The Solar Hype Cycle: Don’t Let The Sun Go Down On Me

Opinion

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creating impossible expectations, stoking the fires of hype, and inflating a huge bubble that could pop at any time.

Let’s start with thin film PV maker First Solar, which is up something like 900% since its IPO. The company is sporting a $20 billion market cap after $196.9 million in revenues for the first three months of the year. Think about that for a second. We aren’t talking an online or software play. We are talking a company producing a physical good. This little bit of valuation lunacy has triggered a VC feeding frenzy on similar solar plays with NanoSolar and Miasolé already having valuations of well over $1 billion before selling much of anything.

All told last year, VC investments in solar power (and almost all of it in PVs) reached around $1.36 billion, up from $400 million in 2005. The bulk of those investments went into backing various thin-film technologies—55 in 2007 alone. More than 100 thin-film companies are vying for a slice of the market, according to a recent Lux Research report, which forecast that thin-film solar will occupy 28 percent of the solar market by 2012. As the report noted, “This exceptional rate of growth demonstrates that VC firms believe solar is far from its peak.” Gaia help us. (Disclosure: I am a co-founder of Lux Research and a shareholder. However, I no longer have any operational or oversight role with the company. )

And with all the investment focus going to solar power, an interesting situation has developed—overcapacity. In a classic “who’d a thunk,” we are entering a prolonged period in which PV supply is outpacing demand. Lower barriers to entry will contribute to lower production prices and lower margins. This turn of events won’t likely last forever, but do you really want to be investing in one of the 100-plus new entrants in a market that is already producing more than the market can handle?

This is a good time to note that no VC-backed companies even IPOed in the second quarter. Furthermore, the average size of the solar IPOs that have occurred has been dropping since 2005. Solar equipment maker GT Solar, a pretty solid company that makes equipment for manufacturing PV cells, went public last week and fell 11.6 percent in its first day of trading and continued to fall over 20 percent more.

And here is the potential really bad news for investors. Some big players in private equity and on the research side have hypothesized that the price of PV solar cells is about to plummet so quickly that manufacturers will enter a netherworld where they are making enough to keep the lights on but not enough to make a formidable profit. That’s going to make shareholders and potential shareholders really happy. It’s also going to give birth to a whole new foreign energy “boogieman” as China becomes the dominant solar player in a way that dwarfs OPEC’s role in oil. With its centralized manufacturing base, the Chinese can wait out any market downturns and work with small margins in a way public U.S. companies can’t. They will gradually gain control of the PV market in much the same way that the Japanese took over the small battery sector a couple decades ago.

So as you can tell, PVs as an investment area really bum me out. I don’t find the technology all that thrilling either. PVs will certainly be a piece of the global energy puzzle, but will have nothing like the role of coal, oil, hydroelectric, nuclear, and even other green technologies. If you’re looking for a sure winner in this crowded mess of a field…good luck. One spin of the roulette wheel seems like a safer bet for cleantech investors these days.

Next up: I continue my snarky remarks on several other green energy technologies, and eventually get around to saying which ones I like.

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Mark is the general manager at Treeline, a US-based technology development and advisory firm. He has co-founded five venture-backed companies, with three successful exits. Follow @

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33 responses to “The Solar Hype Cycle: Don’t Let The Sun Go Down On Me”

  1. chris says:

    I find it odd that you claim that several of these photovoltaic manufacturers are out-producing their demands when almost all of the major companies have the exact opposite scenario occuring.

  2. Cush says:

    Interesting perspective/reality on PV…as an unemployed person trying to enter the renewable energy field, it’s a bit disheartening. I do agree with Chris, some companies are making money and I do hope to be employed by a solar company soon. And any less dependence on oil and coal is a good thing, right? Regarding the production of PV, the irony is amazing and troubling. You’d think that Suntech would get a grip.

  3. Pam says:

    You forgot to mention the subsidies the oils companies are getting and have gotten for years. Shouldn’t renewable energy be on the same level playing field?

    Also,We’ve often heard the myth that “it takes more electricity to manufacture a solar panel than it will ever put out.” This is simply not true…this myth may have started during the Ronald Reagan era. This is of course a very difficult statistic to calculate, but according to the National Renewable Energy Laboratory in Golden, CO, a study has been done to answer the question. The study found that single-crystal panels reach the energy payback point in 5-10 years, polycrystalline panels in 3-5 years, and amorphous silicon panels in 0.5-2 years.There is a very detailed study about solar panel energy payback time in the January 2001 issue of Home Power magazine. This study, by Karl Knapp, PhD, and Teresa Jester, finds payback time for a standard module to be about 3.3 years, and 1.8 years on a thin-film panel. The study factors in energy costs for ALL parts of the panel and manufacturing.

