Email of the day (1)
Comment of the Day

April 29 2013

Commentary by Eoin Treacy

Email of the day (1)

on the viability of solar energy
“Thank you for a superlative investment analysis service. Let me confess though that I've always been skeptical of your dismissal of alternative energy as overpriced and dependent upon subsidies to survive.

“If you'd check out this link, I think you might be more than a bit stunned at solar's recent and projected price path. Or, perhaps you can point out the flaws in the author's claims.

“Thanks again for a great service.”

Eoin Treacy's view My comment – Thank you for your kind words and this article which may be described as portraying the best possible scenario for solar energy. Here is a section:

I hate to speculate, but imagine PV solar drops at 18% per year for 20 years? Solar will be about 1/10th the cost of coal . Basically, people will start begging for solar power in just a few years, because it will be so much cheaper than coal power.

Even if we use the First Solar numbers – which is almost certainly a low ball estimate - we are still talking 15% per year price drops in installed PV Solar. Even using 12% a year, Solar becomes cheaper than coal in under 10 years.

18% is a pretty big number, but we have seen much, much larger decreases in price over the last 2 years. Over the last 5 years, we've seen far larger drops than 18% per year. The pipe line for putting new PV solar discoveries into production makes it pretty clear we can see 18% for the next 5 years at least – and if that is the case, PV solar will be cheaper than coal.

But that's not even everything. Something to notice in the Forbes article is the lowest number for installed utility solar. The lowest number for installed PV Solar was under $2.00 per watt in Q3 2012. This lowest number is going to drop at a healthy clip too – and that is the number some people are going to be looking at when they consider their own projects. In some places, PV Solar will be cheaper than coal in under 3 years.

At Fullermoney, we have described solar energy as the most practical of renewable energy sources not least because it has a lower cost than alternatives such as wind and requires less maintenance. With the application of thermal energy storage technologies it is also conceivable that it will be able to meet base load requirements in some of the world's sunnier environments. As a result it would not be appropriate to dismiss these technologies out of hand. However, before extrapolating the trend of price compression evident over the last four years let us first consider what led to the decline in solar cells prices.

In the early to mid-2000s European governments in particular announced impressive subsidies for solar and wind power capacity expansion. As the price of solar cells and wind turbines soared, Chinese manufacturers were encouraged to pursue market share. The Chinese government ensured that its suppliers were the lowest cost providers of solar cells and a great deal of supply hit the market from 2008 onwards. As a result the price of solar cells collapsed and more than a few companies went bust or were taken over by Chinese manufacturers.

As the downtrend became established, rationalisation of the sector ensued, the weaker producers disappeared and the strongest survived. As the excess supply situation is unwound, solar cells are more likely to trade above their cost of production. The extrapolation of the price compression detailed in the above article depends on oversupply continuing but that is looking increasingly unlikely. As far as I can see, the only way prices can continue to trend lower is if technological advances are made to greatly enhance the efficiency of solar cells. I would not rule out such an evolution but it is not yet evident.

I highlighted the fact that some of the stronger solar cell manufacturers were losing downward momentum in Comment of the Day on December 24th . This remains very much the case and a wide disparity has developed between the winners and losers within the sector.

First Solar has held a progression of higher reaction lows since June and rallied impressively from the region of the 200-day MA over the last three weeks. A sustained move below $29.50 would be required to question medium-term scope for additional upside.

Canadian Solar posted a failed downside break in November and broke out of its 18-month base last week. A clear downward dynamic would be required to check momentum beyond a brief pause.

Trina Solar also rallied well from its November lows but encountered resistance in the region of the 200-day MA from mid-January and has been consolidating since. It pushed back above the $5 area today and a clear downward dynamic would be required to question potential for additional upside.

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