Moore's law giveth, and Moore's law taketh away.
A little more than a year ago, in a post reviewing Taiwan's charge into solar power, I wrote the following sentence:
Few things are certain in this world, but if Taiwanese high-technology companies are betting on the future of solar power, then consumers can expect that prices will drop, fast. If ever there was a country whose citizens operated as if disobeying Moore's Law was punishable by death, it would be Taiwan.
Judging by the current stock prices of publicly traded solar power companies, investors agree that the prospects for solar power are, well, sunny. The bloom may be off the ethanol rose, but in 2008 solar power is everyone's renewable energy darling. Fueling all the giddy dreams is the hope that the same relentless process of manufacturing innovation that continually drives down the price of computer hardware components will work its magic on a smorgasbord of solar power technologies. And then some day not too far from now, we'll hit that fabled land of "grid parity" -- that point when the cost of solar power-generated electricity is competitive with coal or natural gas.
But before we get there, a little snag lies in wait for the bubblelicious investors swooning over every solar IPO. Too much solar power-generating capacity, too quickly, could be a drag. At least that's the argument made by Jerome Ball, a former telecom industry product manager who has been paying close attention to solar power stocks.
By Ball's calculations, the generating capacity about to be dumped on the market by solar power firms will far outstrip demand over the next couple of years. Global demand, he argues, is primarily driven by government subsidies and incentives, and Ball believes that such subsidies will be flat or even decline in 2008 and 2009. Meanwhile, capital is pouring into the solar power industry and everyone from Spain to Shanghai is ramping up production. Ball even has a shout-out for Taiwan.
While manufacturers have been aggressively ramping for the last 18 months, since October 2007, the rate of capacity increase announcements has recently accelerated to new highs. Not only does everyone want in to PV [photovoltaics], but they all know they need to scale up to top-10 status in order to stay viable. In addition, PV has relatively low barriers to entry. Taiwan manufacturers, for example, see PV as a new opportunity requiring less investment and less risk than offered by the chip/components businesses and are now moving in. They will not abandon a fast-growing market to the mainland.
Some of us are heartened by a boom in generating capacity. But if your goal is to make a killing in the stock market, oversupply is the last thing you want. Too much supply will inevitably hammer profit margins. Pop goes the solar bubble! Time to sell short!
I have no idea whether Ball's predictions about global demand are on the money. There are too many wild cards in the mix. Democratic control of the White House along with Congress in 2009 could lead to a substantial push for more solar power. New "thin film" solar power technologies, such as that pioneered by California's Nanosolar and currently rolling off the production lines, could drastically change the cost-benefit analyses, and bring us one step closer to grid parity. As Ball concedes, as soon as we hit grid parity the global demand for solar power-generating capacity will be effectively infinite, and no one will worry about oversupply for a long, long time to come. Furthermore, China alone is so hungry for power that one has to imagine that any glut in solar power-generating capacity will disappear into its maw in short order.
Putting the concerns of speculators aside, the main worry, from a consumer's point of view, is that a glut of supply doesn't incite a crash so huge that the industry is crippled for years to come. And that just seems unlikely. A far more probable scenario is that the weak, inefficient players get weeded out. It isn't easy making money in the semiconductor or computer hardware business -- just ask Dell. As consumers we should hope that the same holds true for solar power. Vicious, nasty, brutish, only-the-strong-survive competition based on relentless cost-cutting is exactly what the doctor ordered.
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