By Jeff Siegel

Solar Competes With Natural Gas

From 2005 to 2008, I made an absolute fortune in solar.

And it was insanely easy, too.

Hell, back then you could pretty much just pick any random company with the word “solar” attached to it, and watch your money double, triple, even quadruple.

Yes, those were three great years. And I live very comfortably today because of those three years.

But the solar market isn't what it used to be.

Last year, solar stocks got slammed. And while most expect to see a recovery in the space this year, the sector remains as volatile as ever.

Now just a few weeks ago, solar stocks were soaring after some new data came out that indicated a rise in solar installations in Germany in Q4.

The result was a quick run on solar stocks, and certainly traders made out...

But then there were those poor souls who didn't read the fine print, ponied up a few thousand, and are now wondering what happened to the solar run all those analysts on television were talking about.

Yes, a few weeks ago there was some positive data, which apparently cast a shadow over the fact that cell and panel prices were still continuing to fall.

And it didn't take long for the sector to shed its recent gains, then fall even further after Germany's Energy Minister announced that the country's Feed-In Tariff should be adjusted every month instead of twice a year.

In a matter of minutes, we watched solar stocks fall off 10%, 15%, even 20%.

While I continue to remain bullish on the long-term growth picture for solar, unless you can stomach the risk and volatility, the solar space is no space to be right now.

Truth is until we see next quarter's forecasts, I'd be very hesitant about playing solar.

Natural Gas is Still King

There's no doubt that there's still plenty of money to be made in solar.

You just have to know where to look, and of course, not get caught up in all the hype generated by those know-nothing media buffoons who couldn't even tell you the difference between solar thermal and solar PV, much less know how to play the solar market...

Hell, these are the same guys who were telling us just a few years ago that natural gas would never fall below $5.00.

Last Friday, it fell below $2.30.

And now they're scrambling to dig up any bearish news they can find. But nothing they say can stop the natural gas boom.

I've said it a thousand times before, and I'll say it again: Natural gas is king.

And right now, it doesn't take much to make money from this sector. In fact, it reminds me a lot of the solar sector from 2005 to 2008. It's just so easy to make a killing.

Just ask my colleague Keith Kohl, who was touring today's biggest natural gas properties back when the word “hydrofracking” was a term only used by insiders and roughnecks.

This guy's made me — and his readers — some serious coin in the natural gas space...

Especially with his latest find at the Three Forks location in North Dakota. I know it may not look like much.

And I know it may not sound as sexy as solar...

To a new way of life and a new generation of wealth...

 

Jeff Siegel is Editor of Energy and Capital, where this article was first published.

Posted by Guest Contributor at 11:36 AM | Permalink | Comments (0)

L. Myron Clark

Solar energy stocks took a huge jump today in U.S. trading.  While the sheen faded slightly as afternoon skies turned overcast in the eastern U.S., as of the NYSE closing bell about half the sector was up 20% or better.  Absent major industry news or earnings blowouts, short covering is the most plausible explanation for the sudden sharp rise.  Among the biggest winners were:

• Hanwha SolarOne Co. Ltd. ADS (HSOL)  +36.80%
• JA Solar Holdings Co. Ltd. ADS (JASO)  +34.72%
• JinkoSolar Holding Co. Ltd. ADS (JKS)  +31.86%
• ReneSola Ltd. ADS (SOL)  +30.23%
• Trina Solar Ltd. ADS (TSL)  +29.18%
• Suntech Power Holdings Co. Ltd. ADS (STP)  +25.78%

Recently lagging stocks moved to the head of the pack, evidence that short covering helped power the move up.  The graph below shows 3-month stock charts (since shortly after the broad market low in early October) for six stocks that made new 52-week lows in December 2011: FSLR, SPWR, WFR, SOL, HSOL, and JASO.  Three of these - Hanwha SolarOne, JA Solar, and ReneSola were  among the big winners in today's trading.  JinkoSolar nearly fits the pattern, as the stock's December minimum was barely above its 52-week low in September.  Though the big jumps today were not enough to catch up to the sector's better performers over the same interval, this lends credence to the old saw that every dog has its day in the sun. 



Few other catalysts are available to explain the dramatic move.  Last week LDK offered to purchase Sunways, another welcome milestone on the industry's long and tortuous road to consolidation. The announcement seemed to give solar stocks a boost early in the new year's trading.  But this deal by itself it not likely to take much production capacity out of an oversupplied market.  In a contrary vein on the M&A theme, the CFO of Jinko Solar was recently quoted as saying that Chinese solar firms would rather shutter production or operations than be acquired by a competitor.

Many solar stocks were trading well below book value and arguably primed for a jump on that basis alone.  Among today's big winners, several had recently traded at one-third of book value or lower.  The denominators are dubious because not all companies' physical plant and equipment will maintain its value through the end of the supply glut.  But the new year helps resolve some lack of clarity as the lower price for solar panels sustains growth in installations, even with fewer subsidies available.  So some reversion toward nominal book value is reasonable.

The solar sector has been extremely volatile lately, and today's jump somewhat resembles the spike in stock prices in late October, which accompanied (and extended by one day) a big run-up in the broader market.  Most of those gains faded before the recent recovery.  A partial replay of that pattern seems likely: prices for most stocks in the sector will pull back from current or slightly higher levels, and a few hardy short sellers will rush back in.  In the medium and longer term the heavens should smile upon solar stocks, but the industry remains sickly for now.

DISCLOSURE:  I am long TSL, LDK, YGE, ITRI, AMSC

L. Myron Clark is an independent industry analyst based in the Boston area.  He previously covered the technology services industry as an analyst with Gartner Inc.  He has an undergraduate degree from Cornell and also pursued postgraduate studies there.  Mr. Clark has traveled extensively and has a broad range of interests in energy and environmental topics.

Posted by Guest Contributor at 10:27 PM | Permalink | Comments (0)

by Clean Energy Intel

TAN v STP, YGE and TSL

Source: Barchart

The chart above tells a particularly interesting story. Back in November of 2011, having been bearish on solar for some months, we argued that the market was finally beginning to see a process of rebalancing in the solar sector. A key component of this of course related to a number of announcements from Chinese solar players that they would bring a halt to new plans to expand capacity - at least until the end of 2012.

This factor, alongside the prospects for demand growth outside of Europe, led us to see the potential for a healthier market for solar as 2012 progresses. Nevertheless, it remains obvious that a powerful process of creative destruction remains in place, with low cost module suppliers likely to push out the weaker players. 

As a result, our main call was for an outperformance and recovery of a basket of low cost tier one Chinese solar stocks - Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). The chart above shows the performance of these stocks versus the solar ETF TAN - from the closing prices on Friday November 25th, ahead of the publication of our recommendation to go long on the following Monday.

Clearly the trade has worked well with all three stocks having performed strongly. STP, YGE and TSL are up 36%, 24% and 29% respectively. Moreover, what is most interesting is not just the recovery in the solar sector as a whole but the significant outperformance of these tier one Chinese solar players - must as anticipated. Whilst the the tier one Chinese solar players have seen a very strong performance, the overall solar ETF TAN is only up 5% - a reasonable recovery from the bottom but nothing to match the performance of China's low cost suppliers.

Of course, it is too early to suggest that this is a new trend. However, in many ways it does make sense and perhaps the market is beginning to pick winners and losers in solar's war of attrition as both costs and average selling prices continue to fall.

TAN v STP, YGE and TSL - 1 Year View

Source: Barchart

The second chart above also underlines the fact that this appears to be a new development. During the difficult period for solar over the past year, tier one Chinese solar stocks have, in broad terms, tended to follow the overall market - with TAN down -64%, Yingli doing slightly better at down -56%, and STP and TSL both under performing at down -66% and down -69% respectively. Against this past performance, the recent outperformance of tier one Chinese solar players looks like it may be a new development well worth following.

In terms of where we go from here, it's seems worth repeating our previous analysis pointing to a healthy rebalancing in the sector as a whole:

• On the demand side, the rest of the world has been making up for slack demand out of Europe. In particular, the latest data points to blistering demand in the US - more detail here

• Likewise, China and Asia are showing extremely strong demand growth - see our article on the issue here

• And most importantly, on the supply side, the major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here. 

Finally, survey-based data from SolarBuzz also points to an ongoing consolidation in the industry. You can read a fuller discussion of this data here. In summary, the SolarBuzz survey conducted in Q2 of the current year, pointed to manufacturers' shipping plans of just over 8 GW of modules in Q3 of this year and almost 9 GW in Q4. The somewhat obvious result was oversupply, a continued inventory build and falling module prices. 

However, in the latest SolarBuzz survey, conducted at the end of Q3, those numbers have fallen to just over 6 GW for Q3 and a tad over 5 GW for the final quarter of the year. This level of adjustment is precisely what is required to finally bring the industry back towards balance during the course of 2012. 

All of the data above of course simply highlights this new realism on the production and capacity side of the equation. Taken together, these factors should allow the supply-demand imbalance currently facing the industry to be eroded as 2012 progresses.

Moreover, as consolidation in the industry progresses, the low cost tier one Chinese players should continue to outperform. We continue to recommend being long a basket of SunPower, Yingl and Trina Solar. Separately, we also recommended being long First Solar and would continue with that trade.

Disclosure: I have no positions in the stocks discussed.

Clean Energy Intel is a free investment advisory service produced by a retired hedge fund strategist. You can read more at www.cleanenergyintel.com

Posted by cleanenergyintel at 07:53 PM | Permalink | Comments (1)

Marc Gunther

Should we worry about Chinese government subsidies to its solar industry? Or send the Chinese a thank-you note?

A group of seven US-based manufacturers of solar panels is alarmed. These manufacturers, led by Solar World (SRWRF.PK), a German firm with a plant in Oregon, filed a complaint with the United States International Trade Commission, which reached a preliminary conclusion in December that US companies were, in fact, being harmed by subsidized imports. If the Commerce Department goes on to find that Chinese firms have been dumping solar panels on the US market at prices below their costs, it could impose steep tariffs of 50 to 250% on Chinese panels, according to this report in The Times by Matt Wald. The Chinese government provides billions of dollars of low-cost financing and free or cheap land to Chinese solar firms.

But much of the solar industry–led by Jigar Shah, the founder of Sun Edison, entrepreneur and environmental advocate–thinks this complaint is a terrible idea. Tariffs  would raise the costs of solar power to US business and consumers, at a time when those are coming down; they could also set off a solar trade war that would harm other US solar companies.

As it happens, the U.S. had a trade surplus of nearly $1.9 billion in the solar sector with China in 2010, as exports of raw material and factory equipment more than offset imports of finished solar panels, according to the Solar Electric Industries Association,. What’s more, Jigar says, most of the 100,000 or so jobs in the US solar industry — he says as much as 97-98% — are downstream of the manufacturing business in project development, logistics, construction and installation.

“SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole,” Jigar wrote in this letter to Gordon Brinser of Solar World. “Every morning, thousands of hard-working Americans put on their tool belts and go build solar power plants. Our country needs more of those jobs, not fewer.”

What got me thinking about this brouhaha was an email the other day from a California company called Solar Power Inc., or SPI, that underscored for me just how committed the Chinese are to getting their solar panels onto rooftops in the US.  SPI said it had secured construction financing worth $44 million from the state-owned China Development Bank to fund construction of solar projects in New Jersey.