  4. Grant says:

    You’re right, a lot of the solar factories DO run on coal power. Why? Because coal power is the dominant energy source! If PV was the dominant energy source and we were trying to make.. oh wind farms or something, we’d be using PV POWER to manufacture wind farms until wind became more popular. You know, I could spend time referencing a bunch of different websites that refute a couple of your claims here and there, but I’m just going to focus on this; I find it disheartening that you’re bashing ANY type of renewable resource. Although PV has well over 5 times the potential (do some research) to give us energy over wind/geo/water, I’d never put down any of them, just because all of them provide a small solution to our problem and I doubt that any of them ALONE will solve it completely. You make me sick.

  5. steve says:

    If PV is only taking 6 years to pay back the energy, that’s good news, because the panels will produce energy for 20-30 years, and the value of the power they produce will increase every year. How long does it take for a coal plant to pay back the energy it consumes? While everything in this article may be true, just remember that the future will not be a single-solution world. We will have many sources of energy including, for many years, petroleum, coal, and gas. Covering the Southwest in solar and shipping it to the East is a stupid idea, and also unnecessary because solar and wind can be collected near the point of use.

  6. Grant says:

    In response to my earlier comment, actually it would make sense for them to produce their own solar cells to power their plant.

    Though I still don’t understand your trolling of the PV community. Perhaps the tech companies ARE going at DC the wrong way, but shouldn’t the article be about THAT and not about the disadvantages of PV? What’s your agenda?

    I’ll be interested to see what you support in your later articles.

  7. Fmmodzelewski says:

    Six years to pay back the energy the factory used. Now add the energy expended obtaining the materials that go into the cell, transporting those materials and later transporting the cell itself,warehousing the cell, the packaging, installing, doing maintenance, etc etc. No its not a good thing.

    And to the two emails I received on subsidies. The amount paid to solar is only part of the story. You have the amount that other energy is taxes also acting as a huge benefit perverting the true cost of solar from taxes on oil drilling to state and federal gasoline taxes (.419 MA. in addition to .184 respectively) .

  8. Pam says:

    Solar does not have maintenance! What do you think it costs to build a refinery and pipe in the oil? A lot more than building a solar panel. Have you been to South Texas lately? No birds, no grass, can’t breathe. Solar has only been receiving subsidies for a few years and it expires the end of this year. Germany, Japan, Saudi Arabia all have a lot more solar than we do. Been to Saudia Arabia lately? They have solar all over and ship us their oil. Talk to most oil geologists (I live in Oklahoma and most are my friends), they all have solar!

  9. rigel says:

    This article is so full of misinformation and narrow-minded prejudice that it verges on idiocy.

    The PV installations in Germany have 6 years energy payback time because of the low insolation. Almost any place in the US has a higher insolation than the sunniest parts of Germany. PV in the Southwest can easily have half the German energy payback time.

    Regarding the projected oversupply and the reduced margins: you just have to make up your mind… Either PV is bad investment because it’s expensive or PV is bad investment because it’s going to be a commodity.

    It’s true that a large number of the thin-film startups will bite the dust, but that’s the way of the VC-backed efforts. In a few years most of the technologies will be at grid parity for a large set of conditions and that will open the market for utility-scale deployments. It goes without saying that significant PV penetration will require good storage solutions and that’s where high-value winners can emerge in the next 5 years.

    Finally, regarding the materials going into the panels: did you write the article on an organic computer? Any large-scale production activity in an industrial civilization requires the use of potentially hazardous substances.

  10. Hudson says:

    Narrow minded prejudice. I thought we were talking solar cells not race relations. What a drama queen.

  11. stevepluvia says:

    FSLR is installing PV at grid parity TODAY. I can name 5 others who are ramping commercial production who can do the same.

    The author of this article could fit his PV knowledge base into the other side of a peanut that doesn’t occupy his brain.

  12. Eric W says:

    I hate to say this but I actually agree with Steve Pluvia on Mark’s ignorance of this market. Mark, the author of this nonsense, is one of the original nano boosters, a testament to his credibility.

