The Future of the Solar Energy Industry
Renewable Energy Stocks (Renewableenergystocks.com) Interview with Solar and Renewable Energy Expert, J. Peter Lynch
POINT ROBERTS, Wash., Delta B.C., August 27, 2007 - www.InvestorIdeas.com, a leading global investor and industry research resource portal specialized in sector investing news, stock directories and research links, presents an interview on the future of the solar energy industry with solar expert and regular columnist at Investor Ideas, J. Peter Lynch.
Since the renewable sector of the market has been so “hot” this year, as well as volatile, InvestorIdeas.com speaks with resident solar expert, Peter Lynch for insight into the industry, where it is and where it is headed. Dawn Van Zant (DVZ), on behalf of InvestorIdeas.com discusses Photovoltaics with Mr. Lynch.
J. Peter Lynch has worked, for 30 years as a Wall Street analyst, an independent equity analyst and a private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is considered to be an expert in this area.
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DVZ: What are your thoughts on the growth of the Photovoltaics (PV) market over the next few years?
J. Peter Lynch: The PV industry finished 2005 with a capacity of 1.7 gigawatts (GW) (a gigawatt = a billion) and 2006 numbers came in at 2.5GW. This is amazing growth (45%+) 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 as high as 9 to 10GW by the end of 2010, possibly higher if certain external events occur such as: heightened consumer awareness of solar and its benefits in the U.S., a new President is elected who is rational and cares about future generations, increased awareness of global warming, price of oil continues to rise, carbon taxes are implemented or any one of numerous possible oil supply disruptions occur.
DVZ: How do you see the breakdown of products in the market between silicon and thin film products?
J. Peter Lynch: Currently silicon comprises the vast majority of the PV 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 20 to 25% of the market in 2010 or 2011.
Also depending on how fast the price of PV drops, it could positively affect the growth of thin film technologies relative to silicon. Thin Film cost of production is inherently lower than silicon, so as the price in the market drops, the thin film companies will be able to better maintain margins and profits.
DVZ: Will there be a single “winner” in the PV technology race?
J. Peter Lynch: 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 will be the choice 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. There is still plenty of room for all current technologies to make a place for themselves.
DVZ: How about a single “winner” in the Renewable Energy industry as a whole?
J. Peter Lynch: Once Again, I do not think so.
I see it evolving into more of a portfolio approach, where each technology – PV, Wind, Hybrid and Plug-In Cars, Biomass, Ocean Power, Solar Thermal, Concentrating Solar Power (CSP), Energy Efficiency, 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. No one technology would be able to supply a significant amount, so they will all have to contribute.
In reality, we will all be “WINNERS” when renewable energy replaces our outdated and dangerous fossil fuel economies. Renewable technologies are the ONLY ANSWER to safely addressing both the energy and climate change problems. The only real question is whether or not we as a species will “wake up” soon enough to avoid considerable worldwide chaos as a result of continued use of polluting fossil fuels.
DVZ: How do you see future PV cost reductions unfolding?
J. Peter Lynch: 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, higher efficiencies and from manufacturing efficiencies of scale. All of which are being worked on worldwide.
Longer term since silicon is one of the most abundant elements on Earth, it will not have major feedstock supply problems. It could eventually maintain its dominance simply by cost reductions as a result of scale up of manufacturing facilities. 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 complete with grid prices.
Thin Films – Second generation
Three thin films currently under development – amorphous silicon (aSi), cadmium telluride (CdTe) 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.
Only aSi and CdTe have commercially viable products at this time. CIGS is still in the pre-commercial stage, but making rapid progress.
Each has its own advantages and disadvantages.
The real key point is that 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 are 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 to 10 years away
DVZ: Everyone seems to be asking how far does the cost of PV have to drop to make it truly competitive with grid power? What are you thoughts on this?
J. Peter Lynch : First of all, there are two components involved in arriving at the answer. First is the cost of PV dropping and the second is the cost of fossil fuels rising and making the equilibrium target level lower.
Just in terms of PV’s price coming down, the price of PV does NOT have to drop that far. In the US the average price of PV is approximately $8.00 per watt installed and in Japan it is as low as $5.50 per watt. I think it needs to drop to approximately $4.00 per watt installed (without any subsidies) to be relatively comparable, assuming the price of alternatives stays approximately the same offer the next 3 to 5 years, which is unlikely. To put it in a more understandable terms, if you could get a PV system installed on your home for $4.00 per watt (which you can today WITH subsidies) it is the equivalent to buying your electrical power for the next 30 years at a guaranteed price of approximately 15 cents per kilo watt hour (kwhr). That is a no-brainer if you understand the current national electrical system and where the prices are going in the future (higher). That number would make PV competitive in almost 75% of the US now and 100% of the US in 3 to 5 years.
DVZ: Are there any other “wildcards” that could alter the growth of the industry?
J. Peter Lynch : Yes definitely. A very large “wildcard” is looming.
The PV industry has been driven initially by Japan at first and now mostly by Germany. To date, the U.S. has really been the “sleeping giant” of solar, especially at the federal level. The U.S. has more than TWICE the amount of solar isolation as Germany and is 3.5 times larger in population. Once the U.S. “wakes” up, the demand curves in the industry are going to go vertical and all of the current projections are going to be FAR to low. That “waking up” point is not that far into the future. In my opinion, this will happen in no more than 2 to 3 years.