Why would a Chinese bank finance solar panels in the US? Well, it turns out that SPI is 70%-owned by LDK Solar (LDK), a Chinese company founded in 2005 that now says it “the world’s largest producer of solar wafers in terms of capacity and a leading high-purity polysilicon and solar module manufacturer.” LDK bought its controlling interest in SPI Solar last year in an effort to gain direct access to the US commercial market. With revenues expected to top $90 million last year, SPI is small to mid-sized developer of rooftop PV–it installed panels atop the Staples Center and the Fox Studios in Los Angeles and a Costco in New Jersey. “We’re a downstream market for LDK,” said Mike Anderson, vice president of communications for SPI Solar.

Now consider those solar panels on their way to rooftops in New Jersey–the Chinese manufacturer, LDK, gets low-cost land and financing from the Chinese government, SPI borrows from the state-owned China development bank to construct the solar arrays, the US government grants the panels a 30% investment tax credit and New Jersey’s renewable portfolio standard makes the project that much more attractive to the state’s utilities. No wonder the solar market is growing!

Supporters of the petition filed by SolarWorld, which employs more than 1,000 workers in Oregon and is the only company named in the trade complaint, argue that too much of the solar PV market is going to China. Chinese manufacturers now enjoy better than 50% of the global market for modules, up from single digit percentages in the late 1990s. Cheap Chinese solar helped drive US firms like the now-infamous Solyndra and Evergreen Solar into bankruptcy.

In a blogpost titled Educating Jigar Shah on Solar Trade, Hari Chandra Polavarapu, a solar analyst at a small firm called Auriga USA, declares: “The lower prices of solar cells and modules from China have so far served as a battering ram in destroying overseas solar PV manufacturing competition.”

“It’s true that lower prices benefit all rate payers — but if that is all there is to an economic argument, then the U.S. and the rest of the world should give up all manufacturing to China and services to India,” Polarapu writes.

My reactions:

1. Trade wars are risky. If the US imposes tariffs on Chinese solar panels, the Chinese will retaliate. They have already promised to investigate US subsidies.

2. Speaking of which, it takes chutzpah (that’s a technical term in economics) for US solar manufacturers to complain about subsidies in China since they, too, benefit from government-backed loans (yes, that means Solyndra), buy-American provisions in the stimulus package and favorable state tax treatment. SolarWorld got $40 million in tax credits from Oregon, where it employs about 1,000 people. Today’s Times has an excellent story about how the government pays for worker training programs for individual companies. Until the US brings a halt to crony capitalism (which would be good), US companies are in no position to whine when they find it elsewhere.

3. Maintaining solar panel manufacturing jobs in the US may be a lost cause. Solar cells and modules are not high tech products. They’re more like a flat-screen TV or an iPod than a Boeing jetliner. Chinese PV manufacturers benefit from efficient operations and low labor costs, according to this article in the MIT Technology Review.

4. The Chinese subsidies create a positive externality–lower carbon emissions, to the degree that solar panels replace dirtier fossil fuels. So long as they continue, we all benefit. If and when they stop, there’ll be no reason why other manufacturers can’t gear up to compete.

I’m not ready to send a thank-you note to China. But I’m thinking about it.

Disclosure: I was paid last year to moderate an event for the Carbon War Room, which Jigar leads.

Marc Gunther is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com and a blogger at www.marcgunther.com.

Posted by Guest Contributor at 10:21 PM | Permalink | Comments (2)

by Clean Energy Intel

A new academic study published last week suggests that solar energy has already reached grid parity in some areas in North America and is therefore poised to move into the mainstream.

The study, 'A Review of Solar Photovoltaic Levelized Cost of Electricity', was co-authored by Joshua Pearce of Michigan Technological University and Kadra Branker and Michael Pathak of Queen´s University in Kingston, Ontario. It was published in Renewable and Sustainable Energy Reviews. You can read an abstract of the study here.

The study focuses on the assumptions behind many of the past studies of the levelized cost of energy (LCOE) facing the solar industry and argues that falling costs combined with more accurate assumptions behind the LCOE calculations can provide numbers that are in line with what consumers in many areas pay for electricity - which is one definition of Grid Parity.

According to a report in R&D magazine, Mr Pearce made the following statement -

"Many analysts project a higher cost for solar photovoltaic energy because they don't consider recent technological advancements and price reductions.... Older models for determining solar photovoltaic energy costs are too conservative."

The question of LCOEs and Grid Parity is surrounded by many fairly intensely debated questions. However, there can be little doubt that the LCOE for solar has been falling. The costs that go into calculating the LCOE include:

• The cost of solar photovoltaic panels themselves

• Balance of System costs

• Installation and maintenance costs

• Finance costs

• The system´s life expectancy and efficiency over its lifetime

• Solarization and the amount of electricity produced

The study raises issues with the assumptions of previous studies in most of these areas. However, Pearce particularly points to two important factors which have ensured that the LCOE metrics for solar systems have been improving. Firstly, he argues that previous studies don’t consider 'the 70% reduction in the cost of solar panels since 2009'. Moreover, R&D magazine reports Pearce as suggesting that 'research now shows the productivity of top-of-the-line solar panels only drops between 0.1 and 0.2% annually, which is much less than the one per cent used in many cost analyses'.

Pearce´s results are likely to be hotly debated. However, he has correctly emphasized the direction in which solar is rapidly moving. In conclusion, he states that he 'believes solar photovoltaic systems are near the "tipping point" where they can produce energy for about the same price as other traditional sources of energy'.

Finally, from our perspective, all of this is certainly encouraging given that we are once again bullish on the solar sector. We would simply repeat our conclusions from last week following the purchase of the Topaz Solar Farm by Warren Buffett:

'...this latest bullish news follows a series of bullish factors that have led us to recommend long solar positions again after having been flat for many months:

• The latest data points to blistering demand in the US - more detail here

• Likewise, China and Asia are showing extremely strong demand growth - see our previous article on this here

• The major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here. 

Taken together, these factors should allow the supply-demand imbalance currently facing the industry to be eroded as 2012 progresses'.
Since late November we have been recommending specifically being long a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL). Last week, we also recommended adding First Solar to that basket. We continue to recommend remaining long all four stocks for what should be a solid rally into 2012.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 05:52 PM | Permalink | Comments (0)

by Clean Energy Intel


Nellis Solar Power Plant in the US. Source: Wikimedia Commons

The Solar Industry this week received significant support in the purchase by Warren Buffett-controlled MidAmerican Energy Holdings of First Solar's (FSLR) $2bn Topaz Solar Farm in San Luis Obispo County, California. This is a significant show of confidence in the industry from Mr Buffett.

Of course, we do not know exactly what Warren Buffett´s utility holding company has paid for the solar project. However, the deal is unquestionably significant in size and scope. What we do know is the following -

• The Topaz Solar Farm is a $2bn, 550 MW project

• It is expected to supply the energy needs of 160,000 California homes

• As such, it is one of the two largest solar projects in the world

• It is slated to be finished in 2015

• First Solar will remain in place to construct, operate and maintain the solar farm for MidAmerican

• Once the project is operational, the electricity generated will be purchased by Pacific Gas and Electric (PG&E) under a 25-year power purchase agreement (PPA)

• Mr Buffett is therefore effectively purchasing the future income stream which will accrue from the PPA with PG&E.

This infusion of capital is obviously good news for both First Solar and the industry as a whole. Coincidentally, it comes a matter of only two days following our recommendation to buy First Solar. However, the deal has a significance that goes beyond the usual sunshine effect that any M&A activity in a sector usually has.

As is well known, one of the bullish factors facing the solar industry has been the 24 GW pipeline in the US utility-scale sector. However, in the post-Solyndra environment there have been concerns that it may be difficult to finance such a large slate of projects - and this has been particularly true following the end of the DoE´s Loan Guarantee Program and given the coming expiry of the 1603 Treasury Grant Program at year end.

Indeed, the Topaz project was specifically one of those to be affected in the post-Solyndra environment, with First Solar announcing on the 21st of October that their application for a $1.9bn DoE loan guarantee for the project would not complete the application process in time to beat the deadline before the closure of the program. As we argued was also the case with SolarCity´s deal with Bank of America, this latest Buffett-First Solar deal shows that the private sector has the capacity to finance such large-scale projects.

Moreover, this latest bullish news follows a series of bullish factors that have led us to recommend long solar positions again after having been flat for many months:

• The latest data points to blistering demand in the US - more detail here

• Likewise, China and Asia are showing extremely strong demand growth - see our article on this from last week here

• The major Chinese players have drawn a halt to their excessively aggressive capacity expansion plans - more detail here. 

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 01:17 PM | Permalink | Comments (0)

by Clean Energy Intel

Despite the Solyndra affair and its aftermath in the political arena, the solar industry in the US continues to see a blistering rate of growth. At the same time, the end of year expiration of the 1603 Treasury Grant Program could have a negative affect on the financing environment for all renewables - including solar.

Sources of Growth In The North American Solar Sector

Source: NPD Solarbuzz North America PV Markets Quarterly report

The latest survey-based data from Solarbuzz points to a blistering performance from the solar sector in both the US and North America as a whole. As the table above shows, new installations reached 0.6 GW in Q3. Moreover, the solarbuzz survey now suggests that Q4 should see a further pick-up in installations to 0.8 GW. That would represent a growth rate of 33% on the quarter and 101% on the year and would put total installations for 2011 as a whole at 2.2 GW.

For the US market alone total installations in 2011 are expected to come in at 1.9 GW. However, the issue for the outlook for the US solar sector continues to be uncertainties regarding the policy environment. Various forms of incentives have helped provide a financing funnel for solar projects in the US - from tax credits, the 1603 Treasury grant program and loan guarantees. However, the political reaction to the Solyndra affair has put these incentives under threat. The DoE Loan Guarantee Program has already come to and end and the 1603 Treasury Grant program expires at the end of this year.

As we discussed a few days ago, SolarCity´s SolarStrong deal with BoA has shown that the private sector can still provide financing for fairly large-scale projects even in the absence of loan guarantees. This is welcome news. However, the focus is now on the potential loss of the 1603 Treasury Grant program.

The U.S. Partnership for Renewable Energy Finance (US PREF), has suggested that the loss of the 1603 Treasury Grant Program could cause a fall in financing for new energy projects of 52% in 2012. That number is based on their July 2011 survey of major tax equity investors. As a result, 750 companies across 50 States have signed a letter to congress calling for a one-year extension to the program.

This is a crucial issue for the medium-term health of both the US solar sector and the renewables industry as a whole. However, the good news for the global supply demand situation facing the solar industry is that the coming expiration of the 1603 Treasury Grant Program appears to have accelerated the pace of demand as prospective participants have acted to move forward in order to meet qualifying requirements. Moreover, this will continue throughout 2012 as participants have to make further commitments in order to meet progress requirements.

Irrespective of the changing policy and financing environment, the US is therefore still likely to be making a positive contribution to reducing the current supply-demand imbalance in the sector over the immediate few quarters. This is particularly important at a time when developments out of China and Asia are likely to begin to allow the supply-demand imbalance in the broader global solar sector to finally begin a process of adjustment towards balance. We discussed these factors in two recent articles:
Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 02:51 PM | Permalink | Comments (1)

by Clean Energy Intel

Solar City has today announced that it has obtained private sector financing for its SolarStrong Project to put solar on the rooftops of 120,000 military homes across the US over a five year period. Bank of America (BAC) has now agreed to provide the finance, though the project has been slightly downsized from it original target of 160,000 homes.

