From Cabot China & Emerging Markets Report, July 22, 2010
By Paul Goodwin, Editor

The solar power industry has taken some heavy punches in recent years. Just a couple of years ago, rising oil prices were pushing the cost per megawatt of fossil fuel electricity up closer and closer to parity with solar power. And generous subsidies from Germany, Italy and Spain (called feed-in tariffs) were encouraging huge expansions in silicon production capacity, which also lowered the cost of new installations.

Then the wheels came off the global economy, which put the squeeze on European economies, and the price of oil fell substantially. Stocks of solar companies, with their newly increased production capacity going begging, fell hard as prices for both silicon raw materials and assembled arrays tumbled.

But just as happened with the massive overbuild of fiberoptic cable following the bursting of the Tech Bubble, the presence of a glut of low-priced capacity created a great natural environment for growth. Underexploited resources usually don’t go begging for long.

The solar industry looks like it’s ready for the next chapter in a story that effectively began with the development of the silicon solar cell in 1954. At that time, solar cells cost more than $280 per watt of generating capacity, and conversion efficiency rates were in the low single digits. These days it’s common to find solar modules priced below $4 per watt and efficiency rates are routinely between 12% and 18%, with the world record now north of 24%.  

So what’s pushing the world toward solar these days? Well, part of the impetus comes from the resurgence of oil prices, which have now hit about $76 for a barrel of North Sea Brent Crude. Every time the price of fossil fuels increases, whether it’s oil, natural gas or coal, the parity gap between photovoltaic electricity and dinosaur power narrows.

But while commodity winds may blow hot or cold on solar cells, there are even more important reasons that governments are committing resources to support solar. These include the big, headline-grabbing oil spills like the one in the Gulf of Mexico and the smaller, but still catastrophic one in the Yellow Sea caused by the explosion of two oil pipelines near the Chinese port city of Dalian. They also include the widely accepted proposition that burning fossil fuel damages the environment and the universally accepted notion that supplies of these fuels are finite and will only increase in scarcity and price.

Though governments worldwide are under financial pressure, virtually every country has an official policy of encouraging alternative energy sources, and worldwide production of solar cells has been jumping by more than 20% per year since 2002. The Chinese government, with plenty of capital to commit, has loaned $5.3 billion to Yingli Green Energy (YGE) to expand production. And the China Development Bank announced in April that it would front $12 billion to Suntech Power (STP) and Trina Solar (TSL).  

When fully utilized, these loans will roughly double the world’s solar wafer and cell capacity! This will make China, which already contributes 43% of the world’s production of solar arrays, the dominant player in this high potential industry.

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