Solar Energy Trends For Future Investment Opportunities
Thursday, November 17, 2011
The Solar Panel Process
Long before a solar panel (called a module in the industry), can be installed on a business or household rooftop, there are some steps that must take place. It all starts with plain ol' sand, from which silicon is extracted via various chemical processes. The refined and nearly pure silicon, called polysilicon or poly, is then heated and cast into cubes, called ingots. Cube-shaped ingots are then sawed into square wafers. Then the magic happens. The polysilicon wafers are then placed on a substrate, usually glass, to make a solar cell. A number of cells are then arranged together and set in place to form a panel. The final package is called a module. That's how a solar panel is made in a nutshell. But hidden in those few steps are hundreds of companies, thousands of patents, and more than a few investment vehicles that can make those "in the know" a lot of money.
For nearly a decade, the industry surged ahead with a compounded annual growth rate over 40%, and investors made a lot of money on the companies making it happen.
The solar market is still set to triple in size in the next five years. By 2015, installed solar capacity will grow another 347% to over 72 gigawatts as utilities worldwide are incentivized and forced to adopt sustainable production assets, and as solar energy reaches price parity in a growing number of markets. In order for those forecasts to hold true, improved policy is going to have to do battle with current economic conditions. The Current State of the Solar Market is currently facing rapidly falling prices, both for its raw material and its finished product. A seasonal dip in demand and the related oversupply of panels coupled with the general economic slowdown and restricted lending has led to an up to ~30% decrease in selling prices for solar modules. Of course, the operating costs of solar companies have not fallen as quickly, forcing companies to reduce profit margins as they sell discounted panels. In fact, in the recent price scramble, Chinese manufacturers have opened an advantage over historically dominant European companies. Established Chinese producers are currently offering contracted prices of about ?2.00 per watt, while European suppliers are struggling to break below ?2.50 per watt.
As such, Chinese solar companies are poised to gain some European market share. You should see that reflected in their share prices over the next few quarters. Even with the economy in the pits, the German solar market--the largest in the world--is still set for steady growth, thanks to renewed lending by German state bank KfW and national political commitment. Funding for rooftop and small ground installations is also flowing again from large European investment banks and local savings banks. Other countries in the European Union will take longer than Germany to heat their solar markets back up. Any astute investor should thus ensure that they have exposure to the German market, which is predicted to be one of the earliest to recover from the current economic downturn. Only the most highly efficient panels with the best prices and best warranties will be purchased. Smaller Chinese companies are probably the most at risk. Balance sheets for all solar companies will be off for the next few quarters as reduced demand from the recession and cyclical seasonal patterns works its way off balance sheets.
In addition to Germany, the U.S. considered the sleeping giant of the solar industry is also doing much to ensure a robust solar rebound. Here's a snapshot of what the U.S. recent stimulus did for the solar industry: Investors are now able to take a 30% federal refund on the value of a new installation before deducting any state incentives. So a theoretical $100.00 dollar solar system in North Carolina (35% state credit) now only costs the investor $35.00-because both federal and state incentives are now calculated from the full price. Best part is, those federal incentives have no cap and the project need only be finished by 2017 to qualify. This incentive alone will rapidly increase solar demand as homeowners and investors a like rush to get discounts on solar installations on the taxpayers' dime. But there are many more solar provisions in the stimulus that will only magnify the gains that can be taken on the right solar stocks. There's also $6 billion dedicated to paying the fees on guaranteed loans. This clause is aimed at encouraging banks to make loans for renewable projects. Most estimates say that $6 billion in guarantees will translate into $60 in new loans.
Labels: Energy, Future, Investment, Opportunities, Solar, Trends