This is very good news for the solar sector. SolarCity had of course been let down by the DOE, which in the immediate aftermath of the Solyndra affair had said that it could not complete SolarCity´s $275m application for a Loan Guarantee in time for the September 30th deadline for the program - more detail here. It is certainly favorable to see the private sector step in and fill the gap left where the DOE was unable to follow through with loan Guarantees in the immediate post-Solyndra environment.

Hopefully, this is a clear sign that the private sector will be willing to finance fairly large-scale solar and other renewable energy projects without the protection of DOE Loan Guarantees. This is a critical issue facing the solar industry in the US, which faces a 24 GW utility scale pipeline - a very positive source of continuing demand but one which needs to be financed on a large scale.

This latest development is a clear plus for the solar industry. This adds to two recent developments which suggest that the supply-demand imbalance in the global solar sector may finally be adjusting:

• A number of the top tier Chinese solar players have announced a halt to their previously extensive plans for capacity expansion - for a deeper discussion see here.

• The latest data shows something close to an explosion in demand for solar out of China and the rest of the Asia Pacific. Together with the adjustment to capacity plans mentioned above, this should help erode the current over supply and excess inventory position in the industry over the course of 2012. More detail here.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 12:29 PM | Permalink | Comments (0)

by Clean Energy Intel

Asia Pacific Market Demand By Region

Source:  NPD SolarBuzz: Asia Pacific Major PV Markets Quarterly

New data published today by SolarBuzz in their Asia Pacific Major PV Markets Quartely points to a surge in new installations in both China and the Asia Pacific region as a whole. Indeed, the region seems likely to add a total of 2 GW of new installations in Q4 of this year. This is good news for the solar industry and could help bring supply and demand in the industry back into balance, particularly in light of the recent adjustments to capacity plans seen from Chinese suppliers.

Key take-aways from the report:

• The Asia Pacific Region is expected to generate 2 GW of new installations in Q4 - markedly increasing the region´s share of total global demand both for the quarter and the year as a whole.

• That level of new installations represents a 39% growth rate on the quarter and 130% on the year.

• In 2012 the region is now expected to grow by 45% - supported by new installation targets and support programs from a number of Asia Pacific governments.

• China generated over 50% of the region´s demand in Q3 and looks likely to generate 45% in Q4. 

• That ongoing performance has of course been supported by the recent decision from China´s National Energy Administration to revise up its official solar installation target from 10 GW to 15 GW by 2015 on a cumulative basis.

• For 2011 as a whole China looks likely to have surpassed both the US and the Japanese markets in terms of new installations.

• Japanese demand, however, also remains robust. As we suggested would be the case in a previous article published on Seeking Alpha, following the Fukushima incident, government policy has also driven a significant increase in Japanese demand. Japan´s lack of domestic fossil fuels (see previous article) has been a key factor here driving policy.

This is obviously good news for the solar industry, which has been suffering heavily this year due to three factors which have combined to produce something of a perfect storm. Firstly, a sharp fall in European demand due to reductions to the feed-in-tariffs (FITs) in a number of countries. Secondly, the political reaction in the US to the failure of Solyndra and the uncertainty now surrounding federal support for the financing of the substantial 24 GW pipeline in the utility scale sector. And lastly, the massive build out of new capacity driven by the main Chinese manufacturers - a build out that until recently refused to adjust in the face of shrinking forward demand. This caused a large-scale supply-demand imbalance and let to a very significant inventory build with resultant declining average selling prices (ASPs).
A number of factors, however, now appear to be falling into place to allow a re-balancing in the industry:

• The affect of the reductions in the various European FITs is largely priced in. In terms of the most recent adjustment, which has been in the UK's FIT program, there is reason to believe that demand will nevertheless hold up quite well. For a more detailed discussion and an interview with one of the UK's leading players see our recent article here.

• The US pipeline remains large. However, financing remains a question mark and we face the issue of the expiry of the Section 1603 Treasury Grant Program at year end at a time when the politics surrounding the issue make the question of rolling over the program almost impossible. For a more detailed discussion see here and here. 

• However, as discussed above, there is increasing evidence that Asia and particularly China will take up a good part of any slack going forward.

• Finally, the main Chinese players have announced plans to halt new capacity build out at least until the end of 2012. For a more detailed discussion see our recent article on the issue here.

These factors should allow supply and demand to re-balance itself over the course of 2012, creating a much healthier situation in the industry. The question for now is how forward-looking the market is prepared to be at a time when earnings in the solar sector still look negative, reflective of the current state of over-supply.
For anyone willing to take a long-term view, the bet would seem to be that the main beneficiaries from buoyant Chinese demand for solar will be the very much undervalued Chinese solar players. Given the pressure on margins, it would probably be best to stick to the main vertically integrated, low cost module manufacturers - a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL) would probably work over time.
In the short-term, the outlook is somewhat obviously more about the global stock markets and the European debt crisis. However, on a long-term view these stocks are undervalued and should come back as the demand-supply situation in the industry rights itself.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 10:46 AM | Permalink | Comments (0)

by Clean Energy Intel

This year’s period of intense over-supply in the solar sector has continued to pressure solar players, leading to a recent batch of announcements of cut-backs and cost reductions. All of this may simply seem to be a continuation of the recent slew of bad news that has plagued the industry in the past few months. However, in the end, it is likely to be seen as at least one of the antidotes to the sector's troubles.


Source: SolarBuzz, by permission.
 
The chart above from SolarBuzz illustrates the point succinctly. The initial problem for the solar industry was of course the collapse in demand out of Europe related to cutbacks in the Feed In Tariifs (FITs) in a number of countries such as Italy and Germany. However, we have seen an increase in forecast demand in other countries. The red columns in the chart above in fact point towards a decent increase in demand globally across 2012. So far, so good.
 
The real problem, however, has been that even with a rebound in demand, the production plans of the main solar players have been far too aggressive - pointing to a rapid continued build out in capacity despite the lack of supportive demand. The yellow line in the chart is the result - a continued and rapid increase in inventories - no doubt to be followed by further price declines across the supply chain. Moreover, even on a reasonable assumption of a cut-back in the intended capacity build (blue line) the calculations from SolarBuzz only managed to show a stabilization of the high levels of inventories across the year. Obviously, without dramatic a adjustment in supply, that points to another difficult year ahead.
 
The problem is more than clear. However, solar manufacturers have finally begun to adjust their plans for capacity expansion. The most recent example was the announcement by Suntech Power (STP) of cuts likely to be of some 20% of 2012 expenses, including job losses. The press notice, which you can read here, makes the retrenchment clear:
 
'While continuing to focus on production efficiency, the initiatives target to reduce operating expenses by at least 20% in 2012; hold capacity expansion in 2012; and improve working capital by $200 million by the end of 2011'.

From the point of view of the industry as a whole, the most important issue is of course the decision to hold off from any further expansion of capacity until the end of 2012. This type of action is exactly what the industry needs in order to have any chance of stabilizing and getting the inventory overhang down.

According to further press reports, a range of other leading solar companies have made similar announcements:

• Suntech Power, as mentioned above, has halted new capacity increases until the end of 2012

• JA Solar (JASO): halt to capacity increases

• Trina Solar (TSL): halt to capacity increases

• First Solar (FSLR) has delayed the construction of its new plant in Vietnam

• SunPower (SPWRA): 10% cost reductions.

This is all good news. With the major players now beginning to bring a halt to capacity increases, the increase in demand over 2012 will have the opportunity to eat into the inventory overhang and produce a much more stable position in the balance between supply and demand.
There are other headwinds facing the industry. However, as we move forward the industry is likely to be in much better shape than would have been the case if the major Chinese players had continued to push ahead with capacity build-outs in the face of a burgeoning inventory position in the industry as a whole.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 12:38 PM | Permalink | Comments (0)

Clean Energy Intel


First Solar's Blythe Solar Farm under construction


First of all, the current oversupply and turmoil in the market will no doubt keep driving solar costs down. Over time the oversupply in the market should rebalance and solar companies will be able to healthily compete against fossil fuels at somewhere around grid parity. Agreed.

However, clean energy investors have the just as much right to manage risk and dodge bullets in the short-term as any other investors.

So, I first recommended getting out of all positions on Sept 2nd due to overall market risk - see here.

Since then, I've written a series of articles specifically about the affect of this political pantomime on the financing funnel available to solar developers. For example, see here and my most recent article on the issue here.

Back then, on September 2nd First Solar, for example, closed the day at $90.10. As I write, it is now trading at $49.66 - a decline of 45%. At last night's close that number was even worse.

That seems to have been a bullet worth dodging.

The next stage in this political pantomime will be the issue of the need to renew the 1603 Treasury grant program at the end of the year. The politics will make this very difficult. Thus the financing funnel for the utility scale sector's 24 GW pipeline will be constrained further.

This is, of course, all political farce - but unfortunately the affect on the ability of developers to finance their projects is very real.

Finally, on overall market direction - I think we'll get a decent deal out of Europe soon and the global stock markets will rally back - for a fuller discussion see here. That will probably allow solar to bounce back on good days.

However, I'd rather play that rally being long stocks that don't have the same headwinds. An outright SPY position probably makes more sense for now. In the current environment, if you're long solar you're not just betting on solar as a solution, you're betting on the politics. And I simply don't think that's a good bet to take.

Disclosure:  I am long SPY, and have no other positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 12:12 PM | Permalink | Comments (0)

by Clean Energy Intel

In a further sign of the continue supply-demand imbalance in the solar sector, weekly data from Bloomberg New Energy Finance suggests that the spot price of polysilicon, the raw material used in most solar panels, accelerated to the downside last week, falling at the fastest pace since June. Prices of solar wafers and cells also continued their decline:

'The average selling price dropped 5.8 percent on the week to Oct. 10 to $43.78 per kilogram, according to the latest results from the London-based research firm’s survey of contracts conducted from Oct. 3 to Oct. 10. The price of six- inch solar wafers dropped 3.3 percent to $1.74 each and multicrystalline photovoltaic cells slid 4.1 percent to 70 U.S. cents per watt of capacity'.

Solar continues to face difficulties regarding two clear concerns:

•     continued oversupply in the sector, as evidenced by the new data from BNEF
•     the ongoing political fall-out in the US regarding the investigations into the Solyndra affair - for a fuller discussion see here.

However, the price performance for now is likely to be broadly determined by the direction of the overall market. Having been very bearish last month, I have recently taken an overall bullish view of the S&P as a whole - for a full discussion see here.

As we move towards the end of the month, talk is likely to grow of a possible deal at the G20 on European debt - quite possibility backed by China in a significant way. This is likely to provide a sustained rally in the overall stock market. And if that is the case, it will no doubt drag solar with it. However, given the issues discussed above, on a risk-reward basis it would probably be better to play the potential rally ahead with exposure outside of the solar sector.

Disclosure: I am long SPY. I have no exposure in solar stocks.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 07:16 PM | Permalink | Comments (0)

Garvin Jabusch

Tom Konrad has kindly provided an opportunity for me to contribute a response to his recent piece “Inverter Stocks: A Value BOS Play on Solar.” I’m grateful for the opportunity because it gives me the chance to discuss these stocks and along the way to clear up some misconceptions it seems may exist regarding Green Alpha’s portfolios and our vision of the next economy.

