Investing in Solar Innovation ...

by Sean Brodrick

As an energy crisis threatens to derail the U.S. economy, it really bugs me

that there is a 170-billion-megawatt fusion reactor we are not taking
advantage of.

I'm talking about the sun, which, when you get down to it, is a big ol' fusion
reactor — nuclear energy on steroids. Enough sunlight falls on the Earth's
surface every hour to meet world energy demand for an entire year.

Even if we harnessed just 2.5% of the sun's energy falling onto the 250,000
square miles in the Southwest best suited for solar power plants that would
match the total power used in the U.S. in 2006!

The world is hungry for solar power. Pushed along by government tax
credits, global demand for photo-voltaic (solar) power hit 3,073 megawatts
in 2007, up from 1,985 megawatts in 2006 — 54% growth. That's on top of
41% growth in 2006 and 34% in 2005.

But solar technology is in its infancy — we've barely scratched the surface of
what it can do. Today I'd like to lay out some details why I think solar is not
only a good bet for today but also for tomorrow.

Not only could groundbreaking technological advances make solar power the
fuel of the future, but they offer the potential of enormous profits along the
way.

We're Getting Closer to the Third Generation of Solar Power

You have to understand that there is an evolution going on in the solar

power industry. In fact, we are rapidly approaching a new generation of
solar power. Let me explain ...

First generation solar power: These are the silicon (or more descriptively,
"polysilicon") solar cells you're familiar with. Over 90% of solar panels in the
market today use refined, purified silicon as raw material. By now, they're
high quality and have few defects, but they're expensive, costing about $1
per watt.

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SunPower (SPWR) is the largest North
American solar company by sales, and
they make their money in polysilicon.

Evergreen Solar (ESLR) is another

name to watch in this space. They
have proprietary "ribbon" technology
using thinly stretched polysilicon.

Second generation solar: This

involves low cost manufacturing.
These cheap solar cells can bring costs Over 90% of solar panels on the
down to a little under 50 cents a watt, market today use refined, purified
but can have defects and are generally silicon as raw material.
less efficient than first generation
technology. Both problems are being worked on furiously.

Third generation solar power: It's coming soon, and uses advanced
technology to marry the efficiency and quality of first generation with the
low cost of the second generation.

Let's look at some of the new solar technologies coming 'round the bend ...

New Technology #1: Solar panel roof tiles. One objection to solar power
is it looks darned ugly sitting up on your roof. Now, you can buy roof tiles
that are made with built-in photovoltaic cells and are designed to blend in
with most types of roof tiles whether they are concrete, slate, or shingle.
Each solar tile has a connector and the tiles are wired together during
installation. These solar tiles can be installed during roofing or re-roofing
your house. Some of the companies currently producing solar panel roof tiles
are General Electric, SunPower, and Premier Power.

New Technology #2: Thin-film

photovoltaic (PV) solar panels.
This is a laminate (thin sheet) that
eliminates the heavy glass and racks
of conventional solar power systems.
You can peel and stick the thin-film
laminate right onto a metal rack that
goes on your roof.

Thin-film PV systems can run about

Now, you can buy roof tiles that are
half the cost of a conventional solar
made with built-in photovoltaic cells power system, maybe less. And

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they're made out of metals including copper, indium, gallium, selenium and
zinc. That should be good news for companies that mine those metals.

The U.S. National Renewable Energy Laboratory (NREL) has created thin film
solar panels that are very close to competing with their more traditional
silicon-based cousins, with an efficiency rate of 19.9% (that's how much of
the sun's light is converted to electricity).

This will come to market sooner than you think. Thin-film solar panels are
already being used by power companies and industrial users, are available to
consumers in Europe, and should be commercially available to U.S.
consumers in 2009. These systems will drop the price of solar power
drastically to maybe 50 cents a watt within 10 years, say experts, as thin-
film solar becomes more efficient.

First Solar (FSLR) is a good name in this space.

New Technology #3: Super-efficient solar windows. MIT researchers

are working on special glass panels for windows that are combined with solar
cells. The panels concentrate light 40 times standard sunlight before delivery
directly to the cell.

These are much more efficient than conventional solar cells, capturing about
50% of the sun's energy.

And the system is so simple to manufacture that the inventors expect it to

be deployed within three years at little cost over standard window costs. The
technology can be added to existing solar panels at very little cost but an
increase in existing efficiency of 50%.

That's the real beauty of this. Even if you have existing solar power at your
house, you could upgrade it in a few years with the new MIT technology.

New Technology #4: Nanosolar power sheets. Researchers at the New

Jersey Institute of Technology (NJIT) have come up with solar cells that are
a thin coating of paint that converts light to electricity. They can be painted
or printed on flexible plastic sheets. The goal is to make them cheap enough
that consumers can slap them on walls and roofs to make their own at-home
power stations.

These aren't ready yet. But researchers in Japan are working on pretty much
the same technology, so the race is on to get it to market.

