The Real Story Behind Solar Energy in 2010

By Money Morning Staff, Money Morning • December 28, 2009

By the time 2009 is in the books, the record will show that solar energy stocks endured a tough year. That's hardly a surprise, given that so many Wall Street analysts (yours truly not among them) lambasted the sector for much of the year.

Analysts also expect the carnage to continue into 2010, and are predicting losses for as many as half of the world's solar companies.

The "thought process" of a Wall Street analyst - and I use that title loosely - goes something like this:

• Analysts first suggest that a "huge" oversupply of polysilicon (the raw material used to make silicon-based panel assemblies) exists. But this is only partially true, as increasing panel sales are rapidly eating into this oversupply.
• The analysts' next miscue is over new thin-film panel technologies. They predict companies producing panels based on the new thin-film designs are doomed because the oversupply of polysilicon will keep poly-based panel prices too low for the thin-film guys to compete.

Talk about a myopic view if there ever was one. I suspect many of these analysts will be eating crow instead of turkey for Thanksgiving dinner next year.

In the meantime, allow me to outline the real story on the solar energy sector...

Note to Experts: Refill Your Glasses

Before I go any further, let me say that some solar-energy companies will lose money in 2010. Others won't make it at all. But that's normal in any competitive environment.

Now the experts need someone to refill their half-empty glasses. So I'll play the role of bartender.

The market for solar photovoltaic panels (those that produce electricity) is increasing rapidly. It certainly isn't about to replicate the 1980s, when 400 solar panel manufacturers got whittled down to just five as the market collapsed.

All the industry needs is a little change in perception.

Solar Energy Execs Sound Off

At the Solar Power International 2009 show in Anaheim, Calif. back in October, solar-energy company executives offered their opinions on the state of the industry, and how they view the next few years. It's well worth listening to these insiders, since they know more about the inner workings of the solar energy business than the analysts.

• Ron Kenedi, vice president of the Solar Energy Solutions Group at Sharp Corp. (OTC ADR: SHCAY), is very positive about 2010: "We're seeing growth in all segments of solar, starting in the last few months," he said. "We've seen growth in the residential sector and new ways for projects to be financed. Utility-scale projects are starting and even mainstream solar is starting. All segments of the solar industry are getting stronger."
• Zhengong Shi, chairman and chief executive officer of Suntech Power Holdings Co. Ltd. (NYSE ADR: STP), is so bullish about the prospects for solar in the United States that his firm is building a new manufacturing plant here. "Last year, the Spanish market was almost half of the global market. Apart from the Spanish market, all other markets grew at 50% to 100%. That's a positive sign," he said. "We're excited about the U.S. market because the new administration is positive and supports rules for renewable and solar and there is increased awareness in the general public. We see our market share continuing to gain in the U.S."

• But Jerry Wolfe, CEO of privately held groSolar, really articulated the crux of what's holding back solar from truly going mainstream. And it's not necessarily about more technological advances: "The technology is in place and improving every year," he said. "We're finding that residential and commercial buildings are less expensive (with solar panels) than (if powered only by) a utility. People don't understand that. Our biggest problem is that solar requires a cultural change and acceptance. That's our biggest hurdle."

Flipping the Solar Energy Switch

Wolfe's comments remind me of the famous - but probably apocryphal - line that was allegedly uttered by Thomas Watson Sr., chairman of International Business Machines Corp. (NYSE: IBM). Regarding the world market for the still-new electronic computer, Watson in 1943 allegedly said that "I think there is a world market for about five computers."

Clearly, the wrong people to ask about new technology are the incumbent technologists. Ask fossil fuel producers, or the utilities that use fossil fuels about solar power, and there's no question you'll get a biased view. Resistance to change and the adjustment(s) that change requires is part of human nature.

It only takes one word to sum up the one real force that is driving the solar industry, both now and in the future: Innovation. It's something that the United States has always prided itself on and that hasn't changed.

Here's the deal: One year from now, when many solar analysts are stuffed full of crow, the solar industry will still be introducing new products. And many solar companies will be well on their way to continued profitability in this promising sector of the alternative energy space.

[Editor's Note: David Fessler is an Advisory Panelist for Investment U and The Oxford Club, one of the world's most exclusive and prestigious networks of private investors. He's one of the leading experts on innovation, manufacturing and technology - with a particular emphasis on newly emerging technologies.]

News and Related Story Links:

• Solar Power International 2009:
  Official Web Site.
• Wikipedia:
  Thomas J. Watson Sr.
• Wikipedia:
  Crystalline Silicon.