Wednesday, October 08, 2008

Looking for a Solar Energy Play (Long Term Only!)

I like renewable energy, but I have serious doubts about the long-term viability of some energy technologies. Solar energy sure sounds like a neat idea, especially when you read articles like this:

Demand for solar panels still exceeds supply despite a global financial crisis, allowing solar power company Suntech Power Holdings Co Ltd to keep 2009 price declines in the range it had previously forecast.

Chinese solar companies aren't the only ones optimistic about the future:

Solar cell maker First Solar Inc has felt no immediate effect on its business from the financial markets crisis and could take on a role in financing new projects or buying into new technologies, Chairman and CEO Michael Ahearn said on Wednesday.

That all sounds really great, but there's a problem with this latest asset bubble scenario. Thin film solar makers like First Solar depend on rare source materials, and First Solar in particular depends on cadmium telluride. This rare material isn't available in quantities large enough to sustain First Solar's long term economic viability. Solar companies predicting rapid, massive market share growth might be right for maybe the next three years, but after that they will hit a resource supply wall that make them look like low-yield, no-growth utility companies after 2011.

I like Jack Lifton's articles on rare metals. I met him at the Las Vegas Hard Assets Conference this September and I listened closely to his thoughts on resource availability. Read this for some solar sanity:

There is simply no possibility of increasing the production of cadmium, indium, gallium, tellurium, or selenium to any volume remotely near what would be needed to make enough thin film solar cells to make even a dent in total global demand for electricity production. The US today has an installed capacity of 4,200 gigawatts. Of this total, the current total from solar of all types is 0.6 gigawatts.

And this for some more stuff to chew on:

Therefore, assuming that all of the new indium produced in the world could be utilized to produce CIGS thin-film PVSCs, the result would be the production of an additional 10 gigawatts of electricity annually. Although the first year would mean a multiplying of the contribution of ‘solar’ to the electricity supply by 20; the contribution would only double the second year when compared with the first year, and so on until by the 20th year the additional contribution yearly would be less than 5% of the total supply of solar generated electricity.
Thanks, Jack. I get the point. Solar photovoltaic cells in any form have limited utility in the future due to the scarcity of resources used in their production.
I would like to propose the following general rule: The least complicated technology that uses the most widely available source material has the greatest likelihood of long-term commercial viability. I'm looking for investments in renewable energy that apply this principle.
How about solar thermal technology? Mirrors are simple and cheap to produce, so the materials involved in building the control systems for heliostats are the keys to viability. Google invested in eSolar, a solar thermal startup. More about this technology in a future blog posting.
Nota bene: Anthony J. Alfidi does not hold any position in GOOG, FSLR, or eSolar at the time this commentary was published.