Solar photovoltaic (PV) as a means of deriving energy is fundamentally different from fossil fuel-based commodities (oil, coal, and gas). Consider: A solar PV panel can be thought of as nothing more than a hugely oversized computer chip — a bunch of circuitry embedded in a silicon wafer. Indeed, in most economic sector classification schemes (GICS, etc.), PV manufacturers are defined as “semiconductors,” which is basically true (if misleading in other ways). So different are the driving economics behind tech-based and commodities-based means of deriving energy, that we at Green Alpha are recommending to Standard & Poor’s and MSCI that they consider formally separating the two into distinct subsectors.
Recently, though, the two types of energy — oil and solar — have been trading in tandem, both falling significantly since mid-2014. Traders by and large seem to be thinking “energy is energy.” But this “energy-as-monolith” view is not appropriate to the reality of the economics, nor is it supported by the fundamentals.