Solar good long-term investment bet: strategist

While solar was still expensive compared with wind or geothermal, progressive improvements in production costs and emerging solar technologies were eating away at that price disadvantage, said Steven Milunovich, global cleantech strategist at Banc of America Securities-Merrill Lynch.

"People are optimistic about solar because it's on a price performance curve of improvement, whereas wind and some of the others look like they are going to flatline," he said.

"When you look at solar, it's on an improvement curve of 10-15 percent a year," he told a conference in Singapore organized by the bank.

He also pointed to the promise of third-generation solar technology, such as polymer or organic solar panels.

This latest technology basically prints rolls of flexible panels, meaning a much cheaper manufacturing process than the current capital intensive methods.

Milunovich said strong demand for clean technology, or renewable energy technology, helped by subsidies, in Asia would be a major driver for growth.

"It's going to pay dividends to watch cleantech at this point because we're really involved in a phase that should prove profitable in the next decade," he said.

"I think what cleantech largely comes down to is the challenge that there are 2 billion people, largely in this part of the world, who will be moving into the middle class in the next 20 years. And these people are going to need energy to create an economy."

Solar, he said, was going to be a significant part of the portfolio of clean energy investments, helped by falling costs.

In the immediate term, though, investors in solar needed to be cautious.

"Clearly we've moved into a period of oversupply. If you look at demand, we believe about 5.5 gigawatts of solar was installed last year. We think that does increase to about 6 GW this year," he said.

"And we hope that thanks to the subsidies that we're now increasingly seeing in Japan, China and the U.S., we should have very strong growth over the ensuing years."

A major problem, though, was an oversupply of polysilicon, a key component of solar panels.

"As a result, the module prices of panels are declining by about a third and even with some unit growth this year, we think industry revenue could be down by a third this year."

"This is a period of consolidation. We'll see 12-24 months of consolidation, many vendors won't make it, many private companies won't continue to get funded."

He said even with 40 percent revenue growth next year based on strong installation numbers, and even with a relatively mild 15 percent fall in module prices, the industry size would only be returning to about where it was in 2008.