Solar Energy

Investment in Solar Energy sector jumped by more than 50% y/y to around $150 billion in 2011 with solar projects being built frantically in Germany, Italy and China. Massive oversupply in the solar industry meant that thousands of solar panel companies went bankrupt even as demand surged. The brutal consolidation has continued to 2012 with 5 quarters of bankruptcies already behind us and 2008’s largest solar supplier Q-Cells shutting down. Solar panel costs and solar energy prices have come down drastically which means that demand elasticity is kicking in. According to a survey, almost 120 countries installed solar energy in a substantial manner compared to just 20 a year ago. Solar energy is already at grid parity in a large number of countries and is competitive with peak load power at even more places. The biggest and best run solar companies like Trina Solar, SMA Solar , GCL Poly are getting even bigger as Tier 2 producers like Jinko Solar lose marketshare and revenues. With anti-dumping duties being imposed on Chinese solar cell producers, there have been some unlikely beneficiaries like Taiwanese solar cell companies which were making huge losses.

However despite this brutal cyclical downturn, the solar industry continues to grow even stronger even as the earlier renewable energy heavyweight wind energy plateaus out. Note Wind Energy which has the largest installed base in green energy at around 150-200 GW has matured. The big spurt in growth has already occurred in most of the big countries like China, USA and Europe. Also the cost reduction in wind energy has not been as sharp as that by crystalline silicon solar panels. This means the cost curve of solar power is set to beat that of wind energy in the next 2-3 years. Also solar energy unlike wind energy does not have a scale issue as wind energy requires bigger wind turbines of 5 MW or greater size to achieve cost reduction. Solar Energy from 2011 looks set to completely dominate the renewable energy industry globally.

Solar Energy Future Growth Vastly Underestimated

As you can see Solar Energy Cost Curve is declining continuously. Solar Energy costs have decreased continuously over the past decades and continue to do so at even a faster pace with powerful global companies like TSMC, GE, Samsung, Hyundai, Siemens, Toshiba, AUO, Honda etc entering the field. Solar Energy can already compete with other forms of energy in high radiation, high electricity places like Italy. By 2015, expect Solar Energy to compete with Fossil Fuel Energy in most places on Earth. Solar prices decline of 10% annually in the  next few years are considered as a base case by large solar companies in their business models. Note I think PV and CPV Technology will beat Solar Thermal Technology in the future because of a variety of reasons.

Why Solar Energy is Being Underestimated

I am surprised by the extent that solar energy growth is being underestimated by analysts and policymakers. Solar Demand has exceeded forecasts by a wide margin in the last 3 years. While this is on a low base, you have to factor in that solar energy is still being subsidized. Think of the growth possibility when solar energy costs decline another 50%. While all countries have underestimated the penetration of Solar Energy,  I am taking the example of India which had been praised for its  ambitious plan of generating 22 GW by 2022. I think solar energy will easily be 3-4x of that capacity by that time as India has a huge potential  in solar energy. Bloomberg one of the most respected analysts in the Green Space has forecast 4.2% of US Energy Demand from Solar by 2020. This again is too low in my view. Once Solar Energy reaches low enough costs,then energy demand as a whole will expand just at the advent of LED lighting will expand the whole lighting market. The Potential of Solar Energy is not restricted to the Global Electricity Demand, it is much higher because it will expand that Capacity.