Is that the sun I see…or are you just happy to see me?

To follow up on my previous post (see the Fast Company article here), the solar energy sector is going to be interesting from an investment perspective in the near future. Solar energy has been touted as the future of energy for some time now, but has always been relegated as a minor energy source. There are a few reasons for this, a major one being the cost for solar has been significantly higher than other sources such as coal and oil, the latter resources being extremely cheap up until the run-up in cost at the end of 2007/beginning of 2008. The second being that comparatively small sums of money have been invested in solar as opposed to oil, making it more difficult for companies to reach the economies of scale needed to really reduce the cost of solar technology. And while solar technology is a heavily subsidized industry, those subsidies are peanuts compared to those given to the oil companies, about one-twentieth worldwide according to the Fast Company article. I can’t help but wonder that if more people knew about this, they would be even more furious with the oil companies that have been taking in record profits the past few years.

Why then is solar an industry to look at now? Firstly, most of the world’s major countries (western Europe and Japan) have rules in place that require companies to get a certain percentage of their energy from alternative sources, thereby increasing the demand for solar products. With Obama coming in and stating alternative energy is a priority, the demand in the US is likely to increase. And as demand increases, larger companies will start to realize there is a profit to be made and might join in, thereby increasing competition and lowering the price of solar future. Second, as the price of oil increases (the recent drop in prices is not likely to stay; it is likely more a result of the recession, in my opinion) and the price of solar decreases, there will reach a break point where solar is equal to or less expensive (and increasing more accepted) than other common energy sources, at which solar energy usage would likely skyrocket.

So as an investor, what stocks are available to take advantage of these treads? Investors should keep in mind that over the long-term, solar energy stocks have the ability to skyrocket. However over the short term, the stocks are quite volatile. Therefore an index like Market Vectors Solar Energy (KWT), Claymore/MAC Global Solar Index (TAN), or PowerShares WilderHill Clean Energy Portfolio (PBW) would be good as a long-term investment, while companies like SunPower (SPWRA), Applied Materials (AMAT), Q-Cells (QCE), First Solar (FSLR), and Dyesol (DYE) might be good in the short term if you can get them at a good price and hope for a run-up on good news.

Side note: One should not discount the lack of acceptance of the aesthetics of alternative energy sources, and not solely the higher costs, as a major factor in why more money has not been invested in them. When the economy was booming and people were doing well, factors unrelated to the actual usefulness of the technology keep alternative sources down. How many times did you hear people filing lawsuits against wind companies for putting up windmills along the coast, claiming it ruined the view of the ocean? Or hear people decry that a solar panel is an eyesore when placed on a roof? Or that a nuclear power plant or even power lines reduce the property values? But now that people are hurting financially, I think those arguments will start to lose hold, and people will gradually accept the aesthetics of alternative energy sources.