It's now a question of how and where, not if, solar becomes a dominant force in energy markets.

AllianceBernstein's Michael Parker and Flora Chang published a note last week with the following chart showing how rapidly the cost of solar on a real-dollars-per-million-BTU equivalent basis has, in many instances, come to match that of conventional fuels.

Nothing else looks like this. And the title of the chart, Welcome to the Terrordome, reflects this almost violent decline in solar pricing.

The authors write:

Exhibit 2 is the chart the solar industry has been working towards for 60 years. Solar is now – in the right conditions – cheaper than oil and Asian LNG on an MMBTU basis. Yes, we are using utility- scale solar costs in developing markets with lots of sun. But that describes the growth markets for global energy today. For these markets solar is just cheap, clean, convenient, reliable energy. And since it is a technology, it will get even cheaper over time. Fossil fuel extraction costs will keep rising. There is a massive global market for cheap energy and that market is oblivious to policy changes at the NDRC, MITI, the EU or the CPUC.

Solar still makes up only a tiny fraction of overall energy usage on an absolute basis — about 0.17%. But it's an unstoppable trend.

For now, this minuscule starting point is great for investors, Parker and Chang say, because it will continue to be more attractive than oil and gas prices, which are set to keep climbing. Bernstein's notoriously bullish energy team forecasts an oil price of $150 by 2020. Parker also explains that if utilities try to respond, growth in the storage market will accelerate.

As solar costs fall, the price that end markets will pay for solar energy is set by oil and remains unchanged. The solar industry (upstream and downstream) collects all of the value created by improvements in the technology. The behavior from here seems clear: the solar industry will expand. Retaliatory steps from distribution utilities will increase the market for cost-effective battery storage. This becomes – initially – a secondary market for battery technologies being developed for the auto sector. A failed battery technology in the auto sector (too hot, too heavy, too rigid a form factor) might well be perfect for the home energy storage market.... with an addressable end market of 2 billion backyards.

But there's another, Terrordome-esque scenario Parker outlines, which he calls global energy deflation. It would be great news for consumers, but investors would get killed. He uses the crude forward curve as a reference point:

He writes:

...the risk is that I am being too conservative. It may be that oil and gas producers sitting on large reserves will not wait for deflating energy prices a decade from now before changing behavior. Rather, the expectation of energy deflation may be enough. If the downward sloping forward curve is ever accepted as permanent, rational behavior from energy producers will guarantee it is so. Sitting on oil and gas reserves for the benefit of generations yet to come ceases to be a rational strategy if that reserve represents a depreciating rather than an appreciating asset. This is the hidden flaw with the "equal and opposite/ too small to matter" formulation. Ultimately what may kill the solar sector – and every other part of the energy market – for equity investors is not renewable technology and battery storage turning into behemoths, but the realization of that future as inevitable.

Actually, solar utilities seem to have been around for longer than 60 years. We dug through the Library of Congress' image archives to find a solar water heater dated 1929 (PDF):







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