Commodities Futures & Risk Management: Investing in Solar Energy & Solar Cell Production Research Paper

Problem Statement

This October Elon Musk presented a new generation of solar collectors from SolarCity. According to him, the new solar panels will leave far behind all the analogues, since their significantly exceeds that of any similar products in the world. Thus, solar panels that were made earlier could convert on average only about 15-16% of the solar energy they absorbed into electrical with higher rates only in models by Sanyo Electric, a member of the Panasonic Group, and SunPower – 17,6 % (Kammen, 2014). As Kammen (2014) marks, this is a very high rate of efficiency when compared, for example, with the efficiency of photosynthesis in plants, which is only 5%. However, the peak efficiency of the new solar panels SolarCity could reach 22.04% due to Silevo technology, in which panels are made of n-type semiconductor, which works better at high temperatures instead of p-type silicon (Worland, 2015). SolarCity plans to manufacture 10,000 panels per day; and under current conditions, the installation of the panels costs about $3 per watt of energy (Färdig, 2015). Due to the new panels, the price is expected to fall by 25%, and in the future, according to the developers, by 75% (Kingsbury, 2015). The company also plans to build the largest solar power plant in the world with capacity of 1 GW within the next two years (Worland, 2015).

Indeed, solar energy is a very promising direction. The interest in PV-generation was activated in 2004, but the real breakthrough came in 2006, when a new generation of solar cells appeared in the market. Since that time, this topic draws my attention in terms of the perspectives of full switch into green energy consumption. In particular, having studied the researches by Hoppmann (2015), Sargoni and Lockley (2015), Delucchi and Jacobson (2013), and Dunford et al. (2013), I spotted that in 2012, a new stage of development occurred, and the solar generation grew worldwide from 30% (Europe) up to 200% (in India and China). Overall, in its last global review, the International Energy Agency reported that solar power is growing faster than other types of energy from renewable sources (FS-UNEP, 2015). However, although the developments have been going on for a long time, there is still a range of problems that still have not been solved. Basing on Färdig (2015), Kammen (2014), and Chanos (2015), the major ones are the lack of efficiency of solar panels, their high cost for the average consumer, as well as the inability of the companies working in this industry to exist without government subsidies in one form or another.

Given these contradictory data, the key issue of my interest is whether solar energy producers are worth investing. Analyzing the most current trends in this field, and exploring the relationships between prices, markets, competitors and the dynamics of their shares and expenditures, I aim to conclude on the perspectives and risks of such investments, as well as create recommendations on the development of this sector.

The perspectives of investing in solar energy producers

The world history of exploiting hydrocarbons in the global scale is short and dramatic: already from the second half of the 20th century, the limitations of traditional fuel economics, such as the exhaustion of fossil energy resources and significant environmental damage, became apparent. As a result, the need to fight for the better environment, new opportunities to improve the quality of life, participation in the global development of advanced technologies, and the desire to improve the efficiency of economic development contributed to the intensification of international efforts to create green energy and move towards low carbon economy.

Thus, according to FS- UNEP Centre (2015), by 2018, the global market for solar generation systems and energy storage will be estimated at $2 billion. One of the forecast scenarios assumes that the production of electricity by solar plants by 2035 will increase by 26 times compared to 2010 – up to 846 billion kWh (or 2.3% of world output) from 32 billion kWh (Delucchi & Jacobson, 2013). At the same time, the installed capacity of solar energy stations in 2035 is projected to exceed 600 GW (Figure 1). Looking at such forecasts, it is difficult to imagine that just 15 years ago, the total capacity of all heliostations was 1 GW. As Hoppmann (2015) rightly notes, to a great extent, the development of photovoltaics as well as other renewable energy sources is promoted by the governmental policies largely dictated by the Kyoto Protocol obligations. Thus, according to the “20-20-20” directive, by 2020, 20% of electricity should be generated by renewable sources, while carbon dioxide emissions are to be reduced by 20% (Sargoni & Lockley, 2015).

Figure 1. The Growth in Global Solar Cell Production, GW.

Source: Delucchi & Jacobson, 2013.

Figure 1 demonstrates the logarithmic scale of the growth dynamics in the global capacities of electricity production with the extrapolation to the next decades (A). For comparison, we also show the dynamics of growth in the world production capacities for photoelectricity (B) and extrapolate their growth based on various scenarios. It is evident thus that the production capacities based on photovoltaic cells could be able to satisfy the world’s energy needs already in the next decade. Moreover, in fact, the processes of producing electricity from renewable energy are even more dynamic. In particular, the above figure derived from Delucchi and Jacobson’s data (2013) does not take into account the possible contribution of wind energy and innovations based using concentrated sunlight for thermal engines. In the latter case, the performance coefficient of solar energy conversion is estimated at 31.5% (Kammen, 2014).

These perspectives draw huge investments in the construction of heliostations. Among its competitors, SolarCity certainly has a row of advantages, including a wide range of products in the line, as well as comparatively available prices. One of factors allowing this is the project of solar leasing, SolarCity’s lending program through which the savings from solar energy exceed the monthly payments for the battery itself. As Kingsbury (2015) puts this, for many consumers, it has turned to be more attractive than one single payment for the purchase. At the same time, along with the rapid growth in the volume of orders (Figure2), the costs of SolarCity are rising (Figure 3), and the company is basically losing money (Dulaney, 2015; Färdig, 2015).

Figure 2. SolarCity Revenues, 2010-2015.

Figure 3. SolarCity Cash Flow, 2010-2015.

Source: Färdig, 2015.

One of the key reasons behind this is the fierce competition with the Chinese manufacturers triggering lower prices for panels around the world (Dunford et al., 2013; Groba, 2014; FS- UNEP, 2015).