    Anyway, yes billions have gone to solar start-ups, yes most of them will fail. Nothing new there. Yes solar has subsidies, as does oil and gas. What is your point? Yes China has a chance of being the low price leader in some solar technologies. More obviousness.

    The solar market is $20B, growing at 40% a year and will grow at that rate for the next few years. It is not THE solution to our energy problems but it will contribute to relieving our reliance on coal.

  13. Scott says:

    Idiocy. Too many errors of fact in this article to address individually. If not for the self-serving agenda of the author, one might casually dismiss them as innocent mistakes. As is, the author should be ashamed.

  14. fmmodzelewski says:

    Scott

    Please list the errors to enlighten me and help me again feel safe to be among enlightened society. Also your conspiracy theory that I have an agenda interests me. Please elaborate.

  15. jojo says:

    Your arguments cross over each other. You don’t seem to know what you’re talking about.

  16. Steve Pluvia says:

    Let me help fmm here’s where the article went wrong:

    1. Author’s facts re Miasole efficiency are wrong; Miasole had low efficiency problems about a year ago that have since been resolved; Miasole production panels should be approx 10% as PROVEN BY TESTS AT U.S. DOE’S NREL as reported 7/3/08;
    http://www.miasole.com/_assets/PDFs/Miasole_gd_07_03_08.pdf

    2. Thin film [dual junction cells] produced from soup to nuts PV plants anyone can purchase [full plants produced by AMAT, Oerlikon and others] have production costs of $1-$1.20/watt; with solid profit PV from these plants can be sold/installed at grid parity. AMAT has pre-sold several gw of capacity, their first plants have already come online in RECORD time.

    PV cost/watt of thin film has already reached grid parity from FSLR; PV from AMAT & Oerlikon plants, Nanosolar, and others will generate substantially more supply which means prices will stay at or about grid parity.

    Electricity prices have not YET passed higher transport fuel and plant fuel costs to consumers; when higher coal/nat gas & transport fuel costs are factored into local power rates, they will in many places rise above costs of thin film PV generated power.

    The Author of this article obviously knows next to nothing about the PV business.

  17. Fmmodzelewski says:

    As I noted, PVs do have a role, in my opinion a small one, in our energy future. However, my point is far too much energy (pun mildly intended), money, and time is being spent promoting it because folks so want it to be real. The fact is, its not a very good technology sector.

    Remember, PVs CAN NOT replace the grid unless we develop a storage technology that is something like 5xs better than anything we currently know of because there is this thing called night time. Check it out, it starts around 8pm these days. (Note: the sun still could play a role in a “new” energy grid, but that would be possible via solar thermal technologies).

    There were complaints that I used Germany’s poor solar intensity (http://www.oksolar.com/images/world_solar_radiation.gif) as a comparison to the US. Well, looking at population centers and the access points to available energy from the sun, the US (think DC to the tip of Maine) looks a lot more like Germany than it does Oman.

    The time when PVs can be cost effective versus traditional energies are in small blocks of peak power time in grossly costly energy markets (Japan) or ones with the right climate mix of heat and sun (say, Southern California). And thats peak time. If you ever saw a breakout of what you get charged during peak power, believe me, you would just turn your AC off instead installing PVs.

    As to a question I received privately, of do I like any PV technologies as an investor — not really. I am not saying there isn’t money to be made (hype will potentially lead to a few good IPOs, certainly sales will increase very aggressively for some players–likely Chinese ones), but do I see an investment that I can feel comfortable being a company 10 years from now. No. It seems like a crap shoot.

    The one firm that holds some fascination for me is 1366 Technologies because it has a lot of potential buckets to draw from. I guess after a few beers I could warm up to that one. I believe money could be made in a newco that rolls up the installation and maintenance of PVs (Geek Squad for clean energy), and certainly financing firms could see nice long term returns. But all and all there are so many better places and better technologies beginning to develop to make the Earth a better and cleaner place and create a more diverse energy infrastructure.

  18. fmmodzelewski says:

    Oh to the person who notes Misole’s “verified” results. I am aware of those numbers. They are real. They are also, as far as I could verify, laboratory developed PVs NOT what they can do in a bulk manufacturing process (think a bespoke suit rather than the cheap off the rack one you are likely wearing). In other words, they can get that in a lab with a lot of fuss and tweaking but that can’t make one with those efficiencies in a factory right now. If someone can show that I am wrong in this regard I will happily note my minor error.