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New Technology #5: Polymer cells. We usually think of polymers
(plastics and synthetic rubber) as electricity insulators. But a team of Nobel
prize winners are developing much cheaper solar cells based on inexpensive
plastics.

They're still working out the kinks — so far, all organic solar cells degrade
upon exposure to UV light, and therefore have lifetimes which are far too
short to be viable. But if they can make it work, solar cells could potentially
become as cheap as plastic bags.

New Technology #6: Solar curtains. Martha Stewart, take notice! We're
putting solar panels on roofs, walls and windows, why not the curtains, too?
An MIT researcher has created solar textiles. Made of semiconductor
materials, they absorb sunlight and convert it into electricity. They can be
draped like curtains while collecting solar energy and providing lighting.

New Technology #7: Tandem organic solar cells. The University of

California Santa Barbara is working on another way to solve the efficiency
problem of solar power — multilayered cells. Layered cells gather a wider
range of the spectrum of solar radiation, so one tandem cell produces power
that is equivalent to two ordinary solar cells. This technology should be
pretty cheap, too. These tandem cells could hit the market in about three
years.

New Technology #8: Solar power plants. I'm talking about the kind that
can provide the baseline electricity for towns and potentially cities.

Spain is leading the way on this technology. There are nine solar power
plants under construction in Spain and 28 more approved projects waiting to
be built, many of them using a technology called Concentrating Solar Power
(CSP).

For example, one solar thermal power

plant outside Seville consists of a 40-
story-high "power tower" surrounded
by an array of mirrors called
heliostats. The mirrors heat water in
the tower, so solar power converts
water to steam. This, in turn, drives
turbines and generates 11 megawatts
of electricity — enough to power 6,000
homes. Eventually, the plant, owned
by European energy giant Abengoa, Solar farms in Spain and the U.S. can
generate enough electricity to power
should be able to provide all the power
entire towns.

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used by the 600,000 people in Seville ... during the daytime, anyway.

The U.S. has its own vast solar farms, and it takes the #2 slot in leading the
world on this technology. The oldest CSP technology sites, known as SEGS 1
through 9, have been operating reliably in the California and Nevada deserts
since the 1970s.

And SunPower was recently selected by Florida Power and Light to build the
largest photovoltaic power plant in the U.S., a 25-megawatt plant, in
addition to a 10-megawatt plant at the Kennedy Space Center.

New Technology #9: Improved solar storage. The problem with solar
power, of course, is that the sun doesn't shine at night, so you need big
honking batteries to store the energy.

Molten salt storage is one solution. See, the sun's energy can be stored in
molten salt, a mix of sodium and potassium nitrate. In molten form, it stores
heat with 98% efficiency, and it can be called upon at any time to generate
steam which will then spin a turbine to create electricity. A company called
SolarReserve is doing a lot of research in this area, and it has the backing of
United Technologies.

Another solution comes from a team of MIT researchers led by Dr. Daniel
Nocera. They say they have hit upon a simple, inexpensive, highly efficient
process for storing solar energy — one that could even be used at home.

Inspired by how plants use photosynthesis, MIT's brainy bunch has

developed a process that uses solar energy to split water into hydrogen and
oxygen gases. Later, the oxygen and hydrogen can be recombined inside a
fuel cell to power a house or electric car, day or night.

What's the catch? While the process to split the water molecules requires
only cobalt and phosphate, the process to recombine oxygen and hydrogen
in a fuel cell requires platinum, and you know how rare that is.

One solution could lie with a team of Monash University scientists who have
created a new, improved fuel cell. A specially-coated form of the popular hi-
tech outdoor and sporting clothing material Goretex® is the key component.

While Goretex draws water vapor away from the wearer's body, the Monash
team found that Goretex can also "breathe" oxygen into a new fuel cell. And
sure enough, this new design removes the need for platinum.

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As You Can See, Solar Is Entering A Whole New Phase of Innovation!
Here's How You Can Profit ...

For starters, you could check out the individual companies I've mentioned
here. Just remember that an individual stock can have bad news that can
blow up in your face.

For example, The U.S. Senate recently rejected a bill to extend a 30%
investment-tax credit for solar energy and fuel cells for eight years. Unless
that's reversed, it could have a big impact on solar power manufacturers.

Always consider the risks before you add individual stocks to your portfolio.

Or check out the two solar ETFs on the market right now ...

The Claymore/Mac Global Solar Energy Index ETF (TAN) holds a

basket of 25 stocks in the solar space, and it is a fund with a global portfolio,
as its name implies.

Van Eck's Market Vectors Solar Energy ETF (KWT) holds a basket of 27
stocks, also with global exposure.

What's the difference? Looking at the top five holdings of the two funds,
TAN's top five make up 34%, whereas KWT's top five make up a much larger
47% of the fund.

So, if you want instant diversity, choose TAN. If you want to concentrate on
the leading solar names, you might consider KWT instead.

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