DVZ: What has been the key to the industries recent dramatic growth?
J. Peter Lynch : The current Feed in Tariff (FIT) legislation in Germany.
DVZ: What is a Feed in Tariff?
J. Peter Lynch : A FIT is a very simple piece of legislation, which puts a legal obligation on utility companies to buy electricity from renewable energy producers at a premium rate, over a guaranteed period. The extra cost is shared among all energy users, thereby reducing it to a level that is quite small.
In Germany it has been tremendously successful and has only “cost” the average rate-payer around $1.50 euros ($2 dollars) per household per month or 7 cents per day.
In addition to this tiny additional amount of money, it has dramatically reduced emissions, improved air quality and created over 200,000 jobs.
If you were to calculate the actual cost of this FIT program and you were to use ALL THE COSTS, including avoided costs you would see that the program paid back in the same year and actually had a net plus for the year. In fact, studies have shown that the FIT has actually saved approximately $5.40 euros worth of environmental damage per household - for a cost of $1.50 euros. Now that is a great deal.
DVZ: What about subsidies? I hear a lot of people talk that solar is subsidized, so it is not a “real” business.
J. Peter Lynch : I have been hearing about these “subsidies” for 30 years and it is truly amazing that the whole truth is NEVER told. Yes, there are solar subsidies that have been necessary for the industry to grow. However, what is never really highlighted is the fact that the energy marketplace is FAR from a level play field. If you are going to compare apples to apples, then you have to also look at what the competitive technology’s (oil, gas, coal and nuclear) are getting in subsidies.
So here are the numbers – you tell me why solar is “more expensive”!
The current total worldwide ANNUAL subsidies for fossil fuel and nuclear energy is approximately $500 BILLION. Renewables have been subsidized to a TOTAL of approximately $50 BILLION over the last 20 years or $2.5 BILLION per year on average.
Any product would be MORE expensive if all its competitors were getting 200 times more subsidies per year. What we all pay for fossil fuels is merely the current “price” not the real “cost”. It does NOT reflect ALL the true costs (global warming, pollution, resultant health problems etc.) of utilizing these fuels.
DVZ: Do you see any potential for a truly “disruptive” technology impacting the PV industry?
J. Peter Lynch : 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 in the application of nano-technology to the area of photovoltaics. It is still too early to really be sure, but that would be my “best guess” at this point in time.
DVZ: Any more insight you would like to share in this area of potential really big future winners?
J. Peter Lynch: No. Not yet.
I am keeping this a secret!...
DVZ: Can the PV market and those installers and dealers that rely on it growth, survive on it's own without government subsidies?
J. Peter Lynch: The industry needs Government and it needs leaders to really grow at the speed that is necessary to allow renewables to effectively address the climate change problem and the coming peak oil problem.
Unfortunately the industry is getting NONE of that from Washington, whose involvement to date has been pathetic to be polite and actively counter productive, unpatriotic and dishonest to be realistic.
However, the individual 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 ingredients 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.
Common Sense. Sounds crazy, but “politics as usual” has absolutely NO relation to good old, common sense.
Leaders with the courage of their convictions and ability to face reality and tell the American people the truth about the problems we face and the frightening magnitude of these problems.
Accurate calculation and inclusion of ALL the costs (direct, indirect and avoided) for all competing sources of energy, both renewable and fossil fuel based so that we can accurately assess the TRUE COST of each alternative.
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 as well as a home value enhancer; therefore it has less inherent “risk” and should be assigned a lower interest rate to reflect this fact.
Appropriate changes to the energy industry to encourage beneficial behavior, rather than adversarial behavior.
For example: “de-coupling” of utility rates from the current industry standard – the more power the utility sells the more money it makes, therefore making them the natural enemy of saving energy, to incentives for the utility making more money as they save their customers more money.
DVZ: 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?
J. Peter Lynch : YES. I think it will translate into consumers spending more money on green technologies and unfortunately, there will also be unaware consumers still demanding their SUV’s.
I think the tide is clearly shifting to the “green path”
I think the critical thing that is needed is EDUCATION and raising the awareness level of the average American, so that they are well informed of the insane and ultimately fatal energy path we are currently on. 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.
As H.G Wells once said “Human history becomes more and more a race between education and catastrophe”.
Consumers want green. All they need is to be pointed in the right direction, told the true (the WHOLE TRUTH and ALL the REAL costs) 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 renewable energy. The U.S. (and the world) cannot afford to have another President who is looking backwards and serving the current energy infrastructure, rather than the American people. 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.
The problems facing us are large, but the answer is very clear, in fact, it rises in the eastern sky EVERY morning.
The future of the solar industry is indeed, very bright. It has to grow and expand rapidly, we have no other choice. If this happens it will be the best of all worlds - good for investors, good for the planet and good for the every person living on the earth today and all future generations.
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By Peter Lynch
Exclusively for InvestorIdeas.com
April 02, 2007