Solar power has never been cheaper.
Prices for distributed solar photovoltaic (PV) systems installed atop residences declined by 5% in 2015. Prices for smaller nonresidential systems fell by 7%, and they were down 9% for larger nonresidential systems.1 Utility-scale systems were 12% cheaper in 2015 than they were in 2014.2
That’s according to two separate reports from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory released in late August.
And early numbers for the first half of 2016 indicate prices are still falling in most markets.
But when we discuss solar power, it’s still mostly all about potential.
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Consider that in 2013, the world’s total final energy consumption, based on numbers compiled by the U.S. Energy Information Administration, was 549.3 quadrillion British thermal units (Btu) in 2012, equal to about 580 exajoules (XJ).3
Now think about the fact that the theoretical potential, based on calculations made by Sandia National Laboratories, of solar power “represents more energy striking the Earth’s surface in about 1½ hours than worldwide energy consumption in 2001 from all sources combined.”
Further, over the course of about five days, the planet is struck by an amount of solar energy equal to all the energy stored in the Earth’s proved reserves of oil, coal and natural gas.4
As Peter Diamandis of SingularityHub notes: “If humanity could capture one part in 1,000 (1/10th of 1%) of the solar energy striking the Earth — just one part in 1,000 — we could have access to six times as much energy as we consume in all forms today.”5
Solar is — far and away — the highest-potential source of renewable energy. And it will likely be a critical part of efforts by the U.S. and China — the world’s two biggest emitters of carbon dioxide blamed by an overwhelming consensus of scientists for climate change — to meet their respective goals under the Paris Agreement.
But it remains a volatile short-term investment despite the vast possibilities for its long-term impact.
Most of the recent market trouble is the result of rapid capacity expansion by makers of PV panels and other equipment, with lower costs on one hand bringing grief to investors on the other.
Over the past year, the Guggenheim Solar ETF (TAN) is down 26.6%, roughly tracking the 28.8% decline for the MAC Global Solar Energy Index it’s designed to follow.
It’s not much better for the Market Vectors Solar Energy (KWT), which is off 23.7% over the trailing 12 months.
As for individual companies, SunEdison Inc. (SUNEQ) filed for bankruptcy in April 2016 and is basically worthless.
SolarCity Corp. (SCTY) is down 61.8%, while SunPower Corp. (SPWR) has shed 54.3%.
The brightest star in the domestic space is First Solar Inc. (FSLR), with a loss of just 16.5%.
Hong Kong-based GCL-Poly Energy Holdings Ltd. (GCPEF) and Xinyi Solar Holdings Ltd. (Hong Kong: 0968) have fared much better, with a loss of 3.2% and a gain of 31.2%, respectively.
China-based Trina Solar Ltd. (TSL), JA Solar Holdings Ltd. (JASO), and JinkoSolar Holding Co. Ltd. (JKS) are still enjoying the Middle Kingdom’s massive build-out of solar capacity, though their efforts to ramp up production of PV panels are only adding to what’s already a global glut.
The Chinese solar market has, thus far, enjoyed the fruits of the Communist Party of China’s 13th Five-Year Plan. That plan included a goal to increase solar capacity by 15–20% per year through 2020, which would more than triple China’s overall solar capacity, to 143 gigawatts.6
Already the world’s leading solar power market, China has 43.2 GW of capacity. Germany is No. 2, with 38.4 GW, and the U.S. is third, with 27.8 GW.7
Utility-scale solar — which in recent years has accounted for nearly two-thirds of overall capital investment8 — is getting closer and closer to cost parity with conventional forms of electricity generation.
And in time, we may even live to experience the “post-scarcity” utopias imagined by contributors to the Star Trek universe, where energy is free, a human right essential to progress.
In the meantime, there will be many ups and many downs. If you have the stomach for a lot of volatility, the payoff should be substantial.
Get Smart
One of our favorite concepts around these parts is making “old things new.” In fact, we devote a segment to that idea every Friday.
Today, I’d like to point you in the direction, as I often do, of a post by Shane Parrish at his indispensable blog FarnamStreet.com. It’s about Isaac Watts, a writer known for Christian hymns including “Joy to the World.”
He was also a big influence on another great mind, Michael Faraday, who was instrumental in establishing what we now know as the scientific method.
Watts was a well-educated Nonconformist (in the religious sense, not the modern one) who, along with his hymn writing, published a number of books on logic, science and the learning process, at a time when these concepts were only just starting to grab hold as a dominant ideology, replacing the central role of religious teaching.
Watts’ book The Improvement of the Mind was an important contribution to the growing body of work emphasizing the importance of critical thinking and rational, balanced inquiry, rather than adhering to centuries of dogma. If, as Alfred North Whitehead once pronounced, modernity’s progress was due to the “invention of the method of invention,” Watts and his books (which became textbooks in English schools, including Oxford) can easily be credited with helping push the world along.
Because “sometimes we forget how useful the old wisdom can be.”
Smart Investing,
David Dittman
Editorial Director, Wall Street Daily
1 Lawrence Berkeley National Laboratory, August 2016
2 Lawrence Berkeley National Laboratory, August 2016
3 U.S. Energy Information Administration (EIA)
4 BP Statistical Review of World Energy, June 2016
5 Peter Diamandis, “3 Big Trends Shaking Up the Energy Industry.”
7 Richard Martin, “China Is on an Epic Solar Power Binge.”
8 Solar Energy Industries Association
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