Monday, October 01, 2007

Welcome to Alice Springs!

I'm here in sunny Alice Springs. I'm not kidding, the weather forecast varies from "sunny" to "mostly sunny". The high temperature is 37C, which is 98 to my US friends, and it looks like the perfect place to hold a solar conference. I'm speaking at the ANZSES conference this week. My keynote compares the fortunes of Ballard Power Systems and Sunpower and tries to compare and contrast the fortunes of the fuel cell industry ten years ago to the solar industry today.

If I can figure out how to post a powerpoint presentation, I'll put it up after I present (thanks for the tips, Shuman!). The basic gist is that the solar industry today is looking a lot like Ballard was in 1998. Both Ballard and Sunpower rose from $1b~$2b market caps to ~$6b market caps in roughly 18 months.

Both companies have had a long string of successes. Both companies are built on the premise that there is a huge market to be served (automotive for BPS and utility power for SPWR). Both companies have their hopes pinned on expected, but not yet achieved cost reductions.

So what happened? Well Ballard went from stratospheric to ex-orbital (is that a word?) between January and March 2000. The value of the company shot up to around a peak of a $15b market cap! At this time the markets had thought that Ballard's product (the Mark-900 automotive fuel cell) was ready for mass-production and the market. Over the next 2, 3, 4 years it became clear that, while the product was fantastic (full disclosure: I was a proud Ballard engineer during this time) there were just too many hurdles to getting to market. Ballard's value fell and it is now "only" a $500m company.

What's different with the solar industry and will it suffer the same fate? While it is true that the solar industry, globally, is heavily subsidized, and if those subsidies went away there would be a massive decrease in the new installations of solar, the solar industry does not face the difficult path that the fuel cell industry did. The fuel cell industry faced a huge "chicken and egg" problem - no one would buy a fuel cell vehicle without refuelling stations established - no one would establish fuelling stations without an installed fleet of vehicles. There were many other difficulties too, but let's stick with this one as it is the one which is not solvable with technical improvements. This "chicken and egg" problem prevented, not just mass-production, of fuel cells, but darn near any production of fuel cells. Fuel cell companies could not even begin to start riding the learning curve of production down to reduce costs.

Solar, on the other hand, doesn't face such a barrier. This is allowing solar energy (and here I'm just speaking of PV) to be produced in huge quantities. Each solar cell produced costs less than the cell before that. This is giving the solar energy the momentum it needs to continue to drive down costs, and then eventually compete without subsidy against other forms of electricity generation. This slow, but steady, improvement is an opportunity the poor fuel cell was never provided. Ballard's engineers built a killer product, but it was required to compete fairly with the automotive engine from day 1, and build out a supporting installed base at the same time.

So, are solar energy stocks overvalued? Perhaps, perhaps not. If I knew for sure I'd be calling my broker. However, we at Starfish feel that the opportunities in the solar industry are certainly real, and that, this time, there are real, long-term, sustainable, businesses to be built that have a decent path to market. I'm here in Alice to see if I can support any. Oh, and to soak up some sun!

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