    And to the “I don’t know anything about PVs” well sir, this seems to be more about the fact that you know little about what grid parity means. The term grid parity is bandied about mostly by people don’t really understand what it is or people trying to fool investors or politicians.

    PVs are already at grid parity, as I noted above, in a few select spots with exorbitant electricity costs during peak power times such as Japan, and PVs will reach parity in progressively more markets eventually if –big if — if oil and other energy commodity prices don’t decline from their historic highs. Remember prices for energy can go down.

    Another key issue with grid parity is the difference between peak and baseload power sources. Nukes and coal offer much cheaper baseload power sources and run constantly. Solar is being used today and will be used affordably for the foreseeable future to offset peak load power sources only. And again to say this, you must remove the cost of the redundant grid you have up and running for when solar isn’t working — however the old grid doesn’t need solar for it to work in itself. See the difference.

  19. steve pluvia says:

    Fmmmm:

    “Remember, PVs CAN NOT replace the grid unless we develop a storage technology that is something like 5xs better than anything we currently know of because there is this thing called night time. Check it out, it starts around 8pm these days.”

    Umm yea. Except an interconnect agreement allows solar to be stored in the grid during peak production, when grid demand is highest, and drawn out at night, when current power plants are under utilized. Storage for solar is already here. Check it out sometime, its called the old power grid and it costs residential and commercial PV installations nothing.

    As for grid parity, I know how to do the calculation, obviously you don’t.

    As to your comment that no solar is a good investment, I’m reminded of a moron wrapped in a retard covered with a sweet dipshyte sauce.

  20. Wade RoushWade Roush says:

    @Steve, feel free to disagree with Mark’s points, and to use this forum for debate, but please keep it civilized. We’ve been lucky here at Xconomy so far — our commenters have never descended to the kind of juvenile name-calling that mars so many online forums. Let’s keep it that way.

  21. fmmodzelewski says:

    @ Steve-

    Should I look into buying carbon offsets to handle the toxic fumes I give off as a “moron wrapped in a retard covered with a sweet dipshyte sauce”? If so could you do that calculation for me. Thanks

  22. Steve Pluvia says:

    @Wade, no offense, but when you publish crap filled articles such as this one, you don’t have to worry about me spending any more time at your value-less site…

    **plink**

  23. Cush says:

    Mark & Steve –

    your banter is quite amusing. while you both make salient points, I do have one quibble. it’s small, I know, but I like to sweat the small stuff b/c I think it’s important. Your comparison to Germany is ill-advised.

    Germany is a country roughly the size of Montana, at 51 degrees north (below 35 degrees is optimal for solar energy,) and they get between 20 and 60 inches of precipitation a year.

    By contrast, the DESERT southwest in the U.S. has 5 states (6 if you count eastern Oregon during the summer) which are ideal for PV. Per NOAA, parts of Arizona get 25 inches of rain per year, but other parts like Yucca get 2 inches [as of 2006]. The worlds’ 2nd hottest recorded temperature was in Death Valley, CA in 1913: 134 degrees. In Germany, they treat 105 as a record… not quite the same.

    Yes, Germany has a much more substantial record with solar energy, thus more data from which to draw. But the comparison and the effort to link the German model to future solar efforts in the U.S. is weak.

    Another question: have you done any research on how much we’ve spent on oil since the 1930’s?? Refineries, gas stations, transportation, the oil itself, etc. I’d bet it’s a lot more than $21 trillion.

    Thanks, Tim

  24. jojo says:

    Your energy payback numbers are well off. NREL calculates a 2-4 year payback period for 2004 technology and BNL calculates 1-3 year payback period for 2006 technology. FirstSolar’s CdTe cells come in at about 300 days. http://www.bnl.gov/pv/files/pdf/abs_199.pdf

    Read some of Gregory Nemet’s work: http://www.iea.org/textbase/work/2007/learning/Nemet_PV.pdf or socrates.berkeley.edu/~gnemet/Nemet_PV_EP.pdf

    Nemet identifies plant size, cell efficiency and Si price as the main drivers of cost reduction from 1980-2001. If past is prelude his breakdown can be used to help project future winners and losers in the PV space. The factory size driver has historically been the most important and this is interesting because since 2001 we’ve seen a trend toward (100 MW+) facilities with Sanyo, Suntech and others planning 1 GW+ sized factories. This trend should continue. During the same time period we’ve seen silicon cell efficiencies climb steadily. The leaders of the pack are currently in 18-20% range and every other earnings report includes a blurb on technology improvements in the area of efficiency. Here too the trend should continue. Silicon of course has been the great spoiler but a return to $40/kg prices seems inevitable with vertical integration and dedicated SGS production coming to dominate. Despite these rather obvious trends, you describe the field as having lowering barriers for entry. I’d say the opposite is true.

