Sea, sun and silicium
By Jürgen Janssens
The speed at which oil prices rose lately surpassed the speed of Italian convertibles. The energy created with wind and sun becomes increasingly popular – even outside our fan ventilated summer terrace. And with time passing by, Kyoto sounds more like an exotic destination, than like a mind boggling issue. Welcome to our modern world, where a soothing summer holiday smiles away the environmental and energy related pressure of the past year…
Sunny days
Whether or not the continuously evolving “Kyoto” targets are correct, is food for a debate which we are not going to start here, nor now. Developing an analysis of the future of our beloved barrels of crude oil will take way to much time as well. Since we’re already nicely settled in our summer couches, why not lean back and relax, to have a different look at all of the above?
By 2015, we need to lower our “energy exhaust” by 15%, while energy demand will roughly rise by 60%. The use of alternative energies like bio-fuel (…), biomass, solar, wind… needs to be stimulated, and we will have to become more energy efficient. Whereas this sounds like an Atlassian weight to carry, the opportunities appear more real than expected. Especially with a look on sun and wind energy.
On the macro level, the message is clear: very “solar” days ahead.
Financially, the democratisation of prices for solar power has already started. Technologically speaking, the efficiency limit of 10% for photovoltaic plates is shifting. And although politically most evolutions are driven by attempts to gain some digits in pop-polls, many countries are offering subsidies for private and corporate use. No wonder that big capital is jumping in. Obviously, many companies globally have suffered lately. But the Chinese Suntech Power giant, still strongly dominates the market…
On the micro level, this futuristically looking photovoltaic technology niche is extremely easy to summarise: all the different variants are namely made of the same main component, Silicon (Silicium). Nothing more, nothing less.
Obviously, alternatives are under development. But none of them is able to counter the current generation, yet. The use of a totally different technology is far from being completely developed, nor widely spread. Products using less silicon do exist…but this totally kills the efficiency, which brings us back to our initial statement: silicon rules. Silicon, which plays also an important role… in the semi-conductors industry, indeed.
Safety cushions
What’s more in the game? Two safety cushions reinforcing the long term appeal.
Firstly, “solar energy” is part of a B2G2C chain. Governments do need to promote its use. This could be through new regulations (in a part of Belgium, for instance, every new house needs to be covered with a certain m² of solar plates), through increased subsidies, or by the acquisitions for governmental use.
Either way, the rise of the production is strongly backed for many years.
A second – and less obvious – safety cushion is the virginity of the African solar market. All international energy heavy weights are already present… with massive long term hydro-electric projects. But the part of the energy that they don’t cover yet – since it is oil supplied- will have to be replaced soon. And what better alternative than solar energy?
Even better: no matter the way this market will be channelled, producers will remain the winner. If, for instance, local governments massively build solar installations (eg. with “Western” support), the production will be rising. If, on the other hand, “Water Tycoons” prefer to remain omnipresent, a quasi monopolistic position in the solar energy market would provide them with a nice double portfolio, and an even stronger power base.
Start digging
To make a long story short: a growing market, a quite strong guarantee of return. Even a strong government guided safety cushion for the long term. Yes, investing in the “solar energy” sector becomes increasingly interesting. And not only because of the gorgeous eyes of Mother Nature.
Therefore, those of you used to closely track companies with clearly defined products can start crunching numbers in picking some solar power producers. Those with a more hands-on approach can start digging for the primary resources.
Oh, and in case you would prefer some wind in this sunny climate: don’t worry. It is very much alike. With some wind energy parks offering currently two digit dividends in Europe, and given that a 1 GW installation needs 360 tons of concrete and 125 tons of iron, a summery breeze is never far away, even for macro/micro wind lovers…
Fast cars. Sun. And a cool breeze. Enjoy your summer.
July 8th, 2008 at 9:10 am
Hello Jürgen and welcome to Market Melange. I see how wind power has high barrier to entry. But solar is different. My sister recently installed solar panels on her roof. After considering a company, she decided to hire “some guy,” who got the job done cheaply and quickly, with no red tape. So my question is: what kind of company is positioned to make money with solar energy? Can you name some names?
July 8th, 2008 at 6:35 pm
Hi Jürgen. Welcome to Market Melange. Good to have your perspective on the “energy” topic – a hot spot. I am a fan of solar energy production. In my view it will be THE energy source of the future. My concern is the low level of current production capacity. Worldwide photovoltaic installations increased by 2,826 MW in 2007, up from 1,744 MW installed during the previous year. In 1985, annual solar installation demand was only 21 Megawatts. Though, cumulative solar energy production accounts for less than 0.01% of total Global Primary Energy demand. (source: solarbuzz.com). Maybe we have to think of a source during the transition from oil to sun. Interested in your comment. Markus
July 10th, 2008 at 11:01 am
Hi Dino,
The barrier to entry is a healthy wall, aimed at keeping away the players that won’t even last on the short term. Although the barriers are indeed different in wind power and solar energy, it does exist in solar as well.
Let’s go back to your example. Installing a solar cell is fairly easy for most DIY people. In essence, one only needs to do three things: 1. attaching the cell to the roof 2. putting a wire till your garage or basement 3. connecting the wire to a special metering device. And if you follow the rules, there is a step 4. doing the official safety check before connecting your existing device with the new one. Four steps and it’s done. Fairly doable for a technician.
But would you put a penny in the technician’s business? Surely not. He is not building the cells himself. And even if he would, SMBs around the corner aren’t able to target big markets, nor governmental offers. Therefore, they are rarely interesting from the investment point of view.
