There was a mad statistic at the end of Friday’s issue: solar power has doubled its market share seven times in the last 15 years.
Here’s what seven doublings looks like in a chart. The X-axis shows time obviously, and the Y-axis shows solar’s share of the global market on a logarithmic scale.
Solar’s global market share
Source: BNEF, UNEP
(Note: In a logarithmic scale, every step up the Y-axis is double the previous step. It’s hard to see how fast solar is growing without a logarithmic scale. With a simple linear scale, the graph would be like a backward L shape – horizontal in 2000 and vertical in 2015.)
Solar only has 1-2% of world output… but you can see for yourself where it’s headed.
Looks compelling, right? So should investors pile into solar energy stocks and ride that chart all the way up to 50% global market share?
The answer isn’t obvious. Because there’s a disconnect between solar technology – which is amazing and improving very quickly – and the returns made by investors in solar technology.
Yes, solar technology is progressing very quickly and growing its share of the global market. But investors in solar have not made money up to now.
Something’s got to give – either solar technology fails to keep up its amazing growth, or investors in solar companies are finally going to start making money. Let’s see which.
The science part
Over at Exponential Investor, Andrew Lockey has a smart piece about solar panel technology. You should read the whole thing. But he basically says that, in order for solar to keep growing, two things are going to have to happen.
The first is that the technology is going to have to get better. In other words, the folks in the R&D labs are going to have to make the panels more efficient. They’re aiming for the theoretical maximum level of efficiency – 86%. That’s only about four doublings away from the current level.
(I’m talking in “doublings” rather than whole numbers because solar technology has been progressing at that exponential rate – like the way computer chips double in speed roughly every 18 months.)
Making the panels optimally efficient in the R&D labs is the first step. The next step is working out a way to manufacture the panels more cheaply. Efficient technology is all well and good, but if it can’t be manufactured cheaply it’s of no use. So the solar companies are going to have to lower the unit cost of generating solar electricity by manufacturing panels in a more efficient way – by building bigger factories, for example.
If the solar industry can do those two things – figure out more efficient ways to capture sunlight, and more efficient ways to build the panels – solar power can keep growing its share of the market insanely fast.
The money part
Enough about the technology. What’s all this about investors in solar making no money?
See for yourself. Here’s a chart of the Guggenheim Solar ETF (ARCA: TAN), which invests in the biggest companies in the solar industry. It invests internationally, in big solar companies as well as small.
I’ve been puzzling over this one for a while now. What is it about the solar industry that allows it to grow so fast, and return so little to its financial backers?
More on that tomorrow. Stay tuned.