Wednesday, December 28, 2011

The future for solar power

I certainly believe that there is a very bright future for solar power, but there is also no question that the sector was heavily over-hyped in the past decade. Now as a lot of the hype has gotten burned off over the past year, maybe we can get back to the real business of focusing on real demand and real economics. I enjoyed reading the summary of the plight of the solar power sector in The Wall Street Journal by Yuliya Chernova entitled "Dark Times Fall on Solar Sector", but the article left the issue hanging.
 
My personal view is that economics matter tremendously and we need to walk a fine line between government promotion via subsidy and simply standing back and letting markets work their magic. Maybe we are finally at the stage where government subsidies are hitting diminishing returns and we should focus more attention on focusing solar power on applications where raw cost is not the primary issue. For example, a lot of consumers really would prefer to pay a little more for "clean" energy that helps to fight Global Warming and Climate Change. There are also plenty of remote government facilities which would benefit from being less reliant on supplies of fossil fuels.
 
A lot of the debt taken on by fledgling solar power companies was clearly misguided and we will certainly see a dramatic shakeout of the industry, but that is a very good thing and is quite typical of emergent industries.
 
At some point the Chinese government subsidies for the solar power sector will peak and the sharp decline in component costs will become more moderate, at which point I am sure there will be plenty of U.S. private equity capital available to roll up the remaining viable domestic solar manufacturers at fire-sale prices into a more profitable structure and then move forward.
 
Exactly what the structure of the solar power sector will look like five or ten years from now is anybody's guess, but at least that longer-term future is very bright indeed, even if well beyond the limited and shortsighted vision of the WSJ.
 
And meanwhile we should be profusely thanking the Chinese government for helping to push solar power to be a much more economic option for the production of electricity.

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