Solar power plants like this one are popping up from Canada to South Africa. Image: First Solar.
Solar energy has been beaten up in the media and by investors over the past few years, in large part due to the fact that most people don't fully understand the way it works, nor how it's changing energy as we know it. But the fundamental fact is that solar energy is by far the most abundant power source in the world, and creating electricity from the sun is getting cheaper every year.
Whether you've been following the solar industry for years or you're just getting curious about solar, here are five things you need to know.
1. You can go solar for $0 (maybe)
The booming residential solar market has been driven by $0-down agreements, under which you pay nothing up-front to buy or lease a solar energy system from a company like SolarCity (SCTY.DL) or Sunrun (RUN 2.19%). If you buy with a $0-down loan, you own the system, and the power it generates. If you lease, the company then installs and owns the equipment (selling pieces like tax benefits and renewable energy credits to other investors), and sells you the power the system generates for a long-term set rate, usually a price lower than your utility was charging.
These deals aren't available everywhere because not every state is sunny enough or has high enough electricity costs to make rooftop solar economical, but households in most of the Southwestern and Northeastern U.S. can go solar for $0 down today.
2. Solar energy is cost competitive with fossil fuel
Today, energy contracts for solar energy in the U.S. are coming in at $0.05 per kWh or less in sunny locations, which is competitive with the costs to generate electricity from fossil fuels. In the U.S., Australia, India, and Africa, solar developers are winning against fossil fuels and nuclear power on a cost basis.
What's incredible about solar energy is how fast costs are falling. Since 1977, the cost of a solar cell has fallen more than 99%, and companies continue to cut costs year after year. According to investment bank Lazard, between 2009 and 2014, the cost of an industry-leading utility-scale solar power plant has fallen more than 50% from 8.7 cents per kWh in 2009 to 4.3 cents per kWh in 2015.
First Solar (FSLR 2.17%) is one of the leaders in building these large solar power plants and its CEO says costs will be below $1 per watt fully installed by next year. As recently as 2011, when the Sunshot program's $1 per watt goal was announced, this seemed impossible.
Solar energy is no longer just about saving the environment. It's about saving money and lowering the impact of rising commodity costs in countries around the world. Subsidies like feed-in tariffs and tax benefits are rapidly dying or being phased out (as is happening in the U.S.), but the industry continues to grow regardless. This is an energy source that's here to stay.
3. Solar energy is becoming a big part of the grid
As of this fall, over 1% of all electricity produced in the U.S. came from solar energy. And now that the solar investment tax credit has been extended, by 2020 there could be enough new solar installed each year to generate 1% of the country's energy needs.
Suddenly, solar energy isn't a small player, it's the dominant force in new electricity generation. According to Bloomberg New Energy Finance, in 2015, more new power generation came from solar than from natural gas plants. That's the first time that's ever happened.
Image: SunPower.
4. Solar energy production comes in all sizes
One of the great advantages of solar energy is its flexibility. Large solar power plants can cover many square miles, but solar energy can also be collected on personal chargers that fit in your pocket.
SunPower (SPWR -8.41%) is one of the companies leading the way: It's both building the world's largest solar power plant and selling solar cells to companies that make personal chargers. Ford has even integrated solar panels into its C-Max Solar Energi concept car. -- turning its plug-in electric hybrid into a partially self-powering vehicle. It hasn't hit the dealerships yet, but with electric vehicles growing in popularity I don't think it will be long before we see advertisements for solar-electric cars.
5. Solar energy is the world's most abundant energy source
There's enough solar energy hitting Earth every hour to replace every barrel of oil, every lump of coal, and every other energy source used on earth for an entire year.
Read that again -- There's enough solar energy hitting the earth every hour to replace all energy sources used globally in a year. If that's not a resource investors should pay attention to, I don't know what is.
