It’s all about the Benjamins
I hear over and over again that solar energy is simply too expensive and too reliant on subsidies to survive, but few people know just how cheap solar electricity has become. Earlier this year, Todd Myers of the Washington Policy Center said, “The fundamental problem is it’s not economically sustainable.” The problem with that thesis is that facts about solar power get in the way.
Germany is now driven by the economical cost of solar. First Solar, Inc. (NASDAQ:FSLR) says that its cost to produce energy, which are lowest in the industry, will fall from about $0.15 per kW-hr in 2010 to about $0.075 per kW-hr in 2016. These costs are before incentives or tax benefits and will be below the cost of retail electricity in all 50 states.
Still don’t believe the numbers? First Solar, Inc. (NASDAQ:FSLR) just signed a deal to sell power from a 50 MW facility to El Paso Electric for 5.79 cents per kW-hr. That’s less than half of the 12.8 cents per kW-hr Bloomberg estimates it would cost to build a new coal plant.
Last year, SunPower Corporation (NASDAQ:SPWR) won a contract to supply power for 10.4 cents per kW-hr to Kings County, Calif. That’s about two-thirds the cost of retail electricity in the state.
As you can see, solar power is already competitive on a cost basis — which is what really matters. The biggest difference between solar power and fossil fuels right now is their cost trajectory. The cost of fossil fuels is rising and the cost of solar is dropping — fast. What other energy source can you say that for?
How to play solar now
There are three — and only three — solar companies I would consider investing in, given the landscape I’ve laid out. SunPower Corporation (NASDAQ:SPWR) is my top pick because it makes the most efficient modules and has exposure to all parts of the solar industry. First Solar, Inc. (NASDAQ:FSLR) is in the running because it has a great balance sheet and industry-leading utility scale costs. SolarCity Corp (NASDAQ:SCTY) is also worth keeping an eye on because it is the dominant residential and commercial installer in the United States.
I would stay far away from Yingli Green Energy Hold. Co. Ltd. (ADR) (NYSE:YGE) and Trina, the latter of which incidentally lowered its first-quarter guidance this morning. Chinese solar is too risky to bet on.
The article Like It or Not, Solar Energy Is Here to Stay originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower. He also owns shares of SunPower and has long January 2015 $7, $5, $15, and $25 calls on SunPower. The Motley Fool has no position in any of the stocks mentioned.
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