It is hard to imagine a healthier backdrop for alternative energy companies than that provided by today's nervous times. The oil price has $100 in its sights, politicians are engaged in a greener-than-thou race to the environmental high ground and energy security is right at the top of policy-makers' agendas as geopolitical tensions continue to simmer.
Here in Britain, and with half an eye on David Cameron's ostentatious greening, Gordon Brown has been persuaded that early action on climate change is imperative. Britain's renewable energy targets, demanding as they are, now look like being just the starting point. Similar voter-led policy developments are happening worldwide.
It is hardly surprising then that a new report from Swiss private bank Sarasin should present such a bullish view of the outlook for growth in the global solar energy industry. Photo-voltaic cell production rose 44pc last year, Sarasin says, and it forecasts 50pc a year growth for the rest of this decade and then a further 22pc a year until 2020.
Put that on a chart and the numbers for annual installations start to head pretty steeply up the page. The power of compounding means the size of the industry quickly becomes serious. The performance of the solar industry's publicly quoted companies - the main index of solar stocks has doubled so far this year - looks understandable, if dizzying.
Matthias Fawer, the author of Solar Energy 2007 - The Industry Continues to Boom, which is published today, believes growth in the industry might be close to a tipping point. Dramatic reductions in costs, he says, will make solar power competitive with conventional forms of electricity or heat within 10 years.
The industry is currently fuelled almost wholly by government subsidies, but once the big power generators see "grid parity", solar bulls argue, the economics change completely.
Currently, solar is two to three times too expensive to be competitive, says Bruce Jenkyn-Jones at environmental investor Impax, compared with a few percentage points for rival technologies like wind. But developments in areas such as thin-film technology are rapidly bringing costs down. Solar's time may really have come.
It's not just traditional photo-voltaic cells either, Sarasin's Fawer believes. He thinks larger-scale solar thermal power stations and elaborate mirror-based solar collectors are becoming ever more interesting to institutional investors. Air-conditioning based on solar thermal power is a growth area for the future.
Fawer is the first to admit that all this breathless talk about the future sounds reminiscent of the internet bubble eight years ago. But he says there is one key difference: "There are some really strong companies here that are actually producing something. They are really making money."
He even thinks some of the racy multiples in the sector are justified because they are matched by equally optimistic growth forecasts. Although price-to-earnings ratios are in many cases way above market averages - from 25 to as high as 60 or more - so is expected growth. PEG ratios, which compare a stock's price-to-earnings ratio with its estimated growth rate, are in many cases around one. The ratings are justified by excellent prospects, he believes.
Jenkyn-Jones is not so convinced and he believes trouble is on the horizon in the form of oversupply. "Pricing is very strong and there will be reductions," he says. "There's been a shortage of silicon and as that is relieved there will be huge competition. There's no shortage of sand."
According to Sarasin, global solar cell production jumped from 1.7 gigawatts to 2.5 gigawatts in 2006 as a bottleneck in the manufacture of solar-grade silicon cleared. That's good news for consumers and policy-makers but less exciting for the producers of silicon, wafers, cells and modules - which is almost every quoted solar company. Fat margins, which together with growth expectations have fuelled nose-bleed share prices, look set to tumble.
The share price of America's SunPower Corporation traded at $24 in the summer of 2006 and last month hit a high of a few cents short of $150, up six-fold in a year. Today, the shares have fallen to about $117. Another area of concern is the flood of Chinese companies into the sector. Fawer says there has been a rush to market in China by companies such as Suntech, Yingli Green Energy and LDK Solar, eager to raise cash for expansion while the boom continued.
In today's report, Fawer ranks the 26 biggest listed companies in the solar industry on the basis of key performance criteria such as technical know-how, reliability of supply and critical mass. None of the Chinese companies finished in the top 10 despite China emerging as a major player in the industry's expansion.
The biggest concern for investors in the solar sector is its reliance - for the next few years at least - on government incentives such as feed-in tariffs and subsidies. Michael McNamara, a solar expert at US investment bank Jefferies, warns: "The next 12 months will be critical for the solar industry. The key issues will be the evolution of solar incentive programs and what medium and long-term impact they will have on demand."
The meteoric rise in the German solar industry, for example, has been almost wholly due to its government's staunchly pro-solar incentives. Growth from 44 megawatts in 2000 to 959 megawatts in 2006 was not a reflection of Germany's sunny climate.
There is, of course, nothing wrong with investors taking advantage of the way the political wind is blowing. But they need to understand that the gusts can change direction or blow themselves out completely.
