The Solar Economics Discrepancy

Wayne Sheu
May 26, 2017

Submitted as coursework for PH240, Stanford University, Fall 2016

The Discrepancy

Fig. 1: Solar panels overlooking Hong Kong. (Source: Wikimedia Commons)

Solar energy trapped by greenhouse gases in the atmosphere is causing major changes to Earth's climate, and will lead to disaster if left unchecked. As such, increasing efforts are being made to replace greenhouse gas producing sources of energy with more renewable ones. Ironically, the source of the problem is also the most promising solution. Solar energy has the most potential of all currently used energies, with 1.5 hours' absorption being a year's worth of energy for everyone on the planet. [1] The reason energy is still a problem, however, is due to how little of the available solar energy we currently can harvest. As of 2016, the highest efficiency of sunlight to electricity conversion achieved is only 34.5%, but the fact that it's almost a 44% improvement over the previous record set merely a few years ago demonstrates the rapid pace of development characteristic of this industry. [2] The overall pattern of increasing efficiency and decreasing cost of solar panels (Fig. 1) suggests a smooth path ahead for the solar energy sector. [3] Yet despite the steady increase in solar energy usage, the solar industry has become somewhat of a pitfall for investors and startups alike, with more and more companies going under. [4] This report seeks to investigate the discrepancy between the massive growth potential of solar energy, which on paper sounds like a great investment, and the unstable state of its current market.

The Overpotential

The rapid pace of development and innovation in the solar industry made it tantalizing for many companies looking for the next big thing. As of 2015, solar industry employment has risen 123% over 5 years at an annual increase of around 20%. [5] Yet as many companies discovered, these conditions make the market extremely unpredictable. Steady innovation puts companies at risk of having their approach become obsolete by the discovery of cheaper or more efficient techniques and materials. Adapting to this fast evolving market is a bar many companies fail to overcome. Another issue caused by the large influx of companies is the supply for solar cells outstripping demand.This is exacerbated by companies overseas being able to produce, and therefore sell, at a lower price, saturating the market to drive out competitors. [6]

The Demand

Despite the planet's need for clean energy, supply of solar cells is still outstripping demand. This can be partly attributed to consumers' lack of confidence in solar power. The failure of numerous solar companies, some of which received large amounts of federal funding, has caused the public to be more hesitant towards the industry. The concurrent dropping of oil prices also provided a safe and familiar option, even though the two are not interchangeable. Possible changes in government policies can also scare investors away. The recent election for example, has caused stocks of the biggest solar companies to drop around 6.5%. [7]

The Future

Since the solar industry is relatively new, unusually promising and rapidly evolving, we see it result in a volatile market, excess supply and skittish investors. However, this is not the end, but merely a rough beginning. These symptoms are caused ultimately by the industry's immaturity, and is curable if given a few more years to grow. The current bankruptcy of smaller companies will result in the consolidation of solar power behind larger and more stable ones. Furthermore, as innovation reaches a peak, these companies will have a more solid baseline to work with and a clearer path forward, resulting in a more stable market. Based on current trends, the cost per watt of solar energy will at some point make it become the go to for electricity. Finally, the public will have more time to get used to the idea of viable alternative energy. These factors will generate the public confidence needed for a global shift towards solar energy, one that will alleviate the demand problem. Once the foundation is built, continued improvements will keep the industry healthy as long as the need for clean energy is present. The solar industry holds one of the possible solutions to the energy crisis. Hopefully there is enough time to resolve the discrepancies between its potential and the public's perception before climate change causes irreversible damage.

© Wayne Sheu. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] "Solar Energy Perspectives," International Energy Agency, 2011.

[2] M. A. Green, "Australian Photovoltaics Research and Development," ACS Energy Lett. 1, 516 (2016).

[3] M. Darby, "Solar Panel Costs Predicted to Fall 10% a Year," The Guardian, 26 Jan 16.

[4] "Blinded by the Light," The Economist, 31 Mar 16.

[5] "National Solar Jobs Census 2015," The Solar Foundation, January 2016.

[6] J. Fialka, "Why China Is Dominating the Solar Industry," Scientific American, 12 Dec 16.

[7] S. Mufson, "Trump Victory Batters Solar and Wind Stocks, Bolsters Coal Shares," Washington Post, 9 Nov 16.