The conversion of sunlight into electricity is known as solar power. This can occur directly using photovoltaics (PV) or indirectly using concentrated solar power (CSP) via mirrors or lenses which track the sunlight and focus it from a large area into a small beam. Photovoltaics is a combination of 2 Greek words meaning light and electrical power and is defined as sunlight converted into a flow of electricity or electrons. As light (or photons) strike certain compounds, mainly metals, it causes the surface of the metal to emit electrons which are then accepted by other compounds, and the combination of these two compounds can be used to make the electrons flow through a conductor creating electricity.
In 1839 a French physicist named Alexandre-Edmond Becquerel first observed and described the photovoltaic effect in Les Comptes Rendus de l'Academie des Sciences, "the production of an electric current when two plates of platinum or gold diving in an acid, neutral, or alkaline solution are exposed in an uneven way to solar radiation."
Nowadays solar technology has advanced and its potential is huge. Countries do not have to import solar energy and therefore it is considered to be a secure form of energy.
Solar energy is a renewable source of energy and in countries that have exposure to intense sunlight they are an extremely cost effective method of generating electricity. However in countries such as the UK solar power is still a relatively expensive method of generating electricity due to the UK’s latitude and the frequent incidence of cloud cover, particularly during the peak demand periods of winter and evenings. However the technology is advancing and improvements to the performance of solar panels and storage of the energy produced by them could help to address these issues.
The biggest benefit of solar power is that it generates electricity without any waste or pollution. Solar power has a small carbon foot print as many of the materials used in the panels are recyclable. The panels are relatively low maintenance and are very reliable. It is also inexhaustible and as such is capable of becoming a serious competitor with conventional forms of energy.
Solar panels are fairly easy to install and this can be done on any scale and they are usually installed on site where the power is required which removes any need to transport it. They are widely used in remote locations such as desserts and at sea.
Solar power stations are known as photovoltaic power stations or solar farms. These are large areas of land where multiple solar tracking panels are installed. These installations have been causing controversy in the UK in recent months with planning applications being challenged as being unsightly and a waste of arable land. The British government has recently intervened and overturned previous decisions saying that the disadvantages significantly outweigh the benefits and has hinted that such applications may also fail in the future. Two major projects which had previously been given the go ahead may now be abandoned. Currently there are 143 solar farms which are seeking planning permission.
The cost of installing solar panels domestically in the UK is fairly high and it can currently take many years for the system to pay for itself in terms of bill savings and support scheme income. A 2.7 kWp system should produce 1,700 kWh per year which is the equivalent of 50% of the annual household electricity consumption and would cost approximately £12,000 to install. It is estimated that the cost of generating electricity using solar panels in the UK will be 25.2p/kWh by 2020.
Currently in the UK there are government backed subsidies available called Feed-in Tariffs in order to encourage households to install solar panels. There are 2 different ways that consumers are rewarded. The first is the generation tariff which is paid by the energy supplier for each kilowatt of electricity generated. The amount of this tariff will fluctuate with inflation but will be paid for 20 years. The second is an export tariff which is a payment for every kilowatt of electricity generated but not used which is exported to the national grid. This payment has a set floor price of 4.77p per kwH but can be negotiated with the supplier for a higher rate.
Solar power is a new industry which relies on government subsidy and on the success of the technology to develop and bring down the costs of generating the power. As such, its success as an investment depends on the importance of these two things in an investor’s mind. If the government wants to promote more support for the industry it may increase subsidy(ies) to the public and to business in order to increase demand for the product. This in turn may increase the investment of suppliers into ways of making it more cheaply. It also depends on the end users perception of how important it is to support a switch to new technology.
In recent years there has been much debate on the dangers of global warming. It is felt by some, however, that the urgency for a need to reduce the use of fossil fuel is not completely clear. End users are going to focus on any question there may be about how necessary it is for them to be pioneers in the switch away from fossil fuel. They will need convincing that it is worth their while and this needs ample government subsidy to bridge the gap in costs. It is particularly true at a time when the economy is going through a recession of the magnitude of the recent one. This is amplified by the big increases there have been in the cost of energy and the cut backs there have been in subsidies in order for government to cut its debts. When we have fully left these problems behind then the future of solar power should improve. In the meantime the providers of equipment and operators of solar farms may struggle to remain viable.
Solar energy can be traded via direct investments in the companies involved in the manufacture of the panels such as PV Crystalox Solar plc in the UK or through Exchange Traded Funds such as Market Vectors Solar Energy ETF or the Guggenheim Solar ETF. Good Energy have proposals to build commercial solar farms but the cost/benefit of such schemes will limit their use as will local and national government opposition. Small private companies are the main suppliers and installers of equipment. There are more opportunities outside the UK for investment in companies involved in solar power. In the US where there is more space and more sunlight the opportunities may be greater.
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