Solar Energy: A Bright Spot In The Alternative Energy Sector

Flying home from our conference in Victoria, and looking out thewindow of the airplane taking me home, I begin to understand the vastopportunity we have by looking over the rooftops of homes and businessparks alike.

The thought that jumps to mind is that solar power isn’t going to be “alternative energy” for much longer.

In spite of the current economic malaise and market downturn we’renavigating through, solar energy is one of the few bright spots (punintended) in the alternative energy space.

The reason?

  • Continued advances in solar panel technology are resulting in cheaper, more efficient panels.
  • Government subsidies at both the state and federal levels aremaking the installation of residential solar more compelling than ever.

Here’s why solar is looking brighter by the day, and a major retailer that could change everything.

The Solar Energy Industry’s Solar Cell Production

For the past few years, the solar powerindustry has been capacity constrained by the lack of polysilicon, thebasic foundation on which chemicals are deposited to produce the solarcells used in panels.

But as in other areas of the semiconductor industry, technologymarches on. The newest panels are based on thin-film technology, anddon’t require polysilicon. No fewer than 143 companies are involved insome aspect of thin-film panel technology.

Thin-film is fast becoming the new standard in panel technology, andin a few years will render polysilicon panels obsolete. Right now,thin-film panels are averaging about $1.40 per watt, but that numberwill be halved in a year or two.

That alone will make thin-film panels competitive with theirpolysilicon predecessors, but panel efficiencies – currently around 9%- are rising, and will likely reach 18-20% in the next few years.

Combined, decreasing costs and increasing efficiencies will soon make solar panels the cheapest power source on the planet.

Like everything else, economics will ultimately drive the solarpanel industry, just like it has in the computer industry. And one ofthe greatest modern companies to exploit economics of scale is gettinginto the act.

Wal-Mart’s Solar Energy Experiment

Wal-Mart Stores (NYSE: WMT)is already evaluating the feasibility of installing solar energy panelson the roofs of its stores. Consider it “dipping a toe” in the water tocheck its temperature.

  • If an experiment involving a few stores pans out, Walmart coulddecide to roll out panels to all of its stores. That’s about 35 squaremiles of surface area.
  • Using a very conservative figure of around 3 watts per square foot,Walmart could realistically expect to produce in the neighborhood of 3Gigawatts of power.
  • That would make the low-cost retailer one of the largest power producers in the country.

Now replicate that scenario on every warehouse, and big box store inthe country, and you begin to get the idea that solar energy couldreasonably provide a significant percentage of the power we use,especially during peak usage times.

Storage when the sun isn’t shining is certainly an issue, butscientists and engineers are already designing load-shifting storagesystems that will provide power during times of darkness or on cloudydays.

The entire sector recently got a boost when SunPower Corporation (Nasdaq: SPRWA) announced earnings and blew away analysts estimates.

If Wal-Mart does forcefully enter the solar space, we’re going tosee it use its tremendous pricing power to lower the cost of solarenergy and gain mass production. The kinds of things only a company ofthat size and negotiating power can do.

And when that happens, consumers everywhere will be jumping aboard.

Investors who want exposure to the sector should view marketpullbacks as opportunities to establish small positions in theirfavorite solar stocks.

Good investing,

Dave Fessler

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