Tom wrote, for example, that “Garvin... has been making the case that the solar sell off is irrational on this blog since June, but his consistent bullish stance on solar has made me nervous of his recently disclosed solar holdings in the Sierra Club Green Alpha portfolio CSIQ, FSLR, JKS, LDK, WFR, and YGE.” It’s true that in various posts I have disclosed that Green Alpha ® Advisors is long all of these positions, and we are. However, when I disclose that "Green Alpha Advisors is long" a given stock, I mean to imply we hold it as a firm, across all our various portfolios, not solely in our Sierra Club Green Alpha Portfolio (SCGA). And while we in aggregate do hold all the solar names Tom listed, the SCGA in fact contains only two of them, and in composition is actually just a shade over 12% invested in solar manufacturers.

Our primary goal with our portfolios is to provide investors a well diversified basket of different technologies and approaches addressing civilization's emerging concerns around warming, constrained resources, and growing populations and affluence. Providers of these solutions exist all across economies in sectors from water to materials to green building to, yes, renewable energy. Here's the formal SCGA sector breakdown:

Industry	Sector	6/30/11 Weight
Energy	Solar	12.23%
	Energy Storage	1.16%
Manufactured Materials	Advanced Materials	6.37%
Services	Raw Data & Analysis	10.03%
	Education	3.94%
Infrastructure	Networks	3.36%
	Utility Grid	5.48%
Products	Components	16.15%
	Equipment	7.42%
	Machinery	15.39%
	Consumer Goods	13.16%
	Cash	5.31%
	Totals	100.00%

Tom’s conclusion that the SCGA may have been concentrated in solar is certainly understandable; my holdings disclosures have not been portfolio specific and I have been writing a lot about solar recently, to the point where it could appear that I don’t think about much else! As the allocation chart above shows, though, we believe in and practice a diversified form of green investing. We invest this way because we believe that in the next economy, all sectors and industries will need to be represented, so our investment approach is to select diverse companies that already work in our next economy models.

So I was a little concerned when Tom’s conclusion that the SCGA was essentially a solar portfolio led him to suggest that purchasing a solar-themed ETF would be simpler, since that advice could have the unintended consequence of driving folks from a diversified, well-balanced portfolio into a single solar silo, which of course would tend to be much more volatile. If your investment strategy is to hold a large basket of solar stocks, then in fact I agree with Tom, a solar ETF may be more efficient and inexpensive. But for those with a more broad goal of investing in green economy solutions across industries, a Green Alpha portfolio would be more appropriate.

[TK Note: My thought was actually that I'd prefer to hold a solar ETF to a basket of six solar stocks in order to gain exposure to solar in a larger portfolio.  But if I did not make that clear to Garvin, I'm sure I did not make it clear to other readers as well.  I agree that a diversified portfolio is far superior to a focus on solar stocks.]

To address the topic of Tom’s piece directly, we do like power conversion devices as an industry, and we do hold Satcon Technology Corp. (SATC) and two other inverter makers, across portfolios. On the risk side, we agree that inverters, while critical, are not big value-add products and that manufacturers could suffer from competition as a result of relatively low barriers to entry. But the world will need more inverters (and lots of them), so for us this segment of the renewables story is about scale, or which firm is making these devices at lowest cost. The other key risk, and here we again agree with Tom, is that China may decide to add this piece to its repertoire and link together the entire renewable energy chain in-country. But this risk may also provide opportunity if the Chinese decide to make these firms available to foreign investors via ADRs, as has occurred with many of their renewable-related firms. I also see the possibility that the larger solar PV manufacturers will buy or build inverter making divisions in house, thus ensuring supply, prices, and some margin control, making their value propositions that much better in the long run. And acquired companies, of course, usually receive a premium above spot. 

With renewables of all kinds growing rapidly worldwide, there clearly is a growing demand for components that can render useful the electricity derived from them.  And generally, we like Tom’s “balance of system approach,” and we share it. With respect to solar, we look for the bargains in companies all along the value chain from raw polysilicon providers, to panel encapsulate makers, to inverter makers (which are also used in stationary fuel cell power systems, a la Bloom Box) and others. We like SATC both because of its price competitiveness and its preferred status among many utilities. SATC recently announced, e.g., that they have provided over 100 MW of inverter to capacity to California utilities, including 75% of all Southern California Edison's inverter orders, more than any other provider.

With solar as a power source growing rapidly worldwide, it makes sense to own the best companies along all verticals, including inverters. But in my opinion, at this moment, the solar PV manufacturers themselves represent the best overall value: of 14 comfortably profitable solar PV stocks we track very closely, nine are trading for less than cash.   In a word, they’re ‘oversold.’

In case you're curious, I still absolutely think solar valuations are irrational. One of the two Sierra Club Green Alpha Portfolio solar names, Canadian Solar (CSIQ), is both profitable and growing, and, according to Thomson-Reuters, it has $16.04 in cash per share on hand, yet is trading at $3.53, or only 22% of cash. Effectively, that means one can buy that business for nothing right now. A profitable, growing company, in the world's fastest growing industry, that will provide a nearly 5-fold return if it merely appreciates to cash? Yeah, I stand by my conviction that it's crazy not to own that.

Garvin Jabusch is co-founder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha's Next Economy."

Posted by Garvin at 06:07 PM | Permalink | Comments (0)

by Clean Energy Intel

Following the announcement that CIGS solar start-up Solyndra had declared Chapter 11, I published an article suggesting that although this was clearly not good news, the overall solar sector in the US was still in relatively good competitive shape, with a healthy trade surplus with the rest of the world of some $1.9bn. You can read my original article here.

Although competition from China is intense, particularly in low-cost module production, the US remains a strong player across the supply chain as a whole - particularly in polysilicon production and the manufacture of the capital equipment required to make solar products. And China is the key customer in both of these areas.

As an update on this, GTM Research has provided a very interesting chart breaking down the components of the bilateral trade balance between the US and China itself - shown below:



All data relate to 2010. As you can see, the net bilateral trade surplus appears to be between $247m and $539m in favor of the US. The most significant flows in favor of the US firstly relate to solar capital equipment, of which the US exports between $708m and $1bn to China. Secondly, exports of polysilicon for solar use come in at around $873m.

Strong US companies like First Solar (FSLR) and SunPower (SPWRA) continue to offer good competition to Chinese players in modules in the rest of the world. And they are of course the leaders in the burgeoning US Utility Scale Solar market. However, as one would expect, actual module sales into China have been tiny - at only $17m.

As I argued in my previous article, mentioned above, the long-term health of the solar sector greatly depends on its ability to get costs down towards grid parity. In a pragmatic sense, a combination of US innovation and low cost Chinese manufacturing may well be the best way to get there. What is important is that during this process of creative destruction, the US maintains a healthy trade surplus in solar.

From an investment perspective, let me simply repeat the conclusion from my last article:

".....this probably means that in the process ahead towards a very competitive lower cost, higher volume market it's probably best to stick with the main low-cost Chinese players such as Suntech Power (STP), Trina Solar (TSL), Yingli Green Energy (YGE) and JA Solar (JASO), alongside US players with a strong market position such as First Solar (FSLR) and SunPower (SPWRA). The period ahead could be very difficult for second tier players everywhere.

Having said that, I currently have no positions in either solar or clean energy as a whole and will maintain that position until the macro environment becomes clearer - for more detail see here".

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 02:50 PM | Permalink | Comments (0)

by Clean Energy Intel

Shares in JinkoSolar Holdings (JKS) fell a full 28% yesterday after the company was forced to idle its manufacturing facility in Haining following three days of protests over allegations that the facility has been polluting the local river.

The difficulties relate to one of the company's wholly-owned subsidiaries, Zhejiang Jinko, and the company has now admitted that the local environmental protection authority is investigating the allegations that the company has been discharging hazardous waste into a river:

"There have been reports that Zhejiang Jinko Co., Ltd. ("Zhejiang Jinko"), a wholly owned subsidiary of JinkoSolar in Haining, Zhejiang Province, China, discharged hazardous waste into a river, prompting local residents to protest at its facility from September 15 to September 17, 2011. The local environmental protection authority is investigating the incident. In response to the concerns of local residents and in full cooperation with the local government's investigation, Zhejiang Jinko has suspended operations at its facility in Haining until the impact of any potential environmental damage has been assessed and remedied. An initial investigation conducted by the local environmental protection authority indicates that the pollution may have been caused by the improper storage of waste containing fluoride". You can read the full Press Statement here.

Following the protests over the weekend and the onset of the investigation, JinkoSolar has now closed the plant, which has a 1.1 GW capacity in solar cell production. Jinko's main operations are at its Shangrao facility, where it produces silicon ingots, silicon wafers and final solar modules. The impact of the closure of the Haining plant is mainly therefore on wafer to cell production and the company intends to bring in a third-party cell producer via a 'tolling' facility. JA Solar, for example, has a decent business in solar cell 'tolling' for outside module manufacturers. Beyond the environmental and image costs of this crisis, that will certainly hit Jinko's margins.

The company has, however, said that it expects the plant to be shut down temporarily for only a few days. Much will no doubt depend on the result of the investigation. However, clearly the last thing that the solar industry needs is to be seen as a cause of pollution.

I continue to have no positions in solar or clean energy in general whilst the overall macroeconomic environment seems difficult - for a recap, see my article on general market risk from the beginning of the month.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 09:28 PM | Permalink | Comments (0)

Garvin Jabusch

The fossil fuel apologists in the U.S. are of course relentless in their criticism of the solar energy industry. Now with the JinkoSolar (JKS) fluoride spill, though, their hypocrisy is on full display. Earlier this month, they started talking about how Solyndra's failure means the whole solar concept is flawed (it's not), and how solar doesn't work (it does) and how it's not competitive (it is). Now, JinkoSolar, having spilled fluoride into a river in Haining province, China, is the new whipping boy. The issue though isn't that solar's manufacturing processes use some toxic chemicals (we knew that) but that heavy rains caused Jinko's wastewater containment facilities to overflow into the river. I imagine this is both because the rain was an unusual, unforeseen event and because China lacks the regulatory and enforcement structure to adequately prevent accidents.

Here's where the hypocrisy comes in. By and large, solar detractors are ideologically the same people who like the idea that "the EPA will have doors locked and lights turned off," the same people who fail to address the far more toxic U.S. coal industry that routinely releases far more dangerous substances than fluoride, such as arsenic, lead, and mercury (not just in burning coal but also in the mining process, which has also experienced toxic spills). They're the same folks who don't mind or ignore small matters like BP using the carcinogen Corexit -- illegal in the UK -- to disperse oil in the Gulf of Mexico.

Not that we by any means think a fluoride spill is okay or that China shouldn't adopt and enforce better regulations to prevent this kind of release; on the contrary. But the pattern is clear. Solar's detractors don't care at all about whatever environmental limitations the industry may have (and we would argue that those limitations are few and small compared to those of fossil fuels), but they are desperate to jump on anything that can help them pronounce solar power inferior or even useless.

So let's keep the issues of safety, relative green merits, and economic effectiveness separate. Regarding regulation, we at Green Alpha ® Advisors are in favor -- insofar as regulations are fair and exist to protect the well-being of the public. Not all regulations are beneficial. To be honest, within the financial services industry, there are regulations that we believe are preventing our company from expanding business as rapidly and into as many areas as we'd like. But certain basic safeties and rights must be ensured, or things get bad in a hurry.

If we want to know what a nation without some form of workers' rights looks like, we only need to look at recent labor standards in Saipan or at the U.S. before the horrific Triangle Shirtwaist Factory fire finally inspired adoption of labor rules. And if we want to know what our air and water will be like without environmental regulations, let's look at China's deadly air and other issues. We don't need to experiment with total deregulation In the U.S. -- we already know what it looks like.

