Considering investing in Solar Power companies?

Considering investing in Solar Power companies? Here's an attempt to break down the market and to figure out what to look for.

Photo Voltaic cells are used to generate solar energy. While PV cells aren't exactly following Moore's law, their prices are going down and capacity (conversion efficiency) is increasing. There is but one source of energy and so the improvement is sought in the conversion efficiency of the PV chips to make it competitive with traditional forms of energy.

Some important factors to consider are....

1. Low cost of Production. e.g STP -Suntech Power. Manufacturing based in China.
2. High conversion Efficiency. Every company is striving for this. Sunpower (SPWR) at 22% is way ahead in the competition. Others are in the 15 - 18% frame. If SPWR has excellent patents then they have an excellent advantage long term.
3. A major challenge for this group is the polysilicon capacity. Polysilicon is used to manufacture PV Cells. Therefore its important for PV manufacturers to strike deals for a consistent polysilicon supply. Due to a major increase in demand over the last 2 years the price of polysilicon has gone up nearly 30% (contract pricing). MEMC Electronic materials (WFR) produces most of its own silicon feedstock and has recently inked a 10 year deal with STP.
4. Therefore company size and financial health is very important for ensuring supplies through contracts.
5. A company's base country will play a role as well. Germany and Japan offer the best incentives today to use Solar energy. STP has an excellent advantage as they have good visibility with Chinese government officials (see their website which talks about some visits and statements).
6. Most companies in this sector have triple digit revenue gains and so stock pricing is tough to decide. STP is the most profitable. They also have the lowest institutional investment (partly because its an ADR) and that leaves immense scope for a stock price increase.

Note: MEMC Electronic materials (WFR) is well positioned to take advantage of the polysilicon shortage. They produce most of their own Silicon feedstock.

Regards,
Ahu