If you Hate Money, Don’t Invest in Solar!
It took the solar industry forty years to reach a cumulative global capacity of 100 gigawatts …
By 2020, more than 100 gigawatts will be installed in a single year!
According to a new report from the good folks over at Greentech Media, the solar industry will install a mind-blowing 135 gigawatts of solar PV projects all across the globe in less than five years. This will push the cumulative market to nearly 700 gigawatts – or about the size of all the electrical generating capacity in Europe today.
And consider the following estimates:
- 55 gigawatts in 2015. This represents 36% y/y growth.
- Emerging markets will account for 17% of growth of the next 5 years. Historically, they’ve accounted for only about one percent.
- By 2020, 45% of total solar PV demand will come from just three countries – China, Japan and the U.S.
Admittedly, I still see China as a potential wild card based on the fact that if China’s economy implodes – which is not only possible, but probable – there will be significant solar market contraction as China is not only a major producer, but consumer, too.
This is why, as I’ve explained before, I’m trying to limit our exposure to China solar stocks.
On the flip side, however, U.S. solar manufacturers and developers can only continue to get stronger. If you want exposure to the solar space, Sunpower (NASDAQ: SPWR), First Solar (NASDAQ: FSLR), or SunEdison (NYSE: SUNE) should definitely be a part of your portfolio.
All three, by the way, should also get a very nice bump if a select group of lawmakers in California get their way.
No Subsidies Needed
The California Senate recently passed a new bill that, if signed into law, would require the Golden State to get 50 percent of its electricity from renewables by 2030.
It wasn’t long ago when California upped its renewable energy mandate from 20 percent by 2020 to 33% by 2020. Now here we are today looking at the possibility of a 50% renewable energy portfolio.
On the surface, it seems quite aggressive. And in all fairness, right now, it is. But in another few years, costs will fall so low, solar will actually be the most cost competitive source of electricity in California. And that’s without subsidies.
Of course, it seems like every day the need for additional subsidies dwindles, anyway.
Solar superstar and founder of SunEdison, Jigar Shah, has been quite vocal on this issue, insisting that if we phase out the solar tax credits and other solar subsidies in mature markets, the result will be more robust growth.
Check it out …
As the Founder of the largest solar services provider, SunEdison, I had a hand in putting in place subsidies so that we could reduce costs through scale in local markets. This strategy has resulted in an average system cost reduction of over 50% since 2008.
But today, solar subsidies in maturing markets like the United States are actually holding us back, not propelling us forward. In fact, Germany has hit an all time high for solar capacity with 30-gigawatts peak (GWp) of solar power installed. Germany has done this by installing solar at far cheaper prices than we are in the United States. That is because solar subsidies are manipulated by investors like me to maximize our returns. The truth is that installers in the United States can, and do, install solar at roughly the same cost as German installers – save for some increased soft costs. If we want to reach higher growth, we need to phase out the solar tax credits and other solar subsidies in mature markets and watch the price of solar fall.
And just the other day, First Solar CEO, Jim Hughes, actually called the expiration of the solar investment tax credit “irrelevant,” saying …
Within 18 months, we will overcome the cost delta resulting from the drop [of the ITC] from 30 percent to 10 percent. It actually opens up new markets, in our opinion, because you’ll see an increased interest in utility generation once the distortion of the ITC is behind us.
Hughes also made an important point that I’ve been making for years …
The growth in corporates interested in direct acquisition of photovoltaic power is not driven by climate change concerns it’s driven by economics. When you look at data centers, when you look at electricity-intensive industries, they are all interested in locking in a significant cost as a fixed cost rather than a commodity-priced variable cost and that’s driving a whole lot of procurement on a global basis.
So here we are, looking at a global market that’s growing incredibly rapidly, and even in the absence of direct subsidies, will continue to break records.
When it comes to energy investing, there is simply no greater growth opportunity than solar.