Billions are being made by savvy investors who have jumped on the latest trend in the alternative energy space, solar energy. Despite existing for many years, solar power never quite caught on in a big way until recently.
You see, the issue has always been the cost to execute at a meaningful scale. Solar energy projects demanded government subsidies to exist since traditional fossil fuels were just cheaper.
Recently there has been a revolution in the costs to produce electricity from solar energy. Prices have plunged to often being less than the cost of fossil fuels. This revolution has launched the next uptrend in companies in the solar space. This trend is in its infancy, and as more and more energy consumers make the switch to solar power, profits will continue to flow to solar stock investors.
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Let’s first look at what has driven the solar energy industry higher to this point prior to discussing the current opportunity triggered by the plunging costs.
Unfortunately, it has primarily been government support that has allowed the solar energy companies to continue operation.
This support has come in a variety of ways. Here are the four major ways the government has backed the implementation of solar energy.
- An eight-year extension of the Investment Tax Credit for renewable energy
- State renewable energy portfolio standards
3. Obama’s pro-solar stance
4. Cash grants and government backed loans
All four of these factors significantly contributed to the growth of solar energy over the last decade.
While these stats are impressive, the real growth has just started. The revolutionary changes will enable solar power to become autonomous from government support. It will no longer require government support to compete economically with fossil fuels.
Once this revolution is complete, free market forces combined with the desire for cleaning up the planet will likely rocket solar energy to become a primary source of power.
The revolution I am referencing is the plunging cost of solar energy. As you can see from the above graph, the amount of power produced per $100.00 has been rapidly growing.
The primary driver behind this rapid cost reduction is the use of silicon in solar wafer construction. A company called 1366 Technologies is at the forefront of solar wafer technology.
The company reports that over the last 30 years, the cost of silicon PV has dropped by a factor of 30. This phenomenon will hold true for the coming decades.
The company has stated that the manufacturing innovations in silicon PV will decrease costs by 10% per year through 2020, at which point solar electricity becomes cheaper than coal.
Wow, to say the least! This rapid reduction in costs will lead to a genuine revolution in energy production. There will be no more economic advantage to using carbon based fuel sources. Not only will this growth create tremendous wealth as the significant energy dollars shift to solar power, it will result in a cleaner, healthier planet for all of us. Truly a win- win situation for everyone!
The company offers what it calls the Direct Wafer. It is a one-step, kerfless wafer-making process that has the potential to revolutionize wafer manufacturing. By delivering higher quality “drop-in” replacement multicrystalline wafers with unique surface features, 1366’s Direct Wafer technology forms a standard, 156mm multi-crystalline wafer directly from molten silicon. The semi-continuous, high-throughput process eliminates silicon waste, resulting in a more powerful, low-cost wafer.
This revolution is called grid parity. Grid parity is when alternative every source cost the same as traditional carbon based fuels.
Another company on the cutting edge of creating grid parity is the Saudi Arabian firm ACWA Power.
ACWA Power won a bid to produce a 200-megawatt solar power plant in Dubai that will generate electricity for $0.06 per kilowatt hour. This is the first commercial installation where the cost of producing solar energy is less than carbon based fuels. Comparing the costs reveals that electricity from modern coal and natural gas plants cost approximately 9.6 and 6.4 cents per kilowatt hours, respectively.
How Can I Profit?
I can hear most of you now, this all sounds good, but I do I profit without being a venture capitalist and investing directly in the technology?
Well, there are multiple publically traded companies that stand to profit wildly from the drastic cost reduction in solar energy.
The number one name in the space is First Solar (Nasdaq: FSLR). First Solar is the company supplying ACWA Power with the thin-film cadmium telluride solar modules. While most of the thin-film firms gave up during tough times, First Solar held onto the technology and is now reaping the rewards.
First Solar has reduced the cost of the modules by ramping up production and increasing the efficiency at the same time. Now the company can manufacture solar modules for less than 40 cents per watt. This is just the start of the cost reduction. First Solar anticipates the cost will continue to decline over time.
Here’s a closer look at this cutting-edge company.
First Solar is a leading global provider of comprehensive photovoltaic (PV) solar systems which use its advanced module and system technology. The company’s integrated power plant solutions deliver an economically attractive alternative to fossil-fuel electricity generation today. From raw material sourcing through end-of-life module recycling, First Solar’s renewable energy systems protect and enhance the environment.
The company is responsible for more than 10 gigawatts (GW) installed worldwide, and strongly believes that clean affordable solar electricity is an essential part of the worldwide energy mix.
First Solar’s proven energy solutions have diversified the energy portfolio and reduced the risk of fuel-price volatility, while delivering an LCOE that is cost competitive with fossil fuels.
The company presently has developed, financed, engineered, constructed, and operates many of the world’s largest grid-connected PV power plants in existence. By integrating technologies, services and expertise across the entire solar value chain, First Solar delivers bankable PV energy solutions that enable a world powered by reliable and affordable solar electricity.
In very bullish news, the company recently spun off a separate entity known as a yield co. This allows the solar company to transfer completed energy projects to a dividend paying entity. Yield Co’s allow investors to profit from dividends and have created substantial merger & acquisition activity in the renewable sector. In 2014, the sector witnessed 116 M&A arrangements vs 81 in the previous year. M&A activity creates value for shareholders across the board. Seeing it increasing is a very bullish signal for the entire clean energy sector.
The company boasts zero debt and a substantial pipeline of solar projects. Provided the fact that 90% of the firms activity is within the United States, currency conversion should have limited negative impact unlike the firm’s international competition.
Technically, shares have been sharply upward trending since mid-January. Price is about to stage another breakout above $64.00 per share. Setting orders to go long just above this level makes investment sense right now.
The Key Takeaway
The solar sector is on fire right now with plunging costs and approaching grid parity. One of the leading companies in the space is American company First Solar. First Solar is poised to continue to profit from and create grid parity making solar energy the same cost or cheaper than tradition fossil fuels. There is still time for savvy investors to jump on board the solar train for substantial profits.