The arguments for solar's effectiveness are equally simple. Solar works, it is growing fast, creating jobs, and getting cheap enough to soon rival and surpass coal electricity in cost per watt. It is, in many forms, the future of electricity on this planet. Yes, its manufacturing process uses chemicals, which again we knew. So do most industries, many far worse. Solar, if we view the whole process end-to-end, is so much less toxic than coal that even discussing the "dirtiness" of solar by comparison is a joke that would be funny if the resulting coal perpetuation weren't so deadly and causing climate change. There is no such thing as a perfectly clean, byproduct-free manufacturing process. What we mean by "clean tech" is that, even with its limitations, solar is still far cleaner than the fossil fuel alternatives.

So, the Jinko Solar fluoride leak shows us two things: Solar, even at its worst, is better than coal and that, yes, we do in fact need at least minimal regulation of toxics and enforcement of their release into our air and water. The attempt to now brand solar as dirty and ineffectual is dishonest and misleading, and represents a desperate and ultimately vain attempt to paint it as economically inferior.

It continues to amaze me that in the minds of its detractors, solar does not benefit from normal economics. That is, as solar products get cheaper, people will be installing it in ever bigger and more diverse chunks, resulting in the kind of rapid growth that should be good news for investors.

Jinko Solar, even with its current problem, is a good example. Analyst consensus estimate on Jinko Solar is still "outperform," which might surprise some who have been misled to believe that 'solar is over,' but to me it seems like an easy call. Jinko, set to make $3.71 per share in 2012, has a price to earnings ratio of .84, a price to book of .31, and is trading at only 55% of cash on hand. The US $5.00 per share Jinko is slated to make this year alone is almost equal to its share price. Will the fluoride spill significantly dent earnings? Hardly. The plant will be reopened "within the next few days," and is one of Jinko's two manufacturing facilities. I suppose that the event could be damaging to Jinko's bottom line if the company were hit with large punitive fines, but given the above mentioned lack of regulatory enforcement in China, the fine was only set at US$73,625.03, or six-hundredths of 1% of this year's earnings.

Solar is the best, net most clean, and ultimately cheapest source of power we know of today (and its base source input (sunlight) is free, unlimited, and enormously powerful). It's been growing as an industry at a 40 percent compound annual growth rate over the last 10 years, it is America's fastest growing industry at over 100% in 2010, and it shows no signs of slowing.

All the negative sentiment around solar, present for a while now and currently aided by recent events (events that would have been rated minor, if even noticeable, in almost any other industry), is only presenting stock-buying opportunities. The economics of solar are inevitable and will provide great shareholder return in time. The relatively clean nature of the power derived from solar is a great and ultimately required additional upside. For investors, though, the green part isn't even the main show.

Garvin Jabusch is chief investment officer at Green Alpha® Advisors, LLC and manages the Green Alpha Next Economy Index, a portfolio of leading Next Economy companies.
 
This article was first published on his blog Green Alpha's Next Economy on September 20, 2011.

Posted by Garvin at 08:44 PM | Permalink | Comments (1)

by Clean Energy Intel

Late last month, I discussed the fact that in another sign of the undervaluation in the Solar sector, the Board of Renesola (SOL) had authorized a $100m share repurchase program. On the day of the company's announcement, its stock price was down 66% on the year. You can read more detail on the original share repurchase program and the related shareholder rights program here.

As a follow-up to the original announcement, Renesola has now released details of the progress that has so far been made in executing the program. The Company itself has purchased 645,424 American Depositary Shares (ADSs) for a value of $1.9m using Tuesday's closing price. In addition, the company's CEO Xianshou Li has also purchased an additional 1,071,540 ADSs. Again at Tuesday's closing price that would be a total value of $3.2m.

Clearly, the company has a long way to go if it is to put the full $100m to work. And the press statement, which you can read here, indeed suggests that they may be willing to do so. Given that the company currently has a market cap of only $249.5m, that is not an insignificant amount of ammunition.

Mr. Xianshou Li, ReneSola commented, "At present, we believe our stock is considerably undervalued. We believe our fundamentals are strong, and our business has been bolstered by our new Virtus wafer technology and increasing in-house production of polysilicon. Moreover, we maintain a positive long-term view on the solar industry as a whole, despite near-term fluctuations and challenges. Our swift move to repurchase our stock demonstrates our confidence in the long-term success of our business. Should the opportunity arise, we will continue to utilize our strong cash position to repurchase our shares in order to maximize shareholder value and reaffirm the market of our leadership position in wafer and solar manufacturing."

The arrival of these share repurchase programs at Renesola and also at JA Solar (JASO) is indeed another sign of the undervaluation in the sector. However, as I have discussed previously, I took profits on all of my positions in my clean energy portfolio at the end of last month. I continue to believe that it is better to stay on the sidelines for now given the difficult macroeconomic and global environment - more on that here. As long as the overall market is under pressure and the investment community is focused on macroeconomic and budgetary concerns, Solar is likely to struggle. Better to keep your powder dry for now. There will be plenty of time to get involved again once the global environment clears.

Disclosure: I have no positions in the stocks discussed.

About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.

Posted by cleanenergyintel at 09:13 PM | Permalink | Comments (0)

by Tor Valenza a.k.a. “Solar Fred”

It’s official. With the bankruptcies of Solyndra and Evergreen, two solar panel companies with unique premium solar PV technologies, the Market — with a capital M — hath spoken: “Solar PV manufacturers, we, the purchasers of solar PV, do hereby care more about price than any fancy innovation. Just give us the best quality panel for the lowest $/watt, thank you very much.”

String ribbon doesn’t matter. Cylindrical CIGS film doesn’t matter. Even made in America doesn’t matter unless it's at a competitive price.

Apparently, all the Market wants to know are the basics:

• Is it solar PV? You know, electrons, the photovoltaic effect, hooked to an inverter? Cool.
• Are you backed by some bank that I’ve heard of? A government’s bank is fine. Yes? Excellent. My bank is now happy and will approve my loan. Merci.
• How much? Is that your final answer? I’ll get back to you.

Naturally, this is an over simplification. I would add that I believe there are tiers of commoditization today. Name brands on the stock market that are deemed “bankable” by the grace and due diligence of some large or government-run bank will command the highest prices, but not much higher over brands you’ve never heard of and backed by unknown banks. Have a lot of space? Lower efficiency thin films will also be commodiitized in its own tier.

In short, low $/watt price, financial confidence, and long term viability are now the default prerequisites for volume global sales. That’s great for solar installers and making solar PV more affordable and price competitive with fossil fuels, but what about the solar PV manufacturers?

Without any breakthrough manufacturing innovations, Solar PV companies may have to survive on loans and thin profit margins in order to survive what's bound to be a year or two or three or longer of industry consolidation. (Another solution may be mergers and acquisitions, but hush! Let's not go there for now.)

So the end of Solyndra and Evergreen have unveiled the age solar PV commoditization. Now what? How will solar PV companies compete and profit when the market price goes down below a buck/watt? Will panels one day be moved to the Chicago commodities exchange alongside pork bellies, oranges, and wheat?

No. That will never be the case for many reasons, but sad to say, PV companies have not been able to make the case — within market tiers — that their brand matters more than price. I've read and heard of pointing fingers at China, but there's going to be a bottom for them too. At a certain point, they too will start to worry about rock-bottom prices feeding their operations (and stock holders and loans).

Now, I love this industry. And as much as I want solar to kick coal and gas in the pants when it comes to price, I also want PV manufacturers to thrive and profit so that there is robust competition and choice.

And so, as usual, I not only offer my usual Solar Fred warnings and perspective above, but I also offer solutions:

1)   The only innovation anyone cares about now is low price.  The Wal-Mart mentality ain’t going away any time soon, especially with this American and global economy. Everyone’s pinching pennies and worried about tomorrow's cash flow, so the only innovation your solar engineers should be working on is how to make reliable, conventional, solar PV panels for the least expensive price. Period.

2)   Added values matter, but only if they’re included in the same competitive price. Are you working on sleek black beauties? Do you have some kind of panel failure insurance plan? Are you the cleanest, greenest, clean-tech company in China or anywhere? Wonderful, but don’t expect anyone to pay much extra. If that were the case, Evergreen would still be in business. String ribbon may have been eco-friendly, but the Market refused to pay more for that benefit.

3)   American made panels may now be competitive—but only at the same price. I’ve personally noticed an American jingoism from consumers and installers. In the age of solar pv commoditization, price will remain king, but if you can offer a Made-in-America panel at the same price as a tier one foreign made panel, my bet is that American installers will choose the American-made brand. Naturally, don’t forget to highlight this U.S.-made fact in your marketing. That being said, Solon (SGFRF.PK) and SolarWorld (SRWRF.PK)just shut down two U.S. factories, so it's not an easy or perhaps cost effective solution — at least not yet. (See #1.)

4)   New government policies may make or break you. Get political. Decent demand is keeping a lot of PV companies above water right now, and some of that demand is driven by these record low PV prices and the threat of rising fossil fuel prices. However, if the EPA is (further) gutted and we have a pro-fossil fuel new president in 2012, solar will become less competitive with fossil fuel and nukes. Without the 1603 grant program and 30 percent ITC, solar will survive, but grow much slower. Therefore, pay your dues and support SEIA, Vote Solar, IREC, SolarTech, and any other organization that supports solar jobs, growing the industry, and educating politicians. Political leadership matters now more than ever.

5)   Build a trusted brand. Obviously, as a solar marketing consultant, there’s some self interest here, but honest: In the new age of solar commoditization, it’s more important than ever to create an army of solar brand loyalists. Given relative equal quality and price, it’s up to your company to create solar fans through exceptional customer service and communications. Chicken soup is on every grocery store shelf in America, but people have different feelings and will often pay more because of their trust in Campbell’s or Progresso health or taste benefits. People will pay more for and defend their Harley-Davidsons. There are Mac people and there are Microsoft people. There are Ford F-150 lovers and Dodge Ram die-hards. This kind of enthusiasm can happen with solar too, whether it's commercial, utility, or residential. “Trust” is the key word here. Learn about your customers and learn how to build brand trust, and then it won’t be such a coin flip for the $/watt panel that an installer chooses. Instead, it will be a very conscious choice. It will be "I like and trust that solar brand. I recommend it because...” There's already a little bit of that out there. Now, in the age of solar commoditization, there needs to be much, much more.

As I stated in my previous post on REWorld, despite the loss of Solyndra and Evergreen, I’m confident that our global industry will survive and thrive. For solar PV manufacturers, now is the time to genuinely UnThink Solar.

Tor Valenza a.k.a. “Solar Fred” advises solar companies on marketing, communications, and public relations. Contact him through UnThink Solar or follow him on Twitter @SolarFred.

Posted by Guest Contributor at 01:34 PM | Permalink | Comments (0)

Garvin Jabusch

Much has been made this week about the nearly contemporaneous bankruptcy filings of two American solar companies, Silicon Valley’s Solyndra and Evergreen Solar (formerly ESLR) out of Massachusetts. These two had something in common: Both made different types of photovoltaic (PV) panels and both were more expensive than average PV. These two firms did not fail because they manufactured in America, or because solar itself is untenable (on the contrary), but primarily because they were deploying advanced technology that ultimately could not find enough of a market to achieve the scale required to become profitable.

It's just capitalism. 

Many perceived in advance that, while interesting, the niche solar technologies made by these companies might well price them out of a competitive market before they could reach anything like the scale needed to get their costs down. In Solyndra’s case, they were making advanced thin films, using a newer chemical deposition technology, and pioneering the cylinder-shaped (as opposed to flat) panel modules, all of which added up to more cost per watt of capacity.

