Why Does Big Money Still Love Solar?

Written by Brian Hicks
Posted October 25, 2006

Last week, President Bush announced that the push to develop alternative sources of energy and wean the nation off foreign oil shouldn’t be slowed by falling gas prices.

We couldn’t agree more.

But the fact remains that since the price of gas has fallen to $2.20 a gallon, some renewable energy investors have lost faith.

In fact, the current cost of gas at the pump and the current price of oil are the two top concerns I hear every day from Green Chip investors.

But, as you’re well aware, this is all temporary.

The need for domestic sources of clean, renewable energy, however, is not.

And this is a truism that is attracting big money to renewables—despite temporary dips in oil prices


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Why Big Money Still Loves Solar

Convincing investors to tap the solar market earlier this year was nothing short of a cake walk.

Oil was creeping up to $80 a barrel, and the triple-digit gains early renewable energy investors were seeing made the Johnnies-come-lately salivate like rabid dogs.

But today it’s a much different story.

After a much-needed market correction, a less-than-catastrophic hurricane season, and a 25% drop in oil prices, the renewable energies market has lost a bit of its sparkle and shine—discouraging individual investors who, only six months ago, were singing the praises of ethanol, solar and wind.

Now, with fear and uncertainty having more of an influence than reality, it’s no surprise to see seasoned big-money outfits ramping up their offerings in this market even further. And this fear and uncertainty has provided fertile ground for opportunity!

In fact, just last week at the Solar Power Conference and Expo in San Jose, you couldn’t turn a corner without bumping into an investment banker, angel investor or VC hotshot.

I’m telling you...this thing was more of a who’s who in the investment world than just a solar conference.

Take a look at some of the money that was floating around this year’s conference:

  • Meridian Capital
  • MMA Renewable Ventures
  • JP Morgan
  • ThinkEquity Partners
  • Cornell Capital
  • MILCOM Venture Partners
  • Vantage Point Venture Partners
  • Draper Richards
  • Piper Jaffray
  • Morgan Stanley
  • Deutsche Bank AG

This, my friends, is a real indicator. Not a pre-election slide in gas prices!

Five Googles!

During the opening session of the Solar Conference, Vinod Khosla (co-founder of Sun Microsystems and one of the most successful venture capitalists in the world) made an extremely bold comment—even for a group of ultra-optimistic solar advocates.

While discussing his take on solar, he said that the state that really starts to embrace renewable energy R&D and tech businesses will “produce five Googles!”

Now, on the surface this may sound pretty outlandish. But this is energy, folks. Not search engines!

And while Google is certainly impressive as hell, you can’t run your car on it...you can’t heat your home with it...and it’s not responsible for the daily operation of our entire civilization.

So is it really so impossible to believe that Khosla has hit on something real here?

The fact is, the only thing keeping solar from being embraced by every home and business in the US right now is cost. But because of technological advances in production and efficiency, as well as a continued influx of investment dollars, the cost of solar will continue to decrease.

In fact, according to the President’s Solar America Initiative, solar could actually be cost-competitive in less than ten years.



And the companies that can finally break the cost barrier and bring solar down to competitive levels will be worth more than any Google.

You can count on that!

So, it’s really been no surprise to watch the solar industry continue with its tremendous growth in 2006.

The fact is, thanks to rising energy prices and the expansion of federal and state support for solar development, the US solar energy industry has seen record growth yet again this year.

  • PV installations will grow by 20% in 2006, likely putting the US ahead of Germany and Japan for the first time in years.
  • Utilities have announced contracts to build over 2,000 MW of new concentrating solar over the next decade.
  • The solar water heating segment is now projected to grow 50% in 2006 and 2007.

And you definitely can’t talk about the growth of the US solar market without talking about California.

In fact, many in the industry see California’s Solar Initiative (a program that’s funded with $3.35 billion over the next 11 years) as the first step to putting the US back in the lead for solar dominance.

The program expands the net metering cap to 2.5%, allowing approximately 500,000 new solar systems into the net metering program; mandates that solar systems be standard options for all new homeowners; and requires the state’s municipal utilities to create their own solar rebate program totaling $800 million


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Now, while some investors cringe at the sight of mandates and subsidies, you can’t ignore the fact that this is simply going to happen. For reasons of energy security and environmental concerns (that are real enough to swing votes), this money will continue to prop up renewables until the industry can become competitive with non-renewable sources of energy. Which, by the way, also have their own subsidized cushions tucked safely in various pieces of legislation.

Regardless, this really all comes down to the simple question of...

Do you want to argue about subsidies (which will continue at least until 2010) or do you want to make money?

Clearly we know how the market movers feel about this. It’s quite obvious they’re doing everything they can to get a foothold in this industry while the opportunities are still abundant.

And we are too!

While the masses continue to allow lower gas prices to blind them to the big picture, we’ll continue to scoop up the best solar plays in the market.

And when those oil and gas prices go right back up (and they will), so will these select solar stocks that we’ve uncovered.

In fact, one company that really stood out at this year’s solar conference is one that we’ve been following since July.

The stock is up about 11% since our original recommendation. But after seeing how the crowd reacted to this company’s technology, I’ve never been more convinced that this one’s going to be a big-time producer for us well throughout the rest of 2006 and into 2007.

If you’d like to read more about this company and its technology that’s got the entire solar industry salivating—click here now.