Here Comes the Sun

A barrel of oil just hit $115 today. Some experts say that it may go over $150 in the near future. But not only are the oil producers savoring their good fortune but a clutch of unknown entrepreneurs are quietly rubbing their hands together in anticipation. Their day in the sun may be just around the corner. I’m talking about the Solar Energy industry. Nothing, but nothing, could more suit their plans than to see the price of fossil fuel pull their technology into the economically competitive price range.

Most current solar conversion efficiencies are around 15% but that may be doubled within the next year or so. Combine that with the skyrocketing price of oil, the geopolitical instability of a major portion of the producing countries, global warming and a rising level of consciousness about protecting the environment and you have the makings of a perfect storm of opportunity.

But how does one invest in the industry at the developing stage of new solar age? Many solar stocks have already accumulated bloated P/Es and a majority of the new public offerings have yet to generate any revenue. Not only that, what makes up the solar industry and where will the money be made?

First of all, China, Germany, Spain, Greece and California seem to be the current havens for front runners in that these jurisdictions offer generous incentives in the hopes of generating investment in clean energy and a change in consumer behavior. Most of the front runners are establishing a growing presence in these areas. But first it is necessary to understand the market segmentation to understand where to the best opportunities might be.

First, there are the providers and processors of the raw polysilicon ingots that is the basic raw material for making the most popular type of solar conversion cells. Currently, there is a shortage of processed raw material and companies currently positioned at this end of the market are seeing widening margins and growing demand. But this might be just a short term problem. Other materials are also being developed that may use different raw materials. The next segment is the manufacturers of the cells. This is a key segment in that many of these companies are vertically integrating to provide for turn key plant construction-from processing the raw product to finished cell modules ready for installation. Thus, they can create profit opportunities all the way up the value chain up to installation. There is also a niche where some solar companies specialize in manufacturing the equipment and machinery needed to set up production. Another segment focuses on designing, manufacturing, installation and management of large solar power fields and solar heating furnaces. The last major segment is the system integrators and installers of the equipment on site.

In the next article we will identify some of the major players in each segment.

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