.5%-efficient panel from SunPower that's already in production. Presumably, it would be costly not only to include energy production in the window, but also to wire it into the building. An idea like this is far from cost-effectiveness.
I love seeing new ways companies and researchers are innovating in solar, but the truth of the matter is that there's little need to put solar power on roadways, bike paths, or windows, because there's more than enough open space to put traditional solar panels. Enough solar energy hits the Earth every hour to power the world for an entire year, and if we filled the Mojave Desert with solar panels, we could generate enough power for the U.S. nearly three times over.
Given the fact that it's economical to build solar plants in deserts, on rooftops, and in open fields, there's no reason to think these far-out technologies will upend the solar industry unless the numbers work. But there's no indication that any of these ideas are economical, so solar investors can still sleep tight at night.
One thing I've learned over the last half-decade investing in the solar industry is that companies have to show what they can do, not just talk about it. Energy Conversion Devices talked a big game about taking over the solar market with solar shingles, but couldn't make them economically and eventually went bankrupt. Evergreen Solar was theoretically going to make it cheaper to make solar panels, but never showed that it could actually do so in the real world. And we all remember Solazyme's CIGS technology that was going to change the world, until it didn't.
When investing in the solar industry, it's important to pay attention to whether companies can prove they can do what they say they can. If there's no production or profits to back up industry-revolutionizing claims, then there's little need to worry about it.
I'm perfectly comfortable owning shares of SunPower because I don't see anyone producing a more efficient solar panel at a competitive price anytime soon. First Solar and SolarCity have also built sustainable businesses with cost-competitive products, not just promises.
Following the solar industry, it's fun to see what researchers are creating and how they're pushing the science of solar energy forward. But as an investor I rarely see a new solar technology that has even a small chance of upending the boring silicon panels that have been made for decades. I hope that killer technology is out there somewhere and we'll all be able to paint our houses with solar paint and put up solar windows, but until technologies like that are proven to be profitable in the marketplace, I'll stick with the companies I know can make money selling solar energy.