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Solar Cell Manufacturers Have Room to Grow
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Is solar a viable alternative energy? It is environmentally clean. I haven’t been able to think up any reasons not to support solar energy. If you have one, post a comment. I would like to read it.
Solar is a limited part of the solution; particularly in the short term. It can’t be a larger part of the current solution, mainly because the world’s capacity to produce solar cells is limited. There are long lead times to creating more capacity, even with large amounts of money. Poly-silicon plants take years to build. Part of understanding global warming is understanding the economics behind it. Based on the economics, I really like the solar cell manufacturing companies and think they have a ‘bright’ future. (Full Disclosure: I do own stock in some solar companies, but I am not specifically recommending investing. The stocks are volatile and if you invest you should do your own research.)
Like all energy sources it has its pros and cons. Some of the problems and limitations for solar are:
- Solar is still more expensive than more traditional fossil fuels, especially coal.
- The development of solar energy would probably be limited if not for significant government subsidies.
- Solar only works when the sun is shining. This limits solar cells usefulness in areas with lots of cloudy weather.
- Electric power storage for times when the sun doesn’t shine is very expensive.
- The world’s capacity to produce solar cells is very limited.
Solar does have its benefits:
- Environmentally clean.
- Solar energy fits very well into a typical utility’s power system. Solar produces fairly reliable power just at the times of peak demand; a hot sunny day when everyone is running their air conditioners. Peak power is the most expensive power for a utility.
- Solar prices are coming down relative to traditional power sources.
The best way to confront the problem of global warming and still provide the power the world needs and expects is to develop the energy resources that produce the least greenhouse gases. Developing natural gas resources can be a way of decreasing greenhouse gas emissions if it displaces the production and burning of fuels like coal that emit twice the amount of carbon dioxide for an equal amount of energy produced. Replacing all of our coal plants with natural gas fired plants would reduce our carbon dioxide emissions from electric generation by 50%.
Why not replace it all with solar and reduce emissions by 100%? The obvious problem is what to do at night. Energy storage is very expensive and we need to be cost effective. The other problem is that the capacity of all of the manufacturers supply solar cells is very constrained. The entire world produced a total of 3.8 Giga
3.8 GW solar capacity x 365 days x 7 hrs per day = 9,709 GW hrs of solar production.
That is 0.05% of the total world production.
Total world-wide solar cell installed capacity was 12.4 GW.
12.4 GW solar capacity x 365 days x 7 hrs per day = 31,682 GW hrs of solar production.
That is 0.17% of total world production.
As long as government policies providing subsidies for solar cells continue, production capacity has tremendous room to grow. All of the solar cell companies can easily expand production capacity 3 or 4 times per year for the next several years. Expanding production should also help lower unit costs. Margins for these companies may even expand.
The growth of the solar cell producers should continue until supply catches up with demand, which could be several years from now. It is possible the market could support a 3X increase in production in each for the next 3 years, which would be 27 times current production. That would imply total production capacity of 102.6 GW per year or about 1.35 % of total installed capacity. That would be a point where capacity expansion may start being constrained by demand. If existing fossil fuel electric production capacity is retired, then solar production capacity could expand further.
The key to this analysis is the assumption that government programs will continue to provide subsidies for solar alternative energy. If governments cut back or stop this funding, then the economics will not support even the current demand and prices of these stocks would collapse. The supply of poly-silicon for cell manufacturers could also constrain growth. The supply of poly-silicon was limited, but this problem seems to be abating.
