Solar energy is one of the greatest investing opportunities of
our generation with well over a trillion dollars in annual market
potential around the world. But with all that potential comes
tremendous risk, particularly as new technologies emerge.
Over the past decade, we've seen solar technologies rise and
fall and companies have risen and fallen along with them. Now
that this industry is competing with fossil fuels on a cost per
kW-hr basis it's important to look at what technologies dominate
the industry and what investors should be betting on in the
Massive solar farms like this one from SunPower are now
competitive with other energy sources on the grid, opening up a
huge opportunity for the solar industry. Source: SunPower.
Silicon solar, the leader in the clubhouse
The vast majority of solar panels today are made using silicon
semiconductor technology. At its core, this technology has been
around for decades, it just hasn't been efficient or cheap enough
to be economically viable versus the grid. But that's changed in
the last few years as panel prices have plummeted below $1 per
Inside a silicon solar cell the sun's energy excites the
semiconductor, knocking an electron loose. If properly built, a
cell then captures that electron and turns it into a voltage
potential and electric current.
Solar cells like this one make up around 90% of all solar
panels produced each year. Source: U.S. Department of
There are three main types of solar cells made from silicon:
multi-crystalline, mono-crystalline, and mono-crystalline back
- Multi-crystalline: The lowest cost and lowest efficiency
silicon solar cell. This is currently the most common solar
cell in the world, made by Yingli Green Energy, Trina Solar,
Canadian Solar, and many others. The panels are fairly standard
between suppliers and they use similar equipment to make
panels. Cost leaders are approaching $0.50 per watt and
efficiencies average 14%-16% for a solar panel.
- Mono-crystalline: Silicon that is in a more pure form is
used to make mono-crystalline solar panels, which are growing
in popularity because they provide higher efficiency and lower
cost per hW-hr of energy. Panels made with this technology are
typically more expensive than multi-crystalline cells but they
typically make panels that are 15%-18% efficient.
- Mono-crystalline back contact: High end solar panels are
made using a contact on the back side of the panel, which
reduce shading, improves connection between cells, and improves
is the leading manufacturer of mono-crystalline back contact
solar cells, producing panels that are up to 21.5% efficient.
These are the most difficult silicon solar panels to produce,
but Trina Solar and others are putting effort into
manufacturing this technology.
SunPower's back contact construction makes a more efficient
and visually appealing panel. Source: SunPower.
There haven't been any major step change advancements in
silicon solar, even in the past decade, but the cost of the
technology has been reduced to a level that's now economically
viable. This is a technology that has and will continue to see
incremental gains in both cost and efficiency in coming years,
which manufacturers are betting will keep it ahead of other
Thin-film solar cells
Five years ago, thin-film solar technology was supposed to be the
future of the industry. Cadmium telluride, or CdTe, was the
lowest cost technology per watt and Cadmium indium gallium
selenide, or CIGS, was even higher efficiency with promising cost
cutting plans. But neither really lived up to expectations and
is the only major manufacturer who uses thin-film technology
CdTe and CIGS technology proved too difficult for most
companies to commercialize and today even First Solar's industry
leading efficiency of 14% isn't competitive with silicon panels
in anything but very large scale power plants.
Thin-film solar isn't dead, but it's on life support in the
future of solar.
Concentrated solar thermal power
One of the oldest technologies for solar on a utility scale basis
is concentrated solar power. For more than two decades the 354
megawatt Solar Energy Generating Systems, or SEGS, in Southern
California was the largest solar-power system in the world.
Ivanpah Solar Power Facility's 3 power towers seen in the
distance. Source: Ivanpah.
Ivanpah Solar Power Facility is the latest to hit the grid in
the U.S., gaining some attention for allegedly frying birds with
intense solar rays near its power towers. But while this
technology was viable as recently as a few years ago, its costs
are now out of line with the market. Ivanpah cost $2.2 billion
for a 392 megawatt facility, which is $5.61 per watt, about
triple what it costs to build a silicon or thin-film solar
Solar thermal power may grab the attention of some in the
media, but it's all but dead in the solar industry because costs
are too high.
In solar, there are always new technologies popping up. Amorphous
silicon, CIGS, and CdTe solar cells have all been the future of
solar at one point and one by one have flamed out.
One technology that has garnered a lot of attention this week
transparent solar collector
that could be incorporated into window glass or cover screens for
smartphones or tablets. This is another example of incredibly
cool technology that's probably not going to be commercially
viable anytime soon. Laboratory efficiencies are only about 1%,
1/20th of leading solar panels, and there's no telling how much
these clear solar collectors will cost.