At Evergreen, hopes were high that the company’s proprietary “String Ribbon Technology” PV systems could ultimately produce electricity more cheaply than conventional panels. But custom technology means custom manufacturing equipment, training, process, and a lot of other stuff that adds to costs not shared by the competition. If String Ribbon had increased PV efficiency enough to overcome these costs, the outcome may have been different, but as it went, “taking technology from the lab to the marketplace proved to be more expensive than originally projected.”

Image: Great in the lab, but too expensive in the real world: Solyndra’s PV idea. (source: Solyndra.com)

Personally, I feel like both companies gave new ideas a great try and I’m glad they made the effort: trial and error of new approaches is the lifeblood of technological and thus economic progress. More failures among smaller-scale, niche technology solar firms may very well follow; solar as an industry will continue to grow. 

Of course companies fail all the time in this world, and it doesn’t logically follow that the underlying industries are somehow fatally busted. General Motors only continues to exist via the largesse of U.S. taxpayers, and in a world of true capitalism, GM would be gone. But that does not mean the car industry is irredeemably flawed. The same can be said of solar, not that you’d know from media coverage of the two recently failed firms. Media Matters has a nice roundup of some of the more negative press, including this factually-bankrupt gem: "on Fox Business, Chris Horner of the Competitive Enterprise Institute claimed that the solar companies 'are not responding to demand -- they are providing something that doesn't work.'"

How could the products of America’s fastest growing industry not be working? And more importantly, why would one (much less a patriot) wish to disparage solar, now growing at 100 percent a year, the brightest growth prospect right now in the U.S., in a time when every job added is critical?

Solar will be a huge part of the world’s energy future and the best-run companies stand to become huge, economy-defining enterprises. As rapid as current growth is, from the standpoint of world energy requirements and what technology has the power to meet them at lowest cost, I feel confident in concluding that solar is just getting started. So yes, I still feel that the wholesale derision and short-selling of the entire industry is, as I have written before, “irrational.”

And at this point, let me be clear: by “irrational” I mean from a solar stock valuation point of view. Because the solar haters do in fact have financial motivation, but their reasons are about sustaining the run of fossil fuels, where their investments are already vested and entrenched. Naturally, in addition to doing whatever they can to promote oil and coal interests, solar’s disparagers also believe it makes sense to thwart any challenges to fossil fuels’ present hegemony.  Solar, which for now is showing the most promise among renewables in that it has the ability to scale almost indefinitely and will one day soon produce power far more cheaply than can fossil fuels (which will never be rid of the expense of pulling stuff from the ground), is the likeliest threat to fossil fuels and so is first and most squarely in the crosshairs. Facts about whether solar works or is profitable are only relevant from oil’s or coal’s point of view insofar as they reveal their likeliest competition.

Not that there isn’t other negative news in the solar sector.  Previously I wrote “consider China-based solar company LDK Solar (LDK). The company’s shares have fallen from US$14.49 per share in February to $5.15 as of this writing. I can find no good fundamental reason for the decline: LDK’s latest quarterly earnings came in at $.95 per share where consensus analyst expectations were $0.86; the company has year on year sales growth of 120%, has a price-to-earnings ratio of only 1.58, plenty of cash on the balance sheet, and a price-to-book ratio of just 0.54. That’s right, even if the company were closed and its assets liquidated, the cash generated at the yard sale would be 46% greater than the current market cap, as though the earnings have no value [metrics updated].”

Unfortunately, LDK has recently given ‘fundamental reason’ for a share price slip, as described here on seekingalpha.com:

“LDK managed, in one announcement on Thursday, to blow up their whole year.

They had reported Q1 earnings about three weeks before the end of Q2, so it seemed that their guidance for Q2 should have been stable. Unfortunately that was not the case. They drastically cut Q2 module and wafer shipments, revising a projection of 200-plus MW of module sales down to 80 MW of sales for Q2. (In the Q2 conference call, I remember the management proudly announcing how module sales were strongly rising each month.)” 

Yikes. Bad news and with very little notice. No doubt this provides fodder for solar’s detractors, but two things: first, we believe LDK still has good long term potential. The company still has good metrics overall, is possibly the lowest cost provider of solar modules in the world, and is renowned for its excellent political connections, including the backing of the Bank of China. Furthermore, its stock is so undervalued, that even with the terrible guidance, it’s still a bargain for what you’re buying; it was just that much more undervalued before. Yes, this news means that LDK’s 2011 earnings per share may drop to as far as US$1.20, a big drop, but the company is still making the $1.20 yet trading at values usually reserved for companies rapidly losing money and in danger of failing. (I’ll note here that we’re not the only team to keep our buy rating on LDK.) Second, all industries get downside surprises; it doesn’t mean their concept as a whole is flawed.

Indeed, in the same month of news of the failures, there were more indicators that the growth of the solar industry continues. Headlines like “JinkoSolar [JKS] profit shines on market expansion drive” are the inverse of an Evergreen or Solyndra. A cursory search of solar industry headlines reveals items like Jeffries raising First Solar (FSLR) shares from ‘Hold’ to ‘Buy’ and increasing the company’s target price from $115 to $132, insiders at MEMC Electronic Materials Inc. (WFR) have purchased 339,000 insider shares, Yingli Green Energy (YGE) said its most recent quarter’s net income nearly doubled (to US$58.1 million, or 36 cents per share), from the previous years’, easily beating Wall Street forecasts, etc.

So in sum, it’s clear that as with any industry, finding and short selling the weaker companies may well be a profitable venture, but to wholesale short an entire industry, much less a growing one, is, again, irrational.

Specific example of one not to short? Green Alpha ® Advisors’ holding Canadian Solar (CSIQ). For 2010, earnings per share (EPS) were $1.16. EPS estimates are $1.30 in 2011; and $1.50 in 2012. Nice growth. Yet, even with these earnings their ratios are pitifully low: share price to sales is only 0.13; price to earnings (P/E) is only 4.51; price to book is only 0.46 – extremely inexpensive for a company with its fundamentals. CSIQ is the very definition of a “value” stock. Shorting any company this cheap, that’s this fundamentally solid is not something a prudent money manager should be doing.

Yes, there are earning surprises and outright failures in the solar industry. For investors, the approach should be careful due diligence to pick the profitable, growing, best managed companies, to own more than one (preferably a basket of the best ones), and to look for buying opportunities on dips.

Disclosure: Green Alpha ® Advisors is long CSIQ, FSLR, JKS, LDK, WFR, and YGE. We never did hold Solyndra and have not held ESLR since July, 2009.

Garvin Jabusch is the cofounder of Green Alpha Advisors, LLC and manages The Sierra Club Green Alpha Portfolio -- a unique blend of Green Alpha Advisors' Next Economy universe and the Sierra Club's proprietary green-investment guidelines.

This article was first published on his blog Green Alpha's First Economy on 9/6/11

Posted by Garvin at 12:22 PM | Permalink | Comments (0)

Dana Blankenhorn

Building Integrated Photovoltaic (BIPV)  is often in the news.

There's a romance to it. Instead of having ugly solar panels on your house, your whole house could be an integrated solar system. It could use all the heat and light hitting it, from any angle, look like any other house, and pay for itself.

Pythagoras Solar, an Israeli start-up, says its solar windows, cells sandwiched in glass, can both lower heating and cooling costs while they generate electricity, paying for themselves in 3-4 years.

Pythagoras is private, but most publicly-traded BIPV plays are penny stocks, like QSolar an outfit I wrote about previously here. I don't recommend penny stocks as investments.

The closest to a pure play in this area that is publicly traded, by my reckoning, is Ascent Solar (ASTI). It's telling that they are not focused on the building trades, but on direct-sales to customers like the military, the auto industry, the space business, and custom manufacturers.

By contrast Konarka Solar, whose Power Plastic is a very interesting BIPV product, is privately held with $150 million invested. Their product goes into tents and onto devices.

Suntech Power of China (STP) has gotten into the BIPV market with solar shingles. But notice that Dow Chemical, which announced its PowerHouse solar shingles to great fanfare last year, has yet to release them to the market.

Why has BIPV failed to launch? Distribution.

BIPV should be a natural home improvement offering. But Home Depot and Lowe's only sell products that are in scaled manufacturing and generate their own demand. Creating that demand starts with a long sales cycle, high margins, and a lot of hand-holding.

There are such businesses in the construction area. They are salesmen who call on architects, builders and people who specify what will go into new buildings. It's a long, hard slog to get people to sign on the dotted line. These outfits tend to be small and local.

The relative success of Toll Brothers, which created a “solar home” project called Toll Green with financing from SunRun last year, is one promising sign of what is to come. The growth of retailers such as Solar Home, which sell BIPV along with other energy-saving products, could also create a channel for the sector.

But here is the bottom line. Solar panel makers may have ugly products, but they have a distribution channel and available financing. Until such a channel develops in BIPV, it will be difficult to for the industry to launch.

No matter how exciting their product may be.

Dana Blankenhorn has covered business and technology since 1978. He covered the Houston oil boom of the 1970s, began making his living online in 1985, and launched the Interactive Age Daily, the first daily coverage of e-commerce, in 1994. He has written for a host of off-line and online publications including The Chicago Tribune, Advertising Age, and ZDNet. He has covered PCs, networks, telecommunications, cable technology, Internet commerce, the Internet of Things, Open Source and Health IT, He began covering alternative energy at his personal blog, Danablankenhorn.com, in 2007.

Posted by Dana Blankenhorn at 09:42 PM | Permalink | Comments (2)

Tom Konrad CFA

With project financing and plenty of photovoltaic (PV) modules, a shortage of projects with credible off-takers seems likely to lead to further falls in module prices.  How can investors best profit from this trend?

PV module prices have dropped 70% since 2008, when the financial crisis sent demand tumbling, with Chinese multicrystalline silicon module prices currently as low as $1.49 per watt, according to Bloomberg New Energy Finance's (BNEF) Solar Spot Survey.  In part, this was an example of “the Bubble giveth, and the Bubble taketh away.” For the three to four years ending in 2008, the long-term downtrend of PV prices, which had been driven by the learning curve and imporving technology, stalled due to strong demand. Then, when the financial crisis suddenly removed the availability of cheap financing, demand vanished, and prices plummeted.

Plenty of Money

Today, it's clear that financing is back. I recently attended the 8^th Annual Renewable Energy Finance Forum-Wall Street (REFF), co-hosted by the American Council on Renewable Energy (ACORE) and Euromoney Energy Events.  At REFF, the room was packed with financiers ready to fund PV projects with credible developers and quality off-takers, such as utility Power Purchase Agreements (PPAs), solar and wind developers, and attorneys ready to draw up deals between them.  Notably absent among attendees were any utilities or other large power buyers. 

I find the absence of power buyers telling.  Yes, there are utilities, businesses, and institutions signing PPAs with renewable energy developers, but it's a sign of the end-customer's market power that they don't need to come to networking events like REFF Wall St to get the word out.  Brian Matthay, VP Environmental Finance at Wells Fargo sees the distributed solar PV market as limited not by the supply of panels or finance, but by the lack of good deals.  For Wells Fargo, a good deal requires a quality developer, with experience and a strong balance sheet.

Wind is following a similar pattern.  According to Pat Eilers, Managing Director at Madison Dearborn Partners who spoke at the conference, the locations of new wind projects in the US is driven more by the availability of PPAs than the wind resource.  I even met a wind developer who is following a new model because of the lack of PPAs with favorable pricing, his firm is building wind farms to sell electricity into the spot market: They don't intend to sign a PPA until pricing becomes more favorable.

