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How to Evaluate Solar Power Stocks: A Solar Company's Investment Merits Come Down to One Question



How does an investor evaluate a solar power stock? Without a frame of reference regarding profitability, it can be difficult to determine if one solar stock is better than another. It can be equally difficult to determine if any of them are better than other industry stocks. There is one over-arching question, however, that could serve as a foundation for any analysis.

That question is…

Which Solar Power Company Can Bring the Cost of Electricity to Under 10 Cents Per Kilowatt Hour?

The national average cost per kilowatt hour of conventional electricity is 10 cents. Unless a solar power plant can produce electricity at about the same cost, without government subsidies, there’s no particular attraction to the resource.

Clearly there has to be some allowance of time for research and development of the technology. However, even though the process to garner solar power is still being refined every day, there are publicly traded companies (though only a few) that are already generating electricity for paying customers. As mentioned though, they are being subsidized, which isn’t a long-term solution.

With that as a backdrop, it’s also important to understand there are actually two ways to produce solar power electricity.

1. Solar thermal power magnifies the sun’s rays to create heat that’s used to boil water, which in turn is used to crank a steam-engined generator. Electricity generated in this manner costs between 12 and 23 cents per kilowatt hour. However, the plants that can do this generally need to be located in the southwest part of the U.S. where the sun is the strongest. The electricity then needs to be transported to other locations. Those transmission lines can cost more than $1 million per mile, which adds a significant cost.

2. Photovoltaic panels convert sunlight directly into electricity within the panel itself. Photovoltaic energy currently costs between 16 and 28 cents per kilowatt hour, on average.

Most publicly traded investments available so far have been companies creating photovoltaic panels. The cost control required to make solar power economically feasible is mostly a function of how much these panels cost, and how much power each can produce. So, though these manufacturers aren’t ‘energy providers’ in the traditional sense, the burden is still on them to make panels that are cost effective … the per-panel price needs to be the equivalent to 10 cents per kilowatt hour for the life of the panel.

Solar thermal power investments are still relatively uncommon. Many of these companies are privately held utilities, albeit it young ones. Still, as the process becomes more proven, public company stocks within the solar thermal power industry are likely to surface.

Either way, the benchmark is the same –10 cents per kilowatt hour Otherwise, consumers will demand cheaper alternatives once the cost is no longer offset by subsidies.

Of course, for any of these companies to be a viable investment, the technology has to be profitable as well marketable. The key to reaching the goal of 10 cents per kilowatt hour is obvious - these solar power companies need to increase the electrical output of their technology, and decrease the financial input in creating it. Many are getting close, but some will get there before others.

3 Mar 2017 4:38 PM | Anonymous

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