Energy consumption is growing world wide, and we need to build more capacity. As a country, your options are: Build nuclear plants, build coal plants, build wind parks, build solar parks, or encourage people to add solar to their roofs. Post-Fukushima, it's going to be hard to build nuclear plants. Coal and gas are heavy carbon emitters. Wind isn't suitable for everywhere. Solar is a great, emission-free option, especially for sunny climates.
Demand for photovoltaic will continue to grow. Solar stocks are depressed right now as some countries like Germany and Spain are ending their subsidies to install solar panels. This doesn't mean the end of solar installations though.
One crucial advantage of solar power is that the decision to install solar on your roof can be made and financed by individuals, and the electricity can be consumed where it's produced.
For example, in the US, demand will grow as people realize that they can knock down their air conditioning bill by installing solar panels on their roofs. In sunny states, air conditioning makes up 60 to 70 percent of the summer electricity bill. Solar power provides electricity precisely when air conditioning consumes it - in the middle of the day - no batteries or storage needed. From a recent visit in Arizona, it seems like few people have solar on their roofs, and there will be a lot of cells as consumers get more informed.
There have also been developments in financing solar installations. SolarCity, a company founded by Elon Musk and backed by Google, will finance your solar panels and lease them out to you. This allows people to realize savings without the upfront cost - more and more people are likely to use it.
Germany is a small, rainy country and had 7400 MW of photovoltaic (PV) solar power installed in 2010. The US, sunnier and bigger, meanwhile has 878 MW installed. There's plenty of room to go.
How to invest? It seems like there are three ways to bet on PV solar power.
It seems like the best bet would be to invest in financing companies like SolarCity. They will have reliable cashflows, high profits, and there's little competition in the space right now. Unfortunately, I couldn't find a single public company that does this. Google has made this bet by investing in SolarCity, but it's still a private company, so this isn't something an individual investor can do.
You could invest in the companies that make the equipment to manufacture PV cells. These are primarily German and Swiss companies - one example is Meyer and Burger. They have high profit margins, but by betting on the equipment manufacturers, you're betting on the second derivative: The growth in manufacturing capacity, not on growth in solar power.
Lastly, you could bet on the companies that manufacture the actual PV cells. This is essentially a commodity market, with many companies in the US (e.g. FirstSolar, GT Solar), China (e.g. Suntech, JA Solar), and Germany (e.g. Q-Cells, Solarworld). Some of these companies are trading very cheaply right now because of concerns of overcapacity. Just like there used to be 500 car companies in Detroit at the beginning of the 20th century, I expect a lot of this industry to eventually consolidate. Thus, it's crucial to pick the winners. I've ran the numbers on some of these companies. I'll share those in a second post.