    Who cares about Miasole anyway? They’ve got 40 MW of production so why use them as an example? Talk about the bigboys – Sharp, Sanyo, Suntech, Q-cells and Firstsolar.

    Production has grown from 150 MW/year in 1998 to around 4.5 GW/year in 2008. That’s an amazing development in and of itself that no one saw coming so fast. We’re already about 10 years ahead of the high-side millennial growth projections of the DOE and IEA.

    Unfortunately, real-prices during the same period have been relatively flat. Why has the always reliable learning curve for PV seemingly drifted off course? An oversimplified explanation for this deviation is that silicon costs have shot up and Germany has been very generous. We’re finally seeing the correction and contrary to your assessment this should be considered a good thing. The funny thing about your clumsy attempt at bashing PV is that you’re arguing against the idea of PV reaching grid parity but also predicting long period of falling production costs. BAHAHAHA They don’t need to fall all that far before competition with the grid ensues. And I’m not talking about competing with baseload capacity. A completely healthy PV industry can develop based on providing peak load. You don’t need to store anything.

    Suntech is the currently the low-cost leader in the silicon realm at $2.00-$2.50. How long will it be before Suntech or somebody else is in the $1.50-$2.00 realm? 2010 seems to be a good guess with $1.00-$1.50 by 2015.

  25. Harry Hammer says:

    You are like a bad Polish joke; not too clever and makes no sense. I’m surprised that you are not a global warming denier, or are you?

    Why don’t you tell us what really motivates you?

    Tell us what you are trying to sell.

  26. paminator says:

    Mark- excellent article. I see an interesting trend in recent grid-scale solar farm announcements. Most of these are being capitalized by a panel manufacturer or a third party, while the utility agrees to a price per kWhr. The capital cost analysis for the plant isn’t even looked at by the utility customer.

    I track solar PV for residential use every few months, waiting for “grid parity” to be reached in Florida. Right now, with rebates, I can have the privilege of tripling my monthly electricity bill by installing a solar PV system with backup to meet my home electricity needs. The interesting thing about this number is that, even if solar PV panel costs drop to zero, I still cannot meet grid parity, due to the installation costs.

  27. Pam says:

    Read it and weep!
    Cleantech America, a San Francisco based developer, has launched a project to build the world’s largest solar farm, giving this Spanish solar tower a run for its money, as well as insulting the work of countless Tesco engineers and their puny, insignificant solar roof. When completed in 2011, the 80-megawatt spread of solar panels will cover roughly 640 acres and be 17 times the size of the largest US solar farm in existence. The project, which will generate enough power for nearly 21,000 homes, will be sold to the Kings River Conservation District, a public agency that purchases power for 12 cities and two counties in California’s Central Valley. The company hopes that a solar farm of this size will be an industry-wide tipping point for energy providers, and will drive the cost of solar energy downward. Meanwhile, Tesco and Spain will be plotting their sublime revenge

  28. Hudson says:

    Interesting piece on San Francisco’s cleantech efforts and an alternative

    http://valleywag.com/5037593/nuclear-power–youre-soaking-in-it

  29. J.E. Turcotte says:

    While many of the points are logical, there’s some major factors being overlooked… 1) can the ugly-factor of a solar cell truly be compared to that for a smokestack? 2) not all solar methods, especially among promising startups, use those same metallic/tetrawahoozit sources… and 3) building a single farm would be massively unwise, especially when we can install small roof-tile and similar styled pv/tf/cigs/nh as a ubiquitous background texture to tens of millions of homes, factories, businesses… putting otherwise wasted space to good use and simultaneously removing power plants as potential natural disaster, war, and terror targets.

    For those complaining about installation costs… keep in mind that these are also areas in which great strides are taking place… more and more, plug and play and do-it-yourself level of ease installation is becoming possible, even as the cost of the panels/strips/skins drop.

    At any rate, the prices will stay high as long as adoption is low.