Plenty of PV Modules

Meanwhile, PV module supply continues to grow rapidly.  According to BNEF's projections, even an optimistic projection for PV demand is likely to fall short of supply in 2012 and 2013.

We last had a PV module oversupply in 2009, after the financial crisis destroyed many customers' ability or willingness to borrow leading to a rapid fall in demand.  Prices promptly fell, which in turn lead to a rapid resurgence in demand.  After falling short in 2009, demand slightly exceeded supply in 2010.  In other words, over a period of about a year, PV demand has shown itself to be remarkably elastic and quick to respond to falls in the price of PV.

Potential Sources of Demand

I expect the current and projected glut of solar modules will create lower prices and a new demand boom.  BNEF's projections for demand in 2012 and 2013 will likely prove to be too conservative, although many PV manufacturers will be unable to make a profit at the lower price levels.

Market power will shift from solar manufacturers to solar customers.  The biggest winners are likely to be end users, who will be able to get solar installations for much lower prices than ever before, and those solar installers able to reach out to the new classes of customers.

Where will the demand come from? According to J Andrew Murphy, Executive Vice President of NRG Energy, it will come from the maturation of the industry. He sees a growing customer awareness of electricity and where it comes from, many more companies such as Wal-Mart, Google (GOOG), and Whole Foods are not only investing in distributed generation themselves, but presenting it to their shareholders and customers as a value proposition. Those stakeholders, seeing that value proposition then see the value in adopting distributed generation, which usually means PV.

If there is a profitable opportunity in solar stocks, it will be in the stocks of developers able to adapt to the needs of the new classes of solar customers drawn in by rapidly falling prices.  I believe that solar manufacturers see this, and that's why many are integrating vertically down the value chain by buying up solar developers, such as Sharp's (SHCAY.PK) acquisition of Recurrent Energy, and First Solar's (FSLR) purchase of NextLight last year.

A more recent development was the merger of two of the strongest regional solar developers, when Real Goods Solar (RSOL) agreed to merge with leading Northeastern solar integrator Alteris in an all-stock deal. As prices fall, typical customers are more likely to want a brand they can trust and a one-stop shop for design, build, and financing.  I expect solar integrators such as Real Goods that have a history of successful acquisitions should do well, along with strong local brands.  But that does not mean that Real Goods' current high trailing P/E of 38 is justified.  Solar integration is a low margin business, and growth from all-share acquisitions such as that of Alteris comes at the price of dilution of existing stock holders.  As I concluded in my recent survey of solar industry integration, the industry is more likely to produce steady cash earners than high-margin, quickly growing high flyers.

Conclusion

While I expect the downstream portions of the solar industry to be solid earners over the next few years due to the rapid growth of the industry, that growth does not justify paying high multiples for a low margin business. If I had to pick a solar stock today, I'd be more likely to opt for the higher margin vertically integrated manufacturers which are currently trading at depressed prices due to the current glut.  My colleague Garvin Jabush considers Wall Street's current hatred of solar stocks to be irrational. It's not that he thinks module prices will not fall, but that such a fall in prices is more than adequately reflected in stock valuations.  I'm inclined to agree.

While Real Goods has only a 2.6% operating margin, and a 4.0% return on equity (ROE), it trades at a forward P/E of 11 based on 42% expected annual growth in revenue.  Among manufacturers, cost leader First Solar trades at an 11 P/E, but has a 28% operating margin and 19% return on equity, numbers which seem much better able to fund the 27% expected annual revenue growth internally.  Jabush's pick, LDK Solar (LDK), is also a vertically integrated manufacturer/developer, and has a forward P/E of a minuscule 2.9, based on no expected profit growth and 12% annual revenue growth, which can easily be funded by the company's 20% operating margin and 38% return on equity.

Stock	Forward P/E	Operating Margin	ROE	1 yr expected growth
RSOL	11	2.6%	4.0%	42%
FSLR	11	28%	19%	27%
LDK	2.9	20%	28%	12%

It's always useful to understand future trends in the market, but profits come from understanding the market's reaction to these trends, as well as the trends themselves.  Right now, investors seem spooked by solar manufacturers, even though many of these manufacturers have worked to integrate vertically along the supply chain making them less sensitive to shifts in market power along the supply chain. 

Too often, investors in Renewable Energy get carried away by a positive growth story, rushing to buy at any price.  This time, the opposite seems true, and it's the selling that seems to have gone too far.  I've never been a solar cheerleader, and have always been cautious about confusing the growth of the industry with opportunity for the existing companies.  Yet right now, many solar stocks seem priced for long term zero, or even negative growth.  That, to me, seems to be taking the case too far.

DISCLOSURE: No positions.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been

Posted by Tom Konrad at 12:52 PM | Permalink | Comments (0)

A Conversation with Applied Material’s Solar Head Charlie Gay

by Neal Dikeman

I had a chance to chat today with Dr. Charlie Gay, the President of Applied Materials' (AMAT) solar division.  You may recall, we broke the story in the blogosphere 5 years ago about Applied’s entry into solar, which was anchored with a highly touted and very aggressive strategy for turnkey large format amorphous silicon and tandem cell plants called SunFab.

Charlie reminded me that when they began 5 years ago, they did so along two major thrusts:  The acquisition of Applied Films in June 2006 getting an inline coating system for deposition of silicon nitride passivation layers on crystalline and in parallel an internal project to adapt their large flat panel display manufacturing technology for photovoltaics.

They still like the large module format, for a simple reason, cost in the field for large scale solar farms is heavily about getting area costs down relative to power output.  I was excited for another simple reason, when major capital equipment developers get involved, manufacturing maturity is not far behind, it forces everyone to rethink scale in different ways.

After a huge initial splash outselling everyone’s expectations in that SunFab concept, many industry analysts later kind of wrote them off as flash in the pan when they were reported having problems as implementations came in slower and smaller and harder than expected on their SunFab lines a couple of years ago, and a saw a major restructuring in 2009. But they’ve had success with that product anyways, EVERYONE saw a major restructuring in 2009, and more importantly the original vision of leading solar into mass manufacturing is still going strong, now across a range of products and technologies in thin film and crystalline manufacturing equipment.  Let’s put it this way, in their annual report they call themselves the largest equipment manufacturer to the solar sector, they have $1.5 Billion in annual revenues in the Energy & Environmental division, which is heavily PV, and there are like 120 mentions of the word solar in their annual report, almost once per page.

So what I really wanted to talk to Charlie about was the future of PV manufacturing. He frames the future by drawing a mirrored parallel between photovoltaics and integrated circuit manufacturing, beyond just semiconductors:

• In IC, dozens to hundreds of device architectures exist, but basically one material, silicon.
• In PV, there is essentially one architecture: the diode, but dozens to hundreds of material choices.

But silicon has been the mainstay material of PV for a number of reasons.  So we got into one of my favorite topics, the manufacturing improvement potential in crystalline silicon.

His version of Moore’s law for solar runs like this:  the thickness of the solar cell decreases by half every 10 years.  Today it’s 180 microns thick.  The practical possibility exists to get down to about 40 microns, with some performance improvement by making it thinner, but we can’t go much below 40 without being too thin to absorb enough light.  This fits with other conversations I’ve had suggesting that over the past couple of years most of the major crystalline solar manufacturers were working on paths to take an order of magnitude out of cell thickness.

If this comes to fruition, crystalline can literally wipe the floor with the existing thin film technologies.  Basically think sub $1 per watt modules with the performance of high grade crystalline modules today.  And as cost per watt equalizes, that higher efficiency starts to really tell, as since Balance of Systems costs have fallen at 10-12% per doubling of installed fleet, compared to module costs falling at 18-20%, in a world where BOS increasingly matters, the old saw about lower area cost per unit of power installed starts to actually bite for once.  Think ultra thin high performance low cost large format x-Si modules with fancy anti reflective coatings and snazzy high grade modules with on module inverters or DC optimizers mounted on highly automated, low cost durable trackers.  Think solar farms approaching effective relative capacity factors of 2.5-3 mm kW Hours per year per MW on 25 year systems at $2-3 per Watt installed.  Possibly the only thing on the planet that could match shale gas.

In fact, the entire thesis of thin film as a business and venture capital prospect has been built on the premise that crystalline material costs were just too high to get to grid parity. I’ve got scads of early thin film business plans touting that.  That thesis is under extreme pressure these days. I’d submit that if the industry 7 years ago had really understood how much improvement could be had, we’d have saved billions in potentially stranded thin film development.

Charlie says there are about a dozen different paths for enabling 40 micron cells.  The most interesting approach to him is an epitaxial growth process on reusable silicon templates.  A process which grows a thin layer of silicon on top of a reusable layer of silicon, using perhaps one mm thick silicon templates, etching the surface, and directly depositing silicon from trichlorosilane gas.  The idea would be to rack templates into a module array, grow the cells in an oven to your 40 micron level, then glue the glass module to the back side, and then separate it off to form a “ready to go assemble” module.  The challenge is basically oven and materials handling designs that get it cost efficient in high volume.

In essence, all you’d be doing is integrating a silicon ingot growth process directly into a module. Instead of growing ingots, cutting thick wafers, forming cells, then building modules from them, you grow cells racked into their own module personally instead of growing ingots first.

Hella cool.  A process like that means using fairly manageable capital equipment and materials handling technology development in known device and module technologies we could literally rip the ever living guts out of crystalline manufacturing costs.  And there are 11 more paths to play with???

The way he thinks about it, on a broader perspective more people are working in photovoltaic solar R&D today, by his estimate some 70,000 researchers and $3 billion per year, than in all of the prior PV history.   And that means whereas perhaps five main innovations over 35 years drove almost all of crystalline PV manufacturing costs (screen printing, glass tedlar modules, adapting steel from tires for cutting wafers, silicon nitride processes, and fast metrology tools), in today’s world, Charlie thinks we see 5 equivalent innovations in PV manufacturing technology every 2 years.

So I asked him to comment on whether there were parallel cost-down opportunities for thin films or whether it is an also ran waiting to happen.  He thinks there are.  He mentioned organics.  I pushed back hard, as organics have been written off by almost everyone for never seeing yield or performance, so where does he see the opportunity?  He responded that he picked organics to keep me from narrowing the materials field prematurely to just A-Si, CdTe, CIGS, and GaAS.  Silicon just like carbon can surprise us, e.g. bucky balls, carbon nanotubes, and just because early materials had stability and process issues, doesn’t mean we’ve exhausted the opportunities.

He says what he wants us to recall is that we are currently operating in PV manufacturing today with the materials that were on the radar in the energy crisis from 1974-1980.  That is changing in the lab and universities these days.  And given time the results will surprise us.

He draws a parallel between photography and photovoltaics, both invented in 1839, both rely on sunlight acting on materials. In photography, people started off putting films on glass, then putting films on mylar, and running things continuously.  Implying that in solar, we’re still on glass c. 1890.

He said to think about the original Ovonics/Unisolar vision in thinking about how you get to high speed continuous processing with thin film (think paper manufacturing, where done roll to roll it’s far more consistent than one-offs can be done).  If that is still our ultimate thin film paradigm (got to love the chance to use the word “paradigm”), the stars are still in front of us with what thin film COULD do.  And while roll to roll has had significant materials technology and process control challenges for the current class of materials, let’s go back to the mirror parallel to integrated circuits, in photovoltaics, one main device, scads of material options.  Just a matter of R&D hours and time.

