Solar Will See $3.7 Trillion in Investment by 2040

Oil is still below $45 per barrel here in the United States, and investors fear the oil stock. At least, that's what analysts would have you believe.

They're probably right, but I have a feeling there's a bigger shift taking place and many are just unaware. It's a change that comes with the larger energy transition going on right now throughout the world...

I'm talking about renewable energy, and today, I'm talking specifically about solar.

Solar power is a great and almost unique form of energy in its capacity to be both a commodity and a technological innovation. Where the history of the oil industry was built on brawn and tactical, natural discovery, the revolution in solar power has been built on innovation, connectivity, and technological advancement.

Sure, the oil industry uses technology, but its endgame is still to pull natural resources from the ground and burn them to create energy.

The solar industry is built on technological advances that allow increasingly more cost-effective absorption of the sun's radiation. The technology makes whole the capacity to produce energy.

Here's a look at one of the latest innovations coming in the sector...

Last week, news of these special new solar panels made the rounds through tech and energy media circles, and it shows the capabilities of a technology more and more people are using to free themselves from utilities.

A research team at the University of Michigan developed these solar cells using the Japanese art of Kirigami, which involves cutting and folding paper.

Most of the solar panels installed today tilt at different degrees throughout any given day to better face the sun and absorb more light, but such tilting mechanisms create a lot more cost and can be impossible on some angled rooftops.

That's not a good thing for the solar industry because more than 80% of all solar installations happen on angled rooftops.

With these Kirigami solar cells, the same tilting effect occurs without many mechanics other than the contraction or expansion of the cells.

When adjusted to face the sun at a better angle, solar cells can generate up to 40% more electricity without adding more semiconducting material, so if these cells can be produced cheaply, expect big solar companies to swoon over the idea.

It's the technological identity of solar that makes it more exciting (for some) than oil, coal, and even natural gas, and it's the reason solar will become one of the biggest investments ever seen within the next 25 years.

The Financial Future of Solar

As the technology of solar has improved, so has its cost competitiveness. Since 2009, the cost of solar photovoltaic panels has dropped by about 75%. And according to Bloomberg, the cost of panels will continue to fall over the next 25 years.

In fact, in just the next three years, solar prices will fall another 25%, according to Canadian Solar. You can find sources throughout the industry that, though they may disagree on the amount, all say the same thing: the cost for solar power is dropping — rapidly.

This cheap revolution for solar power has major companies investing a lot of money into solar projects.

Earlier this year, Apple announced an $850 million deal with First Solar to generate 130 megawatts to power Apple's headquarters, offices, and stores in California.

In June, Cisco announced that it was partnering with NRG Energy to build a 20-megawatt solar plant in Southern California that will help the company reach its goal of generating 25% of its power via renewable energy.

Google is building data centers that exclusively use renewables, and several other companies and government bodies are spending the money up front for the long-term returns that solar power can bring.

Over the next 25 years, renewable energy will see $8 trillion in investment, with solar soaking up $3.7 trillion of this, according to Bloomberg New Energy Finance.

As you can see above, most of this investment will take place on rooftops. That means innovations like the Kirigami solar cells I showed you earlier will be incredibly valuable over the next two to three decades.

But investing in solar can be tricky...

Proceed With Caution

The problem with investing in renewable energy and solar in particular is that the value is tougher to measure than it is with oil or other fossil fuels.

An oil company can measure its profit off of how many barrels of oil it sells, but a solar company has to measure profit over long periods of time (a lot of solar projects are built with credit). The returns become greater as the amount of debt accrued to construct a solar farm or a rooftop apparatus gets smaller.

For investors, the way to play this is to remain cautious. You aren't going to predict a gusher like you could for the oil industry, and you usually won't be able to find some small cap that'll double or triple in a few months off of some unknown innovative technology.

Those Kirigami cells were developed by a research team at a university, not by a company. Most of the world's solar innovations come from universities instead of companies and are, therefore, too visible in the press to become a surprise for the market.

And there's usually not a way to play such an innovation anyway.

Instead, it's better to invest for the long term: Don't go spending all of your free cash on solar. Just put a little bit into a decent high-yield investment each month, and watch your returns grow like they would with a retirement account.

You can reinvest the dividends and create a lot of value for yourself with very little effort. That's the beauty of solar investing: It will take time, but time, in this case, equals a lot of money.

Good Investing, 


Souce: Alex Martinelli for Energy & Capital