Why I hate solar as an investment

1.  Too many solar companies competing for the same dollars with similar technologies.

2. Too many competing technologies, it’s hard to know what will work the best and what will attract government subsidies. Remember 10 years ago when everybody talked about fuel cells and hydrogen. Remember in the 70ies when solar started out as the next big thing. Or nuclear before that. Yes, solar has huge potential, but so does algea, second generation biofuel, nuclear, natural gas, wind, waves, fuel cells, geothermal, hydro power etc.

3. Who knows who will enter this business? GE, Siemens and Suzlon were late to enter the wind power market and now are some of the dominant players. Do you really think that Sunpower, Suntech and First Solar will dominate this industry ten years from now if it grows to the moon?

4. It’s really hard to forecast the long-term profitability of a new industry. Charlie Munger says is best:

“Here’s a model that we’ve had trouble with. Maybe you’ll be able to figure it out better. Many markets get down to two or three big competitors or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.

Over the years, we’ve tried to figure out why the competition in some markets gets sort of rational from the investor’s point of view so that the shareholders do well, and in other markets, there’s destructive competition that destroys shareholder wealth.

If it’s a pure commodity like airline seats, you can understand why no o­ne makes any money. As we sit here, just think of what airlines have given to the world safe travel, greater experience, time with your loved o­nes, you name it. Yet, the net amount of money that’s been made by the shareholders of airlines since Kitty Hawk, is now a negative figure ‑ a substantial negative figure. Competition was so intense that, o­nce it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.

Yet, in other fields like cereals, for example almost all the big boys make out. If you’re some kind of a medium grade cereal maker, you might make 15% o­n your capital. And if you’re really good, you might make 40%.But why are cereals so profitable despite the fact that it looks to me like they’re competing like crazy with promotions, coupons and everything else? I don’t fully understand it.”

That said, solar may be great for a trade.


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