Figure 4. Solar Production in China (megawatt/year)

Source: Dunford et al., 2013.

Indeed, the production of solar panels in China is growing in geometric progression (Figure 4). In response to a subsidy from the government, due to which Chinese companies sell solar panels below cost, the US government was forced to increase the anti-dumping import duty on Chinese photovoltaic cells from 18.32% to 249.96% (13-fold) in 2012, and the countervailing duty from 14.78% to 15.97% (Dunford et al., 2013; Sargoni & Lockley, 2015). The EU considers similar measures, where companies from China control up to 80% of the market (Dunford et al., 2013). At the same time, there is a risk of overproduction: the demand for solar panels from China by its main consumers in the EU is gradually falling, which is associated to the gradual saturation of the market (Groba, 2014). In response, the Chinese government has demanded from the WTO to investigate the hidden subsidies of governments of Greece and Italy to solar energy projects that use solar panels manufactured in the EU (Dunford et al., 2013).

However, we cannot say that the US solar companies do not get support at the federal or the state level. Tax incentives, direct subsidies and loan guarantees give an advantage to US companies, otherwise their business would have become economically unfeasible even with the potential profits in the future. However, in both cases it is almost impossible to calculate the full cost of industry stimulation. Thus, in 2011, subsidies amounted to $ 88 billion, and for the period until 2035, the support is projected to amount $ 4.8 trillion (Chanos, 2015). At the same time, the technology is still far from being perfect, the price is quite high in spite of all subsidies, and the supply still far exceeds the demand. According to Chanos (2015), currently, companies that hardly keep on the verge of break-even have to cut production by 50-70%.

In this situation, it should be recommended that small companies consolidate on the basis of larger profitable or at least break-even companies. For instance, the authors of a study on the German market estimated that of the existing 232 solar businesses in the country, only 86 will still be afloat after bankruptcies, mergers and acquisitions by 2017 (Dunford et al., 2013). At the same time, Groba (2014), Morris believes that this is not the defeat of the segment, but rather consolidation which would enable the photovoltaic sector to continue the growth. These views are supported by FS-UNEP (2015) forecast, which considers that bankruptcies and consolidation in the sector of solar batteries will persist in the short term, until the imbalance between supply and demand is corrected.

Thus, planning for the future is quite difficult in these market conditions: the pace of the industry development is very high, and big multipliers make the objective assessment of companies problematic. Let us recall 2010, when the growth rate of the industry was high and investors were convinced that the solar energy was the future. However, in 2011, almost all the solar companies were unprofitable, and the prices of their shares dropped. Revenues of these companies remain at about the same level, but the debt burden is increasing (Figure 5).

Figure 5. Chinese vs US Producers of Solar Energy: Key Indicators.

Source: Chanos, 2015.

Investing in solar power companies today is still quite high-risk but high-yield in prospect. For example, shares of SolarCity, traded on the NASDAQ under SCTY ticker, increased 9 times in one year since IPO 12 December 2012, but then dropped by almost 4 times next year (Figure 6), and it is not the only example.

Figure 6. SCTY Trading Dynamics 2013-2015.

Source: The Wall Street Journal, 2015.

Thus, SunPower shares rose 7-fold since the beginning of 2013, but now the decrease is observed (Chanos, 2015). In our opinion, the choice of investment object, particular attention should be paid to the indicator of debt burden, because in some companies it goes way over the limit. For example, the rate of debt/EBITDA of Yingli Green Energy is 82 with the normal value being 2 (Chanos, 2015). At the same time, a hugely positive sign is that many leading businessmen and companies, including Warren Buffett, Google, and Intel believe in the solar energy. In particular, Google Inc. is preparing to launch a global Sunroof project, allowing maximum simplification of the decision to install solar panels on the roof of a particular home, as well as to find local suppliers and compare their prices. This factor also improves the prognosis in the long term.


Assuming that current trends of photovoltaics’ development, solar energy could become the world’s major source of electricity in the coming 15-20 years. Indeed, the production of energy has a number of advantages, namely the infiniteness of the resource, its accessibility in any region of the world, ecological purity, independence from oil and gas producing countries, as well as the distributed nature of power devices and the absence of material-sensitive transport systems.

Investing in solar power companies today is still quite high-risk project. The supply still far exceeds the demand, the competition with the Chinese companies is fierce, and the costs of production are larger than profits, and can only be compensated by subsidies from the government. At the same time, the technologies are developing rapidly, and the projected consolidation in the sector may turn solar energy investments into a high-yield deal in the long term.

In this regards, it is important to understand that innovative companies are not amenable to standard methods of evaluation. It is perfectly normal for them to have a loss for a long time and to be considered effective at the same time. The investor, investing today buys future potential. Besides, buying shares for the long term, it is necessary to invest in a business that one understands, or at least in the potential of which one trusts.


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Dunford, M., et al. (2013). Geographical interdependence, international trade and economic dynamics: The Chinese and German solar energy industries. European Urban and Regional Studies, 20(1), pp.14-36.

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Kingsbury, K. (Oct 30, 2015). SolarCity Investors Get Burned as Focus Shifts. The Wall Street Journal, Online. Retrieved from

Sargoni, J., & Lockley, A. (2015). Environment Policy: Solar Radiation Management and the voluntary carbon market. Environmental Law Review, 17(4), pp.266-269.

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The terms offer and acceptance. (2016, May 17). Retrieved from

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[Accessed: February 4, 2023]

"The terms offer and acceptance.", 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance.", 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance.", 17 May 2016

[Accessed: February 4, 2023]

"The terms offer and acceptance.", 17 May 2016

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