Should Solar Investors Be Looking Beyond the Solar Panel Makers?

• By Paul McWilliams, Editor, NextInning.com
• On 9:13 am EDT, Thursday August 27, 2009

While the solar power industry looks fairly simple from the outside, when you look below the panels and the rooftops around the world, there is much more to it than first meets the eye. New technologies are hitting the market that overcome the technical limits on the viability of solar energy. Overcoming these challenges has brought rise to a host of investment opportunities throughout the supply chain, ranging from manufacturing equipment to materials and, of course, to the semiconductors used to control and deliver power to our homes and businesses.

There are two fundamental approaches to making solar panels. The first and still most common and most efficient approach are photovoltaic cells (PVC) which are manufactured on silicon wafers using fabrication technology that is very similar to that used to manufacture integrated circuits (IC). As a matter of fact, silicon-based PVCs are members of the semiconductor family. There are many companies participating in this end of the market. Two of the more notable U.S.-listed pure plays in the segment are SunPower (Nasdaq: SPWRA - News, SPWRB - News) and Suntech Power Holdings (NYSE: STP - News).

Second generation solar panels utilize thin film technology to deposit semiconducting materials on glass and ceramic. While the efficiency of thin film technology has improved dramatically over the last few years, in practice it is still only about half that of silicon wafer PVCs. One of the larger pure play companies in the thin film field that is traded on a major U.S. stock exchange is First Solar (Nasdaq: FSLR - News).

There are many companies in the solar panel business including Sharp, Sanyo, Mitsubishi, REC, Solon, BP and a host of Chinese companies that manufacture both private label panels and panels under their own brand name. I expect that with the recent solar-friendly policies instituted in China, we'll see this latter trend accelerate. The short story here is there is no shortage of competition and the trends suggest competition will increase going forward.

Even if you understand the dynamics of PVC versus thin-film, this doesn't get to the heart of the economics involved in the widespread adoption of solar power. The story here involves everything from far-reaching government policies to the impact of bird droppings on solar panel efficiency. Meanwhile, investors interested in the solar story should be looking beyond the solar panel manufactures, to names like Corning (NYSE: GLW - News), International Rectifier (NYSE: IRF - News), MEMC (NYSE: WFR - News), ARM Holdings (Nasdaq: ARMH - News), Amtech Systems (Nasdaq: ASYS - News), and others.

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