Solar Index -ETF
Oil up 697% since 2001
Solar Two
OIL RIG
IT IS TOPICAL : CRUDE, ENERGY AND ALTERNATIVE ENERGY!
Watching an interview of a Shell top executive on CNBC on the concerns of increasing oil prices hitting near to USD140 triggered me to write on solar energy. Questions were put to him as to what Shell has done to look into alternative energy, a clean renewable energy for that matter. He assured on TV that Shell has, in fact, started a system using wind energy and it will make a difference in 10 years’ time.
One alternative energy which can be harnessed is solar energy. What is solar energy? Concentrated sunlight has been used to perform useful tasks since the time of Ancient China. Also legend has it that Archimedes used polished shields to focus sunlight on the invading Roman fleet and repel them form Syracuse. In 1866, Auguste Mouchout used a parabolic trough to produce steam for the first solar steam engine. The list goes on that subsequent developments led to the use of solar-powered devices for irrigation, refrigeration and locomotion.
Concentrating Solar Power (CSP) systems use lenses and tracking systems to focus a large area of sunlight into a small beam which is then used as a heat source for a conventional power plant. Technologies developed as the solar trough, parabolic dish and solar power tower. In all these systems, a working fluid is heated by the concentrated sunlight and then used for power generation or energy storage.
Storage is vital issue because modern energy systems usually assumes continuous availability of energy. Solar energy is not available at night, and there are unpredictable weather patterns to contend with. Therefore, storage media or back-up power systems must be used.
Thermal mass systems can store solar engery in the form of heat at domestically useful temperatures for daily or seasonal durations. Well designed systems can also lower peak demand and reduce overall heating and cooling requirements.
Solar energy can be stored at high temperatures using molten salts. The Solar Two used this method of energy storage, allowing it to store with an annual storage efficiency of near to 99%.
Excess electricity can also be fed into the transmission grid. For large scale use of renewable energy the most practical storage is hydro-storage.
The reason why I have given a little background of solar energy is the fact that the solar energy industry is a big business today. Some solar manufacturers have bigger market capitalizations than many well-known energy companies.
You can read Profiting from Clean Energy (Wiley 2008) by author Richard Asplund, also the investment analyst who developed the index underlying the world’s first solar exchange traded fund (ETF) - the Claymore/MAC Global Solar Index Exchange Traded Fund (TAN).
According to Asplund, even the US is waking up to the investment opportunities by starting a lot of research in thin-film solar and a lot of venture capital is flowing into basic solar research.
This industry is technology driven, with skilled labour. For example, Renewable Energy Corp of Norway just decided to build their big new plant in Singapore where skilled labour is available and cost of labour is not the issue. Speculation as to why they did not choose China could be : intellectual property protections, infra-structure of transport and pollution issues. This is not a straight commodity business but a high technology business.
According to Asplund, ETF structure is a good way to diversify risks. The advantage of the ETF structure is the diversification of the portfolio across technology. The investor owns all and if whatever works, will take off inside the index.
People sometimes look at solar investing as if it is a bubble, a science experiment bubble like the dot com boom of the late 1990s. Actually, the solar industry has been out of the lab for years and is in mass production on a big scale. The US and other countries have been working on solar for 30 – 40 years.
The solar sector in 2007 had USD30B worth of sales and is profitable. Twenty of the 25 stocks in the MAC Solar Index had a profit in 2007. This is a bricks-and –mortar sector; during the dot com bubble, there were no profits to base the valuations.
There is short term risk from changes in regulatory policy but this industry is being driven in part by subsidy-supported demand as in Euro zone and even in the US. Costs are expected to come down and over the next three years, prices should come down to reach grid parity.
Hence, over the long term , the industry is moving towards grid parity and short term fluctuations should not matter so much as companies in the lead in the solar sector are going to make big bucks.
With the prices of oil going north each day after intermittent retracements, it is time to chill off and to log on to solar ETFs.
Ag Moderator
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