Technology Review, my favorite science publication, gave us last week a wrap-up of the year in energy. It’s a recap of the main energy-related stories the magazine published in 2007, and is well-worth a read if you want to start 2008 up-to-date on where the science is on most issues of relevance to alt energy investors. On Monday, Jerome Ball at Alternative Energy Trading argued that the solar PV industry would veer into oversupply in 2008. This is one of the most cogent analysis of the solar PV market I have read in a while, and it takes a somewhat contrarian view – what’s not to like! I’m entirely out of solar PV at the moment simply because last time I had cash on hand and was looking for PV stocks, I couldn’t find what to me seemed like good value. On a related note, on the VC front, Rob Day’s Cleantech Investing Readers’ Survey (Part II) revealed that many folks out there feel like solar may be exhibiting signs of bubblishness. Will solar PV be the great bear story of 2008? On Wednesday, Dan Lewis at AEI told us which were the best and worst returning alternative energy stocks in 2007. Ignore the non-US securities and an unsurprising picture emerges: the vast majority of top performers are solar stocks (many of them Chinese listed in the US) and most of the dogs are ethanol stocks. Unsurprising as it is, this picture is still worth a thousand words. Tom argued some time ago that the correction in ethanol stocks may have been overdone, and Jerome Ball (see above) recently argued that the solar bull may be running out of steam. Might 2008 be a good time to start looking at some of the ethanol stocks again? On Wednesday, Sebastian Blanco at AutoblogGreen told us that new CAFE requirements had helped turn Detroit’s eye back to diesels. Interestingly, while arguments are raging within the cleantech community over whether biofuels or electric powertrains will emerge as the dominant choice for road transportation in North America, diesel may quietly be staging a comeback. While both biofuels and electric cars are years away at best from seriously threatening the dominance of gasoline here, diesel could emerge as a contender sooner rather than later, as evidenced by its prominence at this year’s Detroit Auto Show. Purists will certainly say diesel isn’t ‘clean’, but one would be hard-pressed to argue that ethanol is. Moreover, I’ve always favored evolutions over revolutions, especially when it comes to my portfolio. So, could 2008 be the year to start looking for auto part makers with exposure to diesel? On Thursday, the Biopact Team told us that investments in renewables broke the $100 billion barrier in 2007. It’s a nicely-done overview of a recent study (PDF document) by New Energy Finance on alternative energy investment flows in 2007. On the public market side, the Iberdrola Renovables IPO was unmistakably the deal of the year. The interesting thing about this whole cleantech story is that it’s been occurring in concurrence with a very strong bull market in North American equities, often blurring the line between good investment and good market. If 2008 turns out to be the difficult year that many expect it will be for equity markets, we could see the first real round of shake-outs in the short history of cleantech as an asset class, where many of the weaker players either fold because they can’t raise money or get gobbled up. As pointed out by Rob Day in his Cleantech Investing Readers’ Survey (Part I), successful VC exits in the cleantech space have been few and far between thus far, and a bad year in equity markets could compound this problem.
Below is my reply to Jerome Ball’s analysis:
I am not sure one can make any rational prediction about the solar industry (PV or CSP) in 2008-2010 without discussing several macro considerations:
Peak Oil – Many experts think that that phrase will replace Global Warming by the end of 2008. The price of oil will continue to soar. According to Boone Pickens, we are already past Peak;
Democrats in control of Congress & White House – The Oil Cartel administration will be thoroughly repudiated, and environmental concerns will finally move to the political forefront;
The 2008 Summer Olympics – As the World sees in High Definition all the trouble China has with its pollution — needing to shut down industry for weeks before to keep the athletes from gagging — all those nice Suntech solar panels on the roof of the stadium are going to get a lot of attention.
Bottom line, there is a Perfect Storm forming in the World Energy Paradigm in 2008-2010, and there will not be an over-supply of solar (either PV or CSP) in your lifetime.
As far as I can tell, Jerome Ball’s analysis does take the most critical macro factor into account; namely the size of the PV market in 2008. I am fully in agreement with you that in the long-run, solar holds tremendous potential. My intent is to point out that solar PV is on a year-long bull run that could temporarily run out of steam. I believe solar PV investors should be careful in ’08, but the market may prove me wrong. I suppose we’ll have to reassess a year from now.