Evergreen Solar has been in a trading range ($8 to $18) for about two years. Now it’s trading again at the bottom of the range, and with the general market downturn, along with the anticipated wave of new polysilicon supply a lot of investors will be wondering: Is Evergreen about to turn around as it has so many times in the past, or is it going down from here?
Over the past couple years, I have been very successful at trading the stock, but not because of some special insight. When a stock has so many analysts following it (about 30 in the case of Evergreen), I generally assume that I won’t be able to add much in terms of insight.
What’s Different About Evergreen
Evergreen is fairly unusual in the crystalline silicon solar space in that it is vertically integrated, and manufactures its own wafers, modules and panels. Evergreen’s String Ribbon Technology allows them to make more cells using less silicon than traditional manufacturers, but at a conversion efficiency of 14.5% it is only about 2/3 of that available from the silicon PV industry efficiency leader, Sunpower (NASD:SPWR). However, because of their thinner cells, they use less than 5 grams of silicon per peak watt (Wp) [see annual report, pdf], as compared to approximately 6 grams per watt for Sunpower. According to Evergreen 5g/Wp is "less than half the industry average."
Evergreen has contracted for supplies of Silicon sufficient for all their planned increases in production through 2012. Since silicon prices are widely expected to moderate in 2009, and the price moderation has been expected for some time (I first wrote about this in 2006), the expected price reduction will have been built into the contracts. Evergreen will only be affected relative to unhedged competition if price declines are different that that expected when the contracts were written.
The photovoltaic industry is likely to see a shakeout if supply grows faster than demand in late 2008 and 2009 because the industry will be less constrained by available supplies of Solar grade silicon. If the demand for photovoltaic panels is elastic enough to absorb the resulting increased supply (albeit at a lower price), other steps along the value chain can hope to take a large portion of the profit which silicon suppliers were formerly taking.
As an aside, I personally will take a serious look at a PV system next year if I can’t get the prototype Combined Heat and Power solar system I’m negotiating with a local startup for. Until now, I have advocated investing in dividend paying renewable energy companies such as Ormat (NYSE:ORA) as being as green and having better prospective returns than buying photovoltaics. However, alternative energy stocks are a poor hedge for commodity inflation, and a solar system is a perfect hedge for electricity prices, so that, along with lower solar system prices tempts me to to do home improvements beyond radical energy efficiency.
Evergreen Solar, with its wafers-to-panels supply chain, seems likely to be able to capture some of the gains given up by the silicon manufacturers, assuming that all of these gains do not go to consumers and installers, or vanish with the possible expiration of the ITC and reduction in German and Spanish subsidies. There are a lot of "ifs," but Evergreen seems relatively well placed for the coming solar storm. With the stock price back below $8, I expect we’re much closer to a bottom than we are to the recent peak.
DISCLOSURE: Tom Konrad owns shares in ESLR and ORA.
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