|I see great potential in the nano technology area. It is my feeling that if there is a huge blockbuster technology that is going to emerge and "take over" the PV industry, I feel that it will somehow involve breakthroughs and application of nano technology to the area of photovoltaics.|
|J. Peter Lynch, Independent Equity Analyst|
1. What are your thoughts on the PV market growth over the next few years?
The PV industry finished 2005 with a capacity of 1.7 Gigawatts (GW) and I expect that 2006 numbers will come in around 2.4GW. This is impressive growth (40%+) for any industry, let alone one that is in the midst of a worldwide shortage, in its primary feedstock, silicon.
I would expect that the market could reach 10GW by the end of 2010, possibly higher if certain external events - heightened consumer awareness, a new President of the US is elected who is rational and cares about future generations, price of oil, carbon taxes or oil supply disruptions occur.
2. How do you see the breakdown of products in the market between silicon and thin film products?
Currently silicon is obviously the vast majority of the market, with approximately 95% of the market. The thin film segment of the market will grow much faster over the next 3 to 5 years, percentage wise, and could, depending on a number of technical and market factors, reach as high as 25% of the market in 2010 or 2011.
3. Will there be a single "winner" in the PV technology race?
No. I don't think so. There will always be market segments in which a specific product or technology will have an advantage and will create a niche. For example, Sunpower (SPWR), with its very high efficiency (>20%) products will always be the product of choice in a residential application with limited roof area or low cost thin film for a building integrated PV (BIPV) application.
It is far too early in the development of the PV industry to be able to "pick THE winner". There may come a time, when a clearly superior technology bursts upon the scene, but I do not see this happening in the next 5 years.
4. How about a single "winner" in the Renewable Energy industry as a whole?
Once Again, I do not think so.
I see it evolving into more of a portfolio approach, where each technology - PV, Wind, Hybrid Cars, Biomass, Solar Thermal, CSP, Passive Solar etc. will each play a role in the areas where they fit in the best. Each will contribute where and when it can contribute most effectively.
5. How do you see future PV cost reductions unfolding?
In each of the three areas "generations" of PV, as I define them, I see the following developments unfolding over the next few years.
Silicon - First "current" generation
Silicon is currently the dominant area (>90%) and as a result, it will remain a significant player for the foreseeable future.
Future cost reductions will likely come from better utilization of the material - i.e. thinner wafers and from manufacturing efficiencies of scale.
Longer term, since silicon is one of the most abundant elements on Earth it will have no feedstock supply problems, it could be eventually maintain its dominance simply by cost reductions as a result of scale up. Only time will tell, but as boring as this may seem, it is possible that simple manufacturing cost reductions that result from larger factories will bring the cost down to compete with grid prices.
Thin Films - Second generation
Three thin films currently under development - amorphous silicon, cadmium telluride and copper indium gallium selenide (CIGS) are the most advanced of the second generation thin films. There are other materials and technologies, but these are the primary three at this time.
Each has its own advantages and disadvantages.
All three have the potential to get production costs below $1.00 per watt in the short term (3 to 5 years), maybe sooner.
These cost reductions will be the result of many years of R&D, finally coming forward to the point of commercial production. These technologies utilize approximately 1% of the material of first generation cells and are all developing new and faster production technologies that will result in further cost reductions.
This group of technologies with long term potential to produce power at very low costs (<.50 cents per watt) - polymer solar cells, dye-sensitized solar cells, nanocrystal solar cells, quantum dot solar cells are all technologies that are really, still "in the lab".
There are currently no commercially sold products that utilize any of the technologies or others in this category.
I think there is great potential in these areas, but any commercially viable products are at least 8 to10 years away
6. Do you see any potential for a truly "disruptive" technology impacting the PV industry?
Yes. I see great potential in the nano technology area. It is my feeling that if there is a huge blockbuster technology that is going to emerge and "take over" the PV industry, I feel that it will somehow involve breakthroughs and application of nano technology to the area of photovoltaics.
7. Any more insight you would like to share in this area?
No. Not yet.
I am keeping this a secret :-)
8. Can the PV market and those installers and dealers that rely on it grow and survive on it's own without government subsidies?
The industry needs Government and it needs leaders
Unfortunately the industry is getting NONE of that from Washington, whose involvement to date has been pathetic to be polite and actively counter productive to be realistic.
However, the states and other groups have long realized this fact of life and are moving ahead with state incentives and thoughtful legislation in spite of Washington's current and past shameless groveling to the oil patch crowd.
