An interesting question being asked. If solar power is so great, if it's all just on he verge of becoming economic to use without subsidy, then why can't we see this in the prices and valuations of the companies that make solar power?

Last week, Tyler Cowen asked a good question: if solar energy is really close to dropping below the cost of conventional energy, why isn't it showing up in markets? How come solar companies (and not just thin film firms like Solyndra) getting hammered, while things at good old fossil fuels are getting better?

There are two possible answers as far as I can see. The first is of course that solar isn't about to make some great big price breakthrough, we're not all about to start using it without subsidy and essentially the whole story is a crock.

Or there's the other answer which is the one that I believe. Solar is getting better, it will cross that "profitable to use without subsidy" line pretty soon. However, the reason that the share prices of solar manufacturing companies are not soaring in anticipation is because share prices don't in fact measure sales. Or consumers' use of the company's products, not boiling Gaia or even prices falling into viability. What share prices measure is future profits.

And I'm deeply suspicious that anyone is going to make large profits by manufacturing solar cells. There's just too many people in the business: and it's not even that complicated a business either. We're actually seeing something approaching a properly competitive market in fact.

In order to make solar cells more cheaply a producer has to get cheaper sand, cheaper energy, use less energy in the process (it is essentially baking beach sand in order to get the silicon), slice the ingots more thinly or finally, just be better at the boring manufacturing stuff. Fewer faults, less labour being used, all that sort of stuff. And the problem from the manufacturer's point of view is that there's no particular point at which they can claim unique intellectual property, a patent, or any real protection for their ideas or processes. It's not like a computer chip where you can copyright (at the least) the coding in or anything.

Solar cell manufacturing is, for all its newness and gadgetry, really just mass manufacturing of entirely interchangeable parts. As such we really wouldn't expect those doing it to make good or large profits over the long term: we'd expect profits to be competed away down to the average return on capital in fact.

As, in fact, we can see is happening as the things get 4 to 5% cheaper every quarter. So the reason we don't see solar stocks soaring as a result of the price competition bringing them closer to economic viability is, umm, the price competition bringing them closer to economic viability.