Chart of the Day – Internet Then vs. Solar Now

by Enis April 29, 2013 2:21 pm • Commentary

The promise of the Internet has finally panned out, but far after the initial investor euphoria in the late 1990’s.  The Internet WAS the future back then, just not as soon as the dot-come investor base had hoped.  Today, purely Internet based enterprises like GOOG, AMZN, and EBAY are among the largest companies in the world, and the web-based economy continues to grow rapidly.

There are some interesting parallels between the Internet in 1999 and Solar Power in 2007.  Both sectors saw massive investor interest based on disruptive technology that would change the existing business order.  Both sectors saw a spectacular fall from grace when the broader market hit a bear market, and both sectors remained in the doldrums for years after that fall.

A quick visual illustration of that psychological similarity can be seen by a comparison of PCLN from 1999 to 2005 vs. SPWR from 2006 to 2013:

SPWR from 2006 to 2013 vs. PCLN from 1999 to 2005, Courtesy of Bloomberg
SPWR from 2006 to 2013 vs. PCLN from 1999 to 2005, Courtesy of Bloomberg

Fast forward to today though, and the future of the solar industry looks much brighter.  Solar power is quickly converging in costs to traditional fossil fuels.  I read a good article this morning by Michael Sankowski at the Monetary Realism blog, which I found through Barry Ritholtz’s weekend reading list.  Here’s the meat:

I did a quick chart in R to figure out how quickly Solar will be cheaper than even pretty cheap coal electricity, with a variety of cost per year reductions. It turns out solar will be cheaper than even cheap coal in 20 years as long as the price reductions are greater than 4% per year.  Solar will be cheaper than cheap coal in 10 years as long as price falls at more than 15% per year.
Remember, we’ve seen price reductions of more than 22% per year for the last 5 years. Solar will be cheaper than cheap coal if this keeps up for another 5 years. These price reductions add up very quickly.
Sounds to me like another “hot” industry where investors were just too early, but the long-term story is as attractive as ever.  This theme of course hit my radar because of the recent excitement in the solar space, most notably in FSLR.  But in the long run, the real key will be picking the winners from the solar industry’s rubble.  Previous internet fallen angels like JDSU and JNPR never made much of a move, while AMZN and PCLN now trade at multiples of where they traded in 2004 or 2005.