Summary
Energy stocks have been recently outperformed the market according to several market analyst firms. The U.S. may be able to remarkably reduce foreign oil imports and pollution-oriented sources of fossil fuels such as coal and natural gas over the next 20 years; however, the nature of emerging legislation at both the federal and state level will dictate how well the country capitalizes on the green revolution, including job creation and the trade deficit, and the transformation from high carbon emission industrialization to clean alternative energy sources such as solar power.
Analysis
The debate over future energy alternatives continues as countries deliberate on government subsidies and clean energy companies develop new technology, while fossil fuel companies adjust supply based on market pricing of oil, natural gas and coal. However, energy stocks have been recently outperforming the market according to several market analyst firms.
Coal stocks have shown remarkable growth, despite a global recession that has dampened industrial production. When coal miner Alpha Natural Resources bought rival Foundation Coal last month, coal-related stocks soared. Both types of companies (solar and coal) make up Investor's Business Daily (IBD) “Energy-Other” stock group, which as of last week ranked No. 8 among IBD's 197 industry groups, up from No. 189 six months ago. Many analysts believe consolidation is good for coal producers for various reasons including tightening regulations after tragic fatal accidents in recent years, streamlined operations and better supply control to gauge volatile price fluctuations.
Pressured by competition from natural gas, "the price of coal has bottomed out," according to analyst Brian Yu of Citigroup. The spot price of coal is now approximately $40-50 per ton vs. approximately $150 per ton at last year's peak; thus, the cost of production is essentially above the selling price.
In comparison, polycrystalline silicon (polysilicon) prices, a major component of most solar panels, also play a big role in manufacturing costs. Oversupply has eroded polysilicon prices to about $80 per kilogram from last summer's peak of around $400 per kilogram. The lower silicon costs are beneficial for price-competitiveness for solar energy versus conventional fossil fuels and have aided solar companies from all over the world in signing contracts from U.S. utilities. Cutting costs and improving panels' efficiency have always been the mantra of the solar power industry. However, lower polysilicon prices are more beneficial for producers of high efficiency crystalline silicon solar cells; thus, companies using technology which utilizes less silicon substituted with less expensive materials but at a lower cost and efficiency are in a less competitive position.
However, First Solar's "thin film" glass panels, using considerably less polysilicon than approximately 90% of the overall solar industry, made from a layer of cadmium telluride, have demonstrated the lowest cost in the industry at 93 cents per watt. Interestingly enough, China's Yingli, one of the largest manufacturers of solar products in the world as measured by annual production capacity, still has not been able to break $1 in cost per watt barrier. First Solar, headquartered in Phoenix, AZ, plans to lower the cost of solar power to 65 cents per watt by 2010-12 by expanding manufacturing facilities in Malaysia, where the company reportedly produces modules for 20 cents per watt cheaper than at its Ohio plant, according to a company spokesman.
Thus, First Solar hopes to achieve grid parity, which is solar equivalency with other energy sources in terms of price per watt, as early as 2010. This term is not fully transparent since, like politics- solar power is local as well, with respect to utilities, which offer varying cost per watt in different geographic locations. Grid parity without incentives is already a reality in California, New Jersey, New York and Hawaii and is emerging quickly in many regions of the world.
One of the myths of government subsidies for green energy or the clean tech sector is that U.S. or state legislation will fully support domestic companies and jobs, which is not the case. Actually, a bill designed to offer incentives for consumers to install solar panels on their homes and hoped to create a certain number of green jobs may lead to environmental benefits for the U.S.; yet the panels may ultimately be manufactured overseas in a country where the cost of labor is significantly less than the U.S. Moreover, if First Solar, having only business offices in Arizona, ever decides to build a solar power plant in this state, taking advantage of new potential corporate tax breaks, the U.S. and Arizona would be losing out on the full benefit of green job initiatives due to the outsourcing of solar panel production to Malaysia. One must play Devil’s Advocate to some degree when evaluating clean energy legislation in order “to see the forest from the trees” so that comprehensive policies may be enacted and that the U.S. simply does not substitute Middle Eastern oil for Asian solar panels, as an example.
Lowering the cost of solar cell production is not the only issue on the table. In general, solar is still only responsible for less than 1% of American electricity, while numerous states have announced mandates to achieve as high as nearly 25% for combined renewable energy sources including solar, wind, and geothermal by 2025. There is clearly significant room for growth. It is possible that future solar leaders will not even be first to market with a core technology, but rather are ones whom have adapted to competition, learned from customers, integrated their technologies with related innovations, and bundled their physical products with creative service and financing programs.
Another misconception pervasive in the general pubic is that solar panel installations on homes are the most efficient way to harness solar energy. In contrast, "solar farms" represent an underutilized source for solar energy. It has been documented in Semiconductor International that the United States could supply its entire energy demand by covering just 1.6% of its land area with solar cells. Furthermore, putting solar cells on 1% of the area of global deserts would be sufficient to produce electricity for all the people in the world.
Speaking of solar farms, Pacific Gas and Electric, a large West Coast utility, signed an 800-megawatt solar power contract with Sunpower and Optisolar, both American-based companies, in August 2008, and the deal is expected to generate enough energy for 239,000 homes in California. Sunpower harnesses solar power from monocrystalline silicon solar cells, while Optisolar's thrust relies on amorphous silicon cells, which are typically lower cost with lower efficiency; however, both technologies are feasible for utilities. The difference between residential solar installations and utilities is that the latter does not really care about style and aesthetic appeal. As a result, the solar industry has many different applications of various sorts with varying factors for consideration that offer market opportunities for the numerous technology options being fabricated.
Another American based company, Applied Materials (AMAT), has developed a tandem junction thin film turnkey production line that, according to AMAT, can produce enough panels to generate 80 MW of electricity each year, or enough to power over 35,000 homes during peak hours. In addition to the environmental benefits, a solar factory containing one SunFab™ line has the potential to generate an estimated $2 billion of economic development and create over 2,500 local jobs over five production years, according to an independent analysis noted in Semiconductor International.
The United States may be able to remarkably reduce foreign oil imports and pollution-oriented sources of fossil fuels such as coal and natural gas over the next 20 years; however, the nature of emerging legislation at both the federal and state level will dictate how well the country capitalizes on the green revolution, including job creation and the trade deficit, and the transformation from high carbon emission industrialization to clean alternative energy sources such as solar power.
