Chicken or Egg Question for Solar Cell Makers

For well over a hundred years solar cell manufacturers have been working to perfect more efficient devices.  Efficiency is measured by the capacity of a photovoltaic device to convert sunlight into electricity.  The first solar cell was made from selenium with a thin layer of gold to form junctions.  It was about 1% efficient.  Solar panel manufacturer SunPower Corporation (SPWR:  Nasdaq) makes the most efficient solar cell today with the capacity to convert 22.2% of the sunlight that strikes it to electricity.  That is about 0.15% per year increase in efficiency.

The quest for efficiency is important given that a doubling in conversion capacity means a solar cell can produce 50% more electricity.  Solar panel manufacturers have this in mind when developing new products.  Higher watts command plumper selling prices.  Capital costs for producing photovoltaic cells are considerable.  More efficient cell technology can mean reducing capital cost per watt.  Coupled with higher selling prices, the possibility of improved profits is tantalizing.

On the other hand, the solar industry seems to continuously crash into a barrier imposed by storage capacity.  No matter how efficient the solar cell, as an intermittent energy stream solar power must be stored at some point to 'smooth' distribution to end-users when they need power.  True enough, residential installations can take advantage of net metering technology to export excess electricity when solar production exceeds the load and drawing electricity from the grid when loads exceed production.  However, storage is still needed in the home as well as commercial solar farms.

Cost of Manufacturing

Multi-crystalline silicon wafer cells dominate the solar panel industry largely because this type of technology is lower cost to manufacture.  What is more thus cells type can delivers as much 15% to 17% efficiency in energy conversion.  That said, a new solar cell technology called PERC (Passivated Emitter and Rear Cell) can deliver significantly higher efficiency near 19%. 

The Solar Energy Research Institute of Singapore recently completed cost models for various solar cell technologies.   The study included cell processing, manufacturing equipment costs and raw materials costs. Taking expected lifecycle into consideration the Singapore scientists determined it costs about $0.215 to manufacture a multi-crystalline cell and $0.245 per watt to turn out a PERC mono-crystalline cell.  Multi-crystalline PERC cells are a bit less expensive at $0.222.

The Singapore study also looked at various alternatives for reducing costs.  Focusing on multi-crystalline PERC cell manufacturing, they found a penny and a half in potential costs savings. Reducing labor expenditures through efficiency could deliver a half penny cost savings.  Ironically, electricity costs were also on the list for potential savings.

Storage Costs

In commercial solar energy situations, storage is usually accomplished with batteries of some kind. For example, Arizona Public Services recently made plans to add a 50-megawatt battery system with a new 65 megawatt solar plant to its fleet.  APS is calling it a solar-fueled battery that will allow them to use power from First Solar’s (FSLR:  Nasdaq) adjacent solar farm and discharge it from the battery as the sun sets.

The National Renewable Energy Laboratory (NREL) estimates that, at the current pace of solar power adoption, California will create a need for 7,000 megawatt hours of four-hour storage.  Texas and New England were identified by the NREL as on the same path as California in terms solar power penetration.

Investors can get some insight into costs from recent installations.  In January 2018, a Hawaii electric utility arranged for a 28 megawatt solar array with a 100 megawatt battery system that is estimated to cost $0.11 per kilowatt hour.  In the same month, Xcel Energy (XEL:  Nasdaq) arranged for solar energy storage for a median price of $0.036 per kilowatt hour.

Looking at these costs, it might seem like the industry is making progress.  There is much that still could be done to reduce storage costs and improve solar energy as an alternative to fossil fuels.  Just about every kind of battery made has been tried for solar installations  -  lead acid, lithium-ion, nickel allow, vanadium alloy.

Xcel Energy is working with Panasonic to install lithium ion batteries.  Panasonic has partnered with Pika Energy, an inverter manufacturer.  Tesla, Sonnen and LG Electronics are also in the solar power storage game.  All of them offer a lithium ion battery product.  Lithium ion batteries are among the lightest weight and most efficient batteries.  Unfortunately, these batteries only have so much physical energy density, so there are limits to charge capacity.  They can also be dangerous if electrodes come in contact with each other. 

Which problem is the greater obstacle to the long-term success of solar power  -  high cost of production or high cost of distribution technology?  There may be no clear answer to that question today.  However, investors can still be guided in their stock choices by the awareness that manufacturers and customers are struggling against cost pressures.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.