The solar singularity: 5 ways new technology is devouring the old

#3 Walking on Sunshine

In 2014 AllianceBernstein’s Michael Parker and Flora Chang conducted analysis on the price of solar energy.  Based on the lyrics, I actually assumed they were quoting a line a from the Public Enemy track (not usually primary research for Asset Management firms so extra points there) and saying that the fossil fuel industry has itself to blame for the rise of solar.  I’m not sure if that’s true but the results sure paint a convincing story for the future of solar.

The decline in the price of solar has been phenomenal, Credit: EIA, CIA, World Bank, Bernstein analysis

They aren’t the only ones with this analysis.  Deutsche Bank is predicting that solar systems will be at grid parity in up to 80 per cent of the global market within 2 years, and says the collapse in the oil price will do little to slow down the solar juggernaut.  Analysis from Citi tells a similar story - dramatic price decreases mean that solar might soon become our cheapest option for generating electricity in much of the world.

The best reason for this rapid change comes from AllianceBernstein.  Solar is a technology whereas fossil fuels require a resource that must be paid for and transported.  Technology gets better and cheaper over time, resource costs often get more expensive.    I quote:

For these [developing Asian economies], solar is just cheap, clean, convenient, reliable energy. And since it is a technology, it will get even cheaper over time

Fossil fuel reserves are still very plentiful and in cases like coal fairly well distributed.  Despite a decline in North America and Europe, global use of coal has actually been increasing.  It’s also widely used - coal is a feedstock in a number of processes such as making steel and fertilizers.  That said, first a shale gas boom and now a solar revolution means that resource companies may soon be sitting on hundreds of billions of dollars in stranded assets that will never get dug up once prices reach an inflection point.   It’s the reason why some coal companies are having stock prices that are looking a bit like terrordomes as well.

Stock prices of three of America's biggest coal companies over the past five years - Peabody, Arch Coal and Alpha Natural Resources.  Credit: Yahoo Finance

 

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