Companies that are worth looking at – companies that need to beyond that initial barrier- are manufacturers of solar cells. I already mentioned Suntech Power. Other known companies are Q-Cells, in the alternative solar there is Nanosolar, Evergreen Solar or Sharp, or if you go for the big ones, BP Solar International, one of the youngest daughters of BP. To name only the most obvious.
With the increasing use of solar power, the demand and certainly the efficiency will grow. Which will result in a broader knowledge base for the physical placement. But it is on the manufacturing side that it is the most interesting form the investment point of view. Because you still have the barrier.
Kind regards,
Jürgen
July 10th, 2008 at 11:02 am
Hi Markus,
Thanks for the remark, which is actually threefold: Solar energy is the future, Solar energy production accounts for only 0.01% of total GPE demand, We need an energy source for the transition between oil and sun.
Let’s have a look at it with a little reflection exercise. For clarity purposes, let’s start the reflection with one premise though: we temporarily set aside the Kyoto factor.
This said, let’s start with your two first points: solar energy accounts currently for a fraction but it sounds like the future.
The numbers are indeed very low – peaking at 0.1%, depending on the source of information. But what does that exactly mean? Is this a lot? Or does this actually mean that sun is only a buzz?
The question shaped answer would be: what kind of energy are we actually talking about? In other words, IF solar is not a buzz and IF it is the energy of the future, will it be the future for all kinds of needs?
Probably not. Let’s (roughly) categorize “energy” in different categories: engine related energy (fuel), heating related energy (oil & gas), and electricity.
Will solar be used for all cars (and related) of the future? Surely not. Except if we’re heading towards a global year round BBQ climate, it will be everything but solar. The majority of them will use other technologies – just have a look at the most recent motor shows. Solar cells will be included – cfr to the ideas gathered during the Shell Solar like races- but as long as solar is not at ultimate capacity, it cannot be the main driver.
Therefore, if we want to evaluate the evolution margin of the solar market, we actually need to leave out all engine related energy in our % equation.
Next one: the heating related energy. Buildings will have to be more energy efficient, be it through new ways of construction or through a more energy efficient mindset of the society. Nevertheless, they will still have to be heated… which is where many changes will have to happen. One of them will be an increasing use of solar power based energy.
Therefore, the % will rise, and will target a high part of the private use. So yes, that’s the future. Especially because it offers the easiest quick wins.
Third step: electricity. Electricity has many sources. If even in cloudy Belgium people are forced to install cells on their new houses, it is quite obvious that this technology does work, and will be widely spread for domestic use. If you add the fact that most predictions expect the % of urban population to rise to 2/3 in 2025, it is needless to say that sun will boom in the future.
For large scale electricity generation, on the other hand, one needs a lot of space– cfr the solar parks that Voltaia has in France, Bresil or Greece. So, yes, this pole will expand as well, but will strongly depend on the choices made by regulatory authorities concerning the use of virgin land.
If one adds the Kyoto pressure – less exhaust please- solar becomes even more attractive, both in the numbers as in the easy to sell socio-political discourse.
To summarize, with the domestic market in full boom, the rising urban population, the increasing pressure on governments, and the still strong growth margin on the efficiency level, solar will the energy of the future.
What about the transition between oil and solar?
Opinions differ. Based on numbers of AIE and GIEC, solar accounts for 0.1% of actual alternative energy. Biomass (mostly wood) for at about 10%, but proximity and transport to urban areas is problematic. Hydroelectric accounts for a bit more than 2%. But those power plants take a lot of space, and many available lots are already taken. The future of current biofuel is higly burdened by the food pressure.
With this messy mix, the easiest thing to do would be to go for a Louis XV approach: “après nous le deluge”. More realistically, we will have to combine all current types of energy for the transition, until new ones are available and/or fully useable.
My personal preference goes to a continuation of the numerous nuclear plants during the transition. Is this risky? Not at all. Governments decided to limit the life span of those plants for socio-political reasons. Period. Nuclear energy has extremely strong safety measures, and uses mastered technology. The fact that the above mentioned countries take a step back and are thinking off extending the life span again is a clear sign of the mix: “ok it is safe” “we need it for Kyoto targets” “let’s in the mean time also boost other options”.
So, dear Markus, what is the solution for the transition: and intense use of the current, and boosting the future. Amongst which solar
Kind regards,
Jürgen
July 10th, 2008 at 3:08 pm
Hi Jürgen,
Actually I think we don´t have to distinguish between different categories of energy. If we find a solution for a low cost, highly available and renewable electricity source, we can substitute all the others sources listed. Solar qualifies for it. You can generate it locally for local demand or centralized for massive/industrial/urban use.
The two main prohibiting factors are a) the efficiency of photovoltaic panels (incl. the dependency on silicium) and b) the storage issue.
In both cases it is a matter of time until technology breakthroughs solve to overcome the barriers (advanced thermochemical storages, pneumatic storage plants, …).
Why I am confident? The photovoltaic industry raised nearly $10 billion in 2007. 84 identified financial transactions accounted for $7.5 billion in 2007, Of this amount, $5.3 billion came in the form of equity financing, while $2.2 billion came from debt financing. The PV industry generated $17.2 billion in global revenues in 2007. (solarbuzz.com) Numbers indicate that this is more than just an idea. It´s a growing industry with strong interest on the part of investors.
Not a fan of nuclear plants. It might be the most convenient solution but for sure not the most efficient in a comprehensive cost analysis.
Markus