States and local government have simply taken up the task themselves. This will be enough to move the industry ahead at this stage of its development, but the involvement of the federal government will be needed and hopefully the next administration will be the beginning of a new day for renewables that will have all the necessary ingredients for an industries growth. Some of these are listed below:
A long term, well thought out - PLAN. Sounds absurd, but we currently do not have a plan. If the US were a venture stage company, it would NOT be able to get meaningful financing, since it has no plan.
Courage of their convictions and ability to face reality and tell the American people the truth.
Accurate calculation of ALL the costs (both direct and avoided) for all competing sources of energy, both renewable and fossil fuel based.
Appropriate financial structures need to be set up to accurately reflect risk.
For example: the interest rate (conventional measure of risk) for a residential PV system should be LOWER than that for a home addition or a second car. A PV system is unique in that it is a CASH generator and well as a home value enhancer, therefore it has less inherent "risk" and should be assigned a lower interest rate to reflect this fact.
9. Politics, showbiz and public opinion have brought global warming and thus renewable energy to the spotlight in recent months. Do you think this will translate into consumers actually spending money on these technologies now or will they still demand their SUV's and Monster Houses?
I think the tide is clearly shifting to the "green path"
I think one of the critical things that is needed is EDUCATION. This is exactly what the Japanese Government did over 10 years ago - they set out to educate the people and make solar energy something that was "cool" and to be sought after.
Consumers want green. All they need is to be pointed in the right direction, told the truth and allowed to make a purchase without volumes of unnecessary government and or local utility red tape.
Make no mistake about it - the next President has to lead the way toward renewables. The US cannot afford to have another President who is looking backwards, we need a leader (public servant, NOT politician) who is FORWARD looking, has a well thought out PLAN and the guts to do what is right.
10. OK Peter ... thanks for the great information. Do you have a rundown on a few of the companies that are working in the fields you talk about here?
There are a number of very interesting companies in the solar sector and the number is growing. This is a dramatic change from only 2 or 3 years ago. However, an investor must keep in mind that this is really only the very beginning of the boom in solar stocks and actually just the beginning of the whole renewable industry. As a result, there will be above average volatility in many of these newly public stocks and the risk (and potential return) will also be higher.
I think that two of the key things that I look for in a solar company are:
Looking at current public companies there are a few that look interesting to me and I think are worth following. All of them are strong financially, so I will just focus on what I think differentiates them
Differentiation: technology agnostic
Conergy is unique in that it is the only large solar company that is horizontally diversified across all renewable technologies - wind, biomass, photovoltaics, CSP and solar thermal. They are really technology agnostic, and in a emerging industry that may not be a bad way to play a sector with enormous technology breakthroughs possible.
Differentiation: Low cost thin film "pure play"
First Solar is the first of the "pure play" Thin Film companies to become a public company. I am sure there will be others to follow, but at the moment, First Solar is the first and only. It is the lowest cost producer at the module level and, at the moment, it would have to be classified as "best of breed" in the next generation of PV technology.
Differentiation: Vertically diversified with silicon and thin film development
Q-Cells is a technology leader and is well diversified vertically with ownership in REC. It has also undertaken partnerships and development projects in all of the current Thin Film areas of development. It appears to be leaving nothing to chance and is making sure that it has its hands in every pie. I think this is a sound strategy, especially considering the early stage of development of this industry.
Differentiation: Highest efficiency product - product of choice for residential market
SunPower has the highest efficiency product at the module level and is focused on maintaining its leadership position.
There are a number of other companies that are certainly worthy of investor scrutiny, however, for the purposes of this article the 4 examples above will illustrate my point about the need for a differentiating characteristic in a rapidly emerging industry.
As a note of caution, the majority of the stocks in the solar industry have had VERY powerful advances in the past 2 to 3 months. Many of them are very overextended, in my opinion, and unless one is a very aggressive investor, with a high risk tolerance, I would not commit any new funds to solar stocks at this time, but would wait for the inevitable pullback to price levels that are more realistic.
We are in a high risk general market with a very "hot" sector that is overbought. As I said earlier, it is only the beginning for this new and exciting industry. But at this time, I would exercise caution, research into details and a bit of good old fashion patience, until the industry corrects and comes back down to more realistic valuation levels.
J. Peter Lynch has worked, for 30 years as a Wall Street analyst, an independent equity analyst and private investor, and a merchant banker in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this area. He is currently a financial and technology consultant to a number of companies. He can be reached via e-mail at Solarjpl@aol.com.