How viable is the solar energy business?

by Tashi Mitra

Solar energy as a viable business is crucial to the world’s energy market. The jury has been out on this question: is it possible to make money in the solar business?With oil prices at an all time low, the viability question becomes even more relevant as development related investments in the solar energy sector could dramatically reduce. The world’s dependence on fossil fuels — coal, oil, etc — over the years has resulted in an environmental degradation of an unprecedented level. Hence it is crucial that alternative energies, like wind and solar, become viable businesses.

The International Energy Agency (IEA) suggests that, “Solar power will become a viable alternative to fossil fuels – ahead of coal, hydro, nuclear, etc – within a decade”. (http://www.forbes.com/sites/paulrodgers/2014/09/30/the-rise-of-solar/#2ed3333a1b9a) Paul Rodgers, in this article, says that, “by 2050 solar will be the world’s largest source of electricity.” IEA’s pair of reports Technology Road Map- Solar, Photovoltaic Energy and Solar Thermal Electricity states that the economics of the switch will drive a 44 trillion USD investment boom. The installed cost of solar energy has dropped by 80% from USD 4 per Watt in 2008 to USD 0.8 per Watt in 2014. The IEA expects another 60% drop in solar energy cost for domestic usage and 70% for power producers.

The future of solar energy looks good, almost too good if one is to believe the IEA reports. What are reasons and drivers of this optimism? Is this validated by performance of the solar energy companies?

Solar producers today are way ahead of where they once were in terms of cost economies, power production efficiencies, and total installation costs. Michael Mcdonnald writes about Solar City, which announced that it has produced the world’s most efficient solar panel. In sunny regions such as Dubai, a long-term contract was signed recently as 5 cents per KWh: projects under construction in Brazil and Uruguay are reported at costs below 7 cents per KWh. In Germany large solar plants deliver power at 9 cents per KWh as compared to 11 cents from nuclear power. (http://www.forbes.com/site/solarpowertobecomethecheapestsourceofenergyinmanyregionsby2025)

There is evidence therefore, that the drivers of cost economies, power production efficiencies and total installation costs are moving in the right direction.

The solar market is getting stratified into market leaders separating from the pack. PWC tracked and published the PV sustainable growth index, a ranking of the largest publicly traded companies in this space. This index measures operational efficiency and financial performance with emphasis on revenue growth, working capital, EBIT percentage and debt equity ratio. Solar market leaders have integrated vertically and started commanding price premiums based on differentiated offerings. 4 companies: First Solar (US), Trino Solar (China), Trony Solar (China) and Junko Solar (China) generated 91% of the profits of the 33 companies surveyed.

Solar power costs are tumbling and solar companies are making money. This is good news for the world and while current oil prices may make the speed of the changeover slower than desired, solar power is unstoppable.

 

http://www.forbes.com/sites/toddwoody/2012/07/05/cut-the-price-of-solar-in-half-by-cutting-red-tape/#1d4e96a9380a

http://www.forbes.com/sites/paulrodgers/2014/09/30/the-rise-of-solar/#2ed3333a1b9a

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