Eco-investors have made plenty of hay while the sun has shone but, with markets looking peaky, I can think of safer havens than a group of government-policy dependent stocks trading at 30 or 40 times earnings.
Here in Britain, and with half an eye on David Cameron's ostentatious greening, Gordon Brown has been persuaded that early action on climate change is imperative. Britain's renewable energy targets, demanding as they are, now look like being just the starting point. Similar voter-led policy developments are happening worldwide.
It is hardly surprising then that a new report from Swiss private bank Sarasin should present such a bullish view of the outlook for growth in the global solar energy industry. Photo-voltaic cell production rose 44pc last year, Sarasin says, and it forecasts 50pc a year growth for the rest of this decade and then a further 22pc a year until 2020.
Put that on a chart and the numbers for annual installations start to head pretty steeply up the page. The power of compounding means the size of the industry quickly becomes serious. The performance of the solar industry's publicly quoted companies - the main index of solar stocks has doubled so far this year - looks understandable, if dizzying.
Matthias Fawer, the author of Solar Energy 2007 - The Industry Continues to Boom, which is published today, believes growth in the industry might be close to a tipping point. Dramatic reductions in costs, he says, will make solar power competitive with conventional forms of electricity or heat within 10 years.
The industry is currently fuelled almost wholly by government subsidies, but once the big power generators see "grid parity", solar bulls argue, the economics change completely.
Currently, solar is two to three times too expensive to be competitive, says Bruce Jenkyn-Jones at environmental investor Impax, compared with a few percentage points for rival technologies like wind. But developments in areas such as thin-film technology are rapidly bringing costs down. Solar's time may really have come.
It's not just traditional photo-voltaic cells either, Sarasin's Fawer believes. He thinks larger-scale solar thermal power stations and elaborate mirror-based solar collectors are becoming ever more interesting to institutional investors. Air-conditioning based on solar thermal power is a growth area for the future.
Fawer is the first to admit that all this breathless talk about the future sounds reminiscent of the internet bubble eight years ago. But he says there is one key difference: "There are some really strong companies here that are actually producing something. They are really making money."
He even thinks some of the racy multiples in the sector are justified because they are matched by equally optimistic growth forecasts. Although price-to-earnings ratios are in many cases way above market averages - from 25 to as high as 60 or more - so is expected growth. PEG ratios, which compare a stock's price-to-earnings ratio with its estimated growth rate, are in many cases around one. The ratings are justified by excellent prospects, he believes.
Jenkyn-Jones is not so convinced and he believes trouble is on the horizon in the form of oversupply. "Pricing is very strong and there will be reductions," he says. "There's been a shortage of silicon and as that is relieved there will be huge competition. There's no shortage of sand."
According to Sarasin, global solar cell production jumped from 1.7 gigawatts to 2.5 gigawatts in 2006 as a bottleneck in the manufacture of solar-grade silicon cleared. That's good news for consumers and policy-makers but less exciting for the producers of silicon, wafers, cells and modules - which is almost every quoted solar company. Fat margins, which together with growth expectations have fuelled nose-bleed share prices, look set to tumble.
The share price of America's SunPower Corporation traded at $24 in the summer of 2006 and last month hit a high of a few cents short of $150, up six-fold in a year. Today, the shares have fallen to about $117. Another area of concern is the flood of Chinese companies into the sector. Fawer says there has been a rush to market in China by companies such as Suntech, Yingli Green Energy and LDK Solar, eager to raise cash for expansion while the boom continued.
In today's report, Fawer ranks the 26 biggest listed companies in the solar industry on the basis of key performance criteria such as technical know-how, reliability of supply and critical mass. None of the Chinese companies finished in the top 10 despite China emerging as a major player in the industry's expansion.
The biggest concern for investors in the solar sector is its reliance - for the next few years at least - on government incentives such as feed-in tariffs and subsidies. Michael McNamara, a solar expert at US investment bank Jefferies, warns: "The next 12 months will be critical for the solar industry. The key issues will be the evolution of solar incentive programs and what medium and long-term impact they will have on demand."
The meteoric rise in the German solar industry, for example, has been almost wholly due to its government's staunchly pro-solar incentives. Growth from 44 megawatts in 2000 to 959 megawatts in 2006 was not a reflection of Germany's sunny climate.
There is, of course, nothing wrong with investors taking advantage of the way the political wind is blowing. But they need to understand that the gusts can change direction or blow themselves out completely.
Eco-investors have made plenty of hay while the sun has shone but, with markets looking peaky, I can think of safer havens than a group of government-policy dependent stocks trading at 30 or 40 times earnings.
From the Daily Telegraph
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