Investing in solar power – the real energy game-changer

Earlier this week, I looked at some dead-end energy technologies, such as carbon capture and storage (CCS). I then looked at some which have medium-term promise, such as wind, and some riskier ones for the future, such as cellulosic biofuels. Today, I’m going to be looking at  the one huge technology that will change everything: investing in solar power.

The amount of solar energy available is vast – more than all other renewable sources combined. We’ll never get anywhere near using all the available solar energy, even if there are ten billion of us. What’s more, solar loves the places you can’t use for anything else – rooftops, deserts, and even the sea (Kyocera has already built a floating solar farm).

Looking beyond the potential scale available to us, the unit economics are strongly favourable. Photovoltaic panel costs are crashing, creating a virtuous circle of R&D and manufacturing scale-up. These price falls are mathematically predictable, meaning that we can invest on the understanding that solar is only going to get cheaper – much cheaper, and very quickly. What’s more, we can already reliably predict future price falls as they are so consistent.

Fundamentally, price falls are what make solar such a winner. It’s not how much solar costs today that matters, but what it will cost in decades to come. Combine that with solar’s essentially unlimited scale, it’s clear that the only way is up. Solar is the game-changing power source.

Less well-known technology

However, no matter how enthusiastic you are for solar panels, you mustn’t forget their less well-known technology sibling: concentrated solar power (CSP). Firms such as eSolar are involved in providing this technology. CSP is essentially an old-fashioned thermal power station – but heated by the sun. As such, it still has many of the disadvantages of fossil fuel power. But CSP has one crucial advantage over panels: it keeps going in the evening.

CSP’s storage capability could be strategically important. Nevertheless, it’s important to remember that CSP is essentially a competitor to other forms of energy storage – such as batteries. We can’t cover that competitive threat here in depth, but please bear in mind that CSP is basically in a cost race with battery storage – and it’s far from certain that CSP can win.

Cautions for investors

So we’ve analysed all the major technologies, and solar photovoltaics (PV) is the clear winner. But even within the solar photovoltaics industry, there are cautions for investors.

Firstly, avoid installers who are dependent on subsidies to install rooftop schemes in cloudy European nations. In the UK, they’ve been smashed by recent government meddling; this is a serious risk in other markets too. Germany and Spain have both recently tried to backpedal on support for renewables.

Secondly, remember that panel costs are dropping fast – so don’t rely on prices for solar electricity staying at current levels when you place your bets.

Thirdly, while many of the most exciting investments are in the firms developing new generations of panel technology, it’s incredibly hard to pick technology winners. If you’re not an expert, spread the risk in any R&D plays you make.

The main technology winner from the current energy generation transition will be solar panels. We will probably also need some CSP, tidal and wind (to cover nights and winter).

But this daytime-heavy generation approach isn’t the way we use energy now. We’re used to turning the lights on at any time and the power just being there. How will we match our demand for 24/7 energy with intermittent production? That is a very interesting subject, but one for another day. Rest assured that there are very practical solutions to this problem, and some exciting opportunities to invest in demand management and energy storage.

Watch List

Next, you’ll probably want to know which renewables firms you should invest in. I’m afraid I haven’t got space to analyse this in detail here. For that kind of specific analysis, you’ll need to subscribe to our sister publication: Frontier Tech Investor. But nevertheless, below is a “watch list” of interesting firms to help get you get started in renewable energy investments.

Solar photovoltaic is clearly the must-have sector. You can concentrate on utilities or contractors (eg, First Solar) for stability. You can also back technology firms (eg, Oxford PV), if you’re comfortable with higher risk. But whatever other choices you make, you simply must include solar PV in any credible energy portfolio. Without it, you’ll be investing in mechanical typewriters – at the beginning of the computer age.

However, there is room for diversity, and it’s sensible to look at adding other generation types to your renewables portfolio. Concentrated solar power providers (eg: eSolar) may become more important as renewables expand, because the storage and generation are combined into a single plant (but watch out for falling battery costs).

Conventional agrofuels

You can forget conventional agrofuels – these are a dead end. But if you’re keen to invest in biofuels generally, then look at the higher-risk, high-tech firms. Algae (eg, Algenol, Solix) and cellulosic firms (eg, Verenium, Range Fuels) are both worth a look. I personally think algae is the more interesting play, because it could ultimately be grown just about anywhere that’s sunny.

Wind power does have a future, but it will be a diminishing portion of the renewables mix, even as it grows relative to fossils. That makes it a less strategic play – but certainly a robust sector in the medium term. Manufacturers (eg, Vestas) have a promising future, and utility firms focused on wind are an alternative.

But remember: the future’s bright – the future’s solar. Feel free to disagree, but get ready to cook up some humble pie in 2055 – in your solar-powered oven.

Category: Energy

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