A Solar Energy Overview

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The headlines say it all…

• Total (NYSE: TOT) Pays $1.4 Billion for Stake in SunPower

• Army/Marines Charge Critical Equipment With Solar Panels

• Google Invests $280 Million in SolarCity

• Solar Market Tops $70 Billion in 2010

In only a few years’ time, the solar market has gone from “That stuff’ll never work” to a billion-dollar acquisition target of the biggest oil companies in the world.

At the turn of the century the world only had 1.4 gigawatts (GWs) of installed solar capacity.

By the end of last year 40.7 GW had been installed – a growth of 2,752%.

Oil didn’t do that. Coal didn’t do that. Nuclear didn’t do that.

Most of the growth has come from Europe – particularly Germany with 17 GW – which boasts over 75% of all installed solar worldwide.

Their head start can be attributed to attractive policies the U.S. failed to embrace. But falling prices, as you’ll soon see, will mean the spread and mass adoption of solar in the next few years.

Reaching Scale

All technologies are more expensive in the beginning.

I paid $1,300 for a 42” flatscreen TV in 2006. You can get one today for $450.

Solar is the same way.

Panels cost $60 per watt in the mid 1970s. Today the price is down to $1.50 per watt.

Just like similar industries – circuit boards, for example – costs will continue to fall with volume. For every doubling of solar manufacturing capacity, costs fall about 20%.

In some markets solar is already cheaper than grid electricity. And as more and more solar is installed, the costs will only fall further.

We’re at a point now where solar installations are growing at a compounded annual growth rate (CAGR) of about 65%.

Slightly more than 17 GWs were installed last year alone.

And as SunPower (NASDAQ: SPWRA) founder and chief technology officer Tom Dinwoodie (the man who just sold a majority stake of his company to Total for $1.4 billion) puts it:

That 17 gigawatts installed in 2010 is the equivalent of 17 nuclear power plants — manufactured, shipped, and installed in one year. It can take decades just to install a nuclear plant. Think about that. I heard Bill Gates recently call solar “cute.” Well, that’s 17 gigawatts of “cute” adding up at an astonishing pace.

We’ll still need nuclear baseload power to be sure. The point here is twofold.

1. Solar is being installed on a nuclear scale but much faster.

2. We’ve reached the point where increased installation rates and falling prices are feeding off each other.

Forecasts

Between now and 2020, solar installations will double almost three times. Check out how that looks graphically:

Germany will continue to dominate the market for the next few years, with the U.S. expected to come on strong in the second half of the decade.

China, Italy, Japan, Australia, Canada, and Spain are other countries to watch for coming installation growth.

But, at least as it stands right now, there’s only one country to watch for when it comes to the actual production of solar equipment – not just the installation.

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The Players

In the early oughts Germany was by far the solar production leader. But as always happens in the manufacturing industry, China was quick to enter and dominate the game.

Though Europe is still the installation leader, China owns a majority of the production – as much as 60% by some estimates.

And for the first time last year, half of the largest solar companies in the world were Chinese. Though the list may vary slightly depending on the source, here’s the current list along with 2010 shipments:

1. Suntech (NYSE: STP), 1,572 MW

2. JA Solar (NASDAQ: JASO), 1,464 MW

3. First Solar (NASDAQ: FSLR), 1,411 MW

4. Yingli Green Energy (NYSE: YGE), 1,062 MW

5. Trina Solar (NYSE: TSL), 1,057 MW

6. Motech (TAIWAN: 6244), 924 MW

7. Q-Cell (XETRA: QCE), 907 MW

8. Gintech (TAIWAN: 3514), 827 MW

9. Sharp (Other OTC: SHCAY), 774 MW

10. Canadian Solar (NASDAQ: CSIQ), 588 MW

I know I’ve thrown a lot at you today, but a thorough solar update was long overdue. And in addition to future editorial and our paid services, this should serve as a good base for anyone looking to start investing in solar.

For more information, I’ve just recorded a short white-board video about materials of the future. It covers new solar materials that’ll be used in the next few years, as well as new types of battery and rare earth technologies.

We’ll start posting videos like this once a week to help you better capitalize on the topics we cover in daily e-letters.

Call it like you see it,

Nick

P.S. One of the main things allowing the wider use of solar is advanced batteries. I told you last week how the Army and Marines were using solar energy and batteries to power crucial communication equipment. But soon, entire neighborhoods will use this perfect combination to eliminate the need for fossil fuels. More information on how that’s being done – and how you can invest in the technology – can be found here.