For a year before US president George W Bush deplored America’s addiction to oil in last week’s State of the Union address, the solar power sector has been running hot.
Cypress Semiconductor’s solar power subsidiary Sun Power floated in November raising $115m and seeing its offer price shoot up 50 per cent; the month before the German solar power company Q-Cell floated in a $288m offer and in October last year ErSol saw its shares climb 50 per cent on its initial public offering.
“The Nomura Solar Energy Index rose by 161 per cent in 2005 and by a further 56 per cent in January 2006 alone,” said Sean Murphy, global semiconductor equities analyst at Nomura International. “The market capitalisation of the sector now stands at over $20bn with European companies accounting for 47 per cent of total sector capitalisation.”
Investment in the solar power sector is in a ‘tornado phase’, according to Nomura. “Technology investors are familiar with the ‘tornado’ phase when nascent markets suddenly bust into raging growth, when investors clamour to offer start-ups money and where tomorrow’s gorillas make their strategic moves ahead of less nimble competitors,” said Murphy.
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A Sun Power project in Germany
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Many governments, including those of Germany, Japan, Italy Spain and California have provided incentives to kick-start demand for solar power and some Asian governments are considering similar measures.
According to Murphy, although these incentive programmes are driving the market today, falling costs mean that solar power will become economical for peak energy needs on a standalone basis within five years, and for baseline electricity generation within ten years.
Cypress Semiconductor’s CEO, Dr T.J. Rodgers reckons it costs $3 to generate 1W of solar power, and as little as $1.5 in rural areas. Sun Power’s standard product offering contains 72 solar cells in a 32 x 64 inch panel which generates 150W and costs $700.
The current leaders in solar cell production are: Sharp, Kyocera, BP Solar, Mitsubishi Electric, Q-Cell, Shell Solar, Sanyo and RWE Shott. The market is estimated to be worth $5bn. Electricity generation is a trillion dollar plus industry.
“There are short-term risks of over-valuation,” said Nomura’s Murphy, “but the long-term demand seems secure.”