New solar technologies can make for great headlines but
investors need to be wary of putting too much stock in their
future. Until something proves to be economically viable the best
bets are technologies that are tried and true in the field.
Workers build a utility scale solar project for First Solar,
one of the most profitable companies in solar. Source: First
How investors should view solar
As investors, the challenge is finding ways to make money on
solar without taking too much risk at the same time.
With new products popping up every week how should investors
look at the solar energy industry? Here are four keys I've
developed after years of covering the industry.
1. Make manufacturers prove it!
Winning the press release battle is great for headlines but a
"hero cell" made in a laboratory is not the same as a cell made
on a production line, just like promising a certain cell
efficiency or cost structure in a presentation doesn't mean you
can do it in real life.
In today's solar market there are many manufacturers who make
competitive solar panels that are cost effective. Start with
companies who have a track record of building panels and selling
them for a profit before putting your faith in a company making
big promises. Solyndra was supposed to be the next big thing, and
remember how those promises turned out?
2. Bet on cost reductions over technology
If there's one lesson I've learned the hard way over the past
decade following the solar industry it's that you don't want to
bet against cost reductions. Efficiencies may improve
incrementally and at unpredictable times but costs are coming
down across the board and faster than most of us could have
Rooftop solar is now a growing part of the industry. Source:
To see just how much I've learned, look at this article from
over three years ago
where I predicted that thin-film solar
(particularly CIGS) would be the winning technology long-term
. Boy was I wrong, but I learned my lesson and now I'm betting on
companies with efficiency leads and room to cut costs instead of
the other way around.
3. Understand the risk a company is taking.
Research and development in solar can be a black box to
investors. Companies tout eye-popping cell efficiencies in press
releases only to see actual module production fall well short of
their advertised values. So, understanding what risks you're
taking in a company's R&D is important.
For example, when SunPower makes claims it can incrementally
improve its cell efficiency with a new manufacturing process,
it's a low risk bet and something the company has done year after
year. On the other hand, when First Solar bought TetraSun or
bought Silevo, both unproven solar manufacturers, and made
grandiose claims about the efficiency and cost of panels they'll
be able to make, it's a much higher risk investment.
Even further up the risk scale is laboratory research coming
out of universities around the world. These are incredibly
interesting technologies but they have a very low chance of
seeing the light of day as a commercially viable product.
The bigger the challenge a company is taking on, the lower the
likelihood they'll succeed. Keep that in mind when looking at
4. Remember the bottom line.
Putting solar cells on your windows or being able to use the
sun's power at night with energy storage are great concepts for
the solar industry, but if they're not economically viable
they'll never survive as long-term businesses.
The bottom line in solar today is cost per kW-hr of energy.
That's the price solar energy is competing with on the grid and
it's the way utilities, consumers, and investors should judge the
companies and technology they're looking at.
Few companies give explicit costs per watt but one way to see
how competitive a company is versus traditional energy is to look
at their gross margin. High gross margins mean they make a
product that can command a high price in a competitive industry,
and low gross margins mean they're less competitive.
A massive opportunity with big risks
The solar industry has literally trillions of dollars in
potential but with that potential comes risk. Dozens of solar
companies have gone bankrupt in the last five years trying to
chase the solar dream, so investors need to be cautious about
where they're putting their money.
If you use the information I've outlined above you'll be on
your way to building a profitable solar portfolio. And I'll be
here on fool.com with updates for you anytime there's a
development investors need to know about in solar.
Uncle Sam wants you to buy energy stocks
You already know record oil and natural gas production is
changing the lives of millions of Americans. But what you
probably haven't heard is that the IRS is encouraging investors
to support our growing energy renaissance, offering you a tax
loophole to invest in some of America's greatest energy
companies. Take advantage of this profitable opportunity by
grabbing your brand-new special report, "
The IRS Is Daring You to Make This Investment
," and you'll learn about the simple strategy to take
advantage of a little-known IRS rule. Don't miss out
on advice that could help you cut taxes for decades
to learn more.
What You Need to Know Before You Invest in Solar
originally appeared on Fool.com.
manages an account that owns shares of SunPower and is
personally long shares and options of SunPower. The Motley Fool
recommends SolarCity. The Motley Fool owns shares of SolarCity.
Try any of our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a