He markedly did NOT suppose that the current state of thin film devices could beat 40 micron crystalline silicon by themselves.  It’s worth considering that we may look back and find that thin film, CdTe and First Solar (FSLR) were the stepping stones to 40 micron crystalline, not the other way around.  Maybe my next question to Charlie is whether he and I should set up Neal and Charlie’s 40 Micron Solar Company of America yet.

Neal dikeman is a founding partner of Jane Capital Partners LLC, a cleantech merchant bank whose clients have included the technology arms of multinational energy companies.  This article first appeared on CleanTechBlog and is reprinted with permission.

Posted by Neal Dikeman at 01:56 PM | Permalink | Comments (3)

John Petersen

In 2009, the world produced some 13.2 billion metric tons of hydrocarbons, or about 4,200 pounds for every man, woman and child on the planet. Burning those hydrocarbons poured roughly 31.3 billion metric tons of CO2 into our atmosphere. The basic premise of alternative energy is that widespread deployments of wind turbines, solar panels and electric vehicles will slash hydrocarbon consumption, reduce CO2 emissions and give us a cleaner, greener and healthier planet. That premise, however, is fatally flawed because our planet cannot produce enough non-ferrous industrial metals to make a meaningful difference and the prices of those metals are even more volatile than the prices of the hydrocarbons that alternative energy hopes to supplant.

The ugly but undeniable reality is that aggregate global production of non-ferrous industrial metals including aluminum, chromium, copper, zinc, manganese, nickel, lead and a host of lesser metals is about 35 pounds for every man, woman and child on the planet. All of those metals are already being used to provide the basic necessities and minor luxuries of modern life. There are no significant unused supplies of industrial metals that can be used for large-scale energy substitution. Even if there were, the following graph that compares the Dow Jones UBS Industrial Metals Index (^DJUBSIN) with the Amex Oil Index (^XOI) shows that industrial metal prices are more volatile and climbing faster than hydrocarbon prices, which means that most alternative energy schemes are like jumping out of the frying pan and into the fire.



For all their alleged virtues and perceived benefits, most alternative energy technologies are prodigious consumers of industrial metals. The suggestion that humanity can find enough slop in 35 pounds of per capita industrial metals production to make a meaningful dent in 4,200 pounds of per capita hydrocarbon production is absurd beyond reckoning. It just can't happen at a relevant scale.

I'm a relentless critic of vehicle electrification schemes like Tesla Motors (TSLA) because they're the most egregious offenders and doomed to fail when EV hype goes careening off the industrial metals cliff at 120 mph. Let's get real here. Tesla carries a market capitalization of $2.8 billion and has a net worth of less than $400 million, so its stock price is 86% air – a bubble in search of a pin. Tesla plans to become a global leader in the development of new electric drive technologies that will use immense amounts of industrial metals to conserve irrelevant amounts of hydrocarbons. Even if Tesla achieves its lofty technological goals it must fail as a business. Investors who chase the EV dream without considering the natural resource realities are doomed to suffer immense losses. Tesla can't possibly succeed. Its fair market value is zero. The stock is a perfect short.

I won't even get into the sophistry of wind turbines and solar panels.

Next on my list of investment catastrophes in the making are the lithium-ion battery developers like A123 Systems (AONE), Ener1 (HEV), Valence Technologies (VLNC) and Altair Nanotechnologies (ALTI) that plan to use prodigious quantities of industrial metals as fuel tank substitutes, or worse yet for grid-connected systems that will smooth the power output from inherently variable wind and solar power facilities that also use prodigious quantities of industrial metals as hydrocarbon substitutes. Talk about compounding the foolishness.

I can only identify one emerging battery technology that has a significant potential to reduce hydrocarbon consumption and industrial metal consumption at the same time while offering better performance. That technology is the PbC® Battery from Axion Power International (AXPW.OB), a third generation lead-acid-carbon battery that uses 30% less industrial metals to deliver all of the performance and five to ten times the cycle life. There may be other examples, but I'll have to rely on my readers to identify them.

Humanity cannot reduce its consumption of hydrocarbons by increasing its consumption of industrial metals. The only way to reduce hydrocarbon consumption is to use less and waste less.  There are a world of sensible and economic fuel efficiency technologies that can help us achieve the frequently conflicting long-term goals of reduced hydrocarbon consumption and increased industrial metals sustainability. They include but are not limited to:

• Better buiding design and insulation;
• Smarter power management systems;
  
• Telecommuting;
• Denser cities with shorter commutes;
• Smart transportation management to reduce congestion;
• Buses and carpooling;
• Bicycles and ebikes;
• Shifting freight to rail from trucks;
• Smaller vehicles that use lightweight composites to replace industrial metals;
  
• Deploying solar and wind with battery backup for remote power and in developing countries;
  
• Shipping efficiency technologies, such as better hull coatings, slow steaming, etc.; and
• Recycling, recycling and recycling
  

My colleague Tom Konrad wrote a 28 part series on "The Best Peak Oil Investments." While I'm skeptical about the future of biofuels after suffering major losses in the biodiesel business, Tom's work provides an exhaustive overview of the energy efficiency space and a wide variety of investment ideas that have the potential to make a real difference. Since we can't simply take a couple of giant leaps into the future, we'll just have to get out of our current mess the same way we got into it – one step at a time.

We live in a cruel world. There is no fairy godmother that can miraculously accommodate the substitution of scarce industrial metals for hydrocarbons that are a hundred times more plentiful. We can and we must do better, but we can't solve humanity's problems until we accept the harsh realities of global resource constraints without the filters of political ideology and wishful thinking.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and owns a substantial long position in its common stock.

Posted by John Petersen at 09:28 AM | Permalink | Comments (26)

Tom Konrad CFA

Solar installation is a low margin business with low barriers to entry, but consolidation may bring competitive advantages in some sectors of the market.

I recently took a look at Principal Solar (PSWW.PK), a reverse-merger solar developer roll-up play, and found it remarkably lacking in hard data.  But there are a handful of other publicly traded pure-play solar installer/developers, as well as vertically integrated solar manufacturers like First Solar Inc (FSLR) which have been developing projects with their own panels, and solar developer-operators like Etrion Corp. (ETRXF.PK).

The Shape of the Solar Installation Industry

While Principal may not be providing enough information at the moment to make an informed investment decision, I wanted to decide if the roll-up strategy made sense in the solar developer space.  To do that, I talked to two sources actively involved in the space: Stephen Irvin, the CFO of the privately held solar installer Namaste Solar in Boulder, CO, and Rick Coen, principal at Empower Solar Consulting, a company that manages solar projects for clients such as builders, real estate developers, and government entities who have a few of the necessary ingredients (such as capital or real estate) for a project, but lack the necessary technical or organizational expertise.

Together, Irvin and Coen paint a mixed picture of the industry for prospective developers.  At the small, residential scale, there are practically no barriers to entry.  There is a wealth of training material available, both in person and online which enables even a one-man contractor to become certified to install solar.  At the larger, commercial scale, the main barrier to entry is capital, not expertise.  According to Coen, there is a national trend towards the financiers owning the solar project, and consultants like Empower can manage the project for them, and bring together all the necessary expertise to develop a project from the initial site assessment to final commissioning. 

According to Irvin. the installer model looks a lot like a traditional contractor model.  Gross margins are thin, from 15 to 30%, with residential systems typically receiving larger margins than commercial.  Both see space in the current climate for a wide range of business models, driven by the immaturity of the industry and a wide diversity and frequent complexity of local codes and utility incentive programs that contractors must negotiate.

There are also advantages to scale.  According to Irvin, large solar developers such as privately held Alteris Renewables have the buying power to negotiate better prices on solar panels, a significant advantage in a thin-margin business.  Alteris was formed when private capital firm Riverside Partners rolled up a bunch of companies in the Northeast.  He sees a shift towards commercial and utility scale projects, which also favor large firms because they have the balance sheet to provide the bonding capacity that large customers expect.

Public Solar Installers

Based on the above discussion, I'd guess the sweet spot for a publicly traded solar developer/installers would be a large scale, regional company, focused on a promising region and possibly residential solar installations (because of the higher margins.)

Promising markets include California, the Northeast, and Hawaii.  The former two have strong incentives, while Hawaii's expensive electricity means that they are already close to grid parity.

Although not a complete list, here are the publicly traded installers I'm aware of:

Real Goods Solar (RSOL)
Real Goods calls itself a "leading residential and commercial solar integrator" which was bought by sustainable retailer Gaiam (GAIA) in 2000, but spun off again in 2008.  According to Irvin, they used the money raised in the IPO to "acquire 3 solar installers in California."  They also have a presence in Colorado, because of  Gaiam's presence there.

Real Goods reported a gross margin of 28.9% and their seventh consecutive quarter of profitability in Q1 2011, showing the effectiveness of the large-scale residential focused model.  I think the company deserves deeper investigation.

Premier Power Renewable Energy (PPRW.OB)
Premier Power was founded in 2001 as the solar arm of home builder Premier Homes.  Now they call themselves "a leading North American and European solar power company providing high performance solar panel systems with consistently high quality for our commercial, agricultural, industrial, government, utility and residential customers."  Recent press releases show that they have been completing large scale projects in California and Italy. 

The company has a tiny $20M market cap, and an 8.2% gross margin on $87M sales.  They are marginally unprofitable, but they show positive cash flow and no net debt, yet with their thin gross margins, I don't anticipate a smooth or quick path to real profitability.

Principal Solar (PSWW.PK)
Principal Solar was discussed in detail here.  Investors should stay away until adequate financial information is available.

Envision Solar International (EVSI.OB)
I first looked at Envision a year ago, at which point they needed to raise capital to build their business.  They're now reporting a healthy 36% gross profit margin, but on minuscule revenues of $347 thousand.  An atypical solar integrator, the focus on licensing "solar trees" and other parking lot solar shading structures nationally.  This may account for the out-of line gross margins of a solar integrator, as they focus mainly on engineering and leave the sale of solar panels to third party installers.  However, given that their revenues are still a fraction of total expenditures (They lost $2.36M over the trailing twelve month period), these margins may not persist as they continue to scale their business.

Arco Energy Technologies Corp. (ART.V)
Arco was brought to my attention by J Peter Lynch after I wrote the initial version of this article.  I have not investigated the company, but here is their profile from their website.  "Acro Energy Technologies... is focused on the consolidation and growth of renewable energy companies, initially in the United States solar market. Acro Energy Technologies has initiated its acquisition campaign in the solar integrator market through its recent addition of Acro Electric, Inc., the 8th largest residential solar integrator in California. Also, it has closed an asset purchase agreement with Light Energy Systems in Concord, California. Acro Energy continues to actively evaluate suitable acquisition candidates across North America and Canada."

Conclusion

The examples of Real Goods and Alteris show that there is a role for consolidators in the highly fragmented solar installer industry.  But not all consolidators will succeed, and those that do are more likely to be steady cash earners, rather than high-flying growth machines.  Do not expect to see a Google of solar installers any time soon, if ever.

If I were to invest in a solar developer today, the only real option would be Real Goods.  I'd need to do more analysis before doing so, but the company's financial ratios and strength look promising.  My biggest concern would be valuation, since solar installation is a traditional low-margin business, but the glamour of solar is likely to attract unsophisticated investors drawn to the flame of solar's bright future.  At $2.42, Real Good is trading at a pricey 34 twelve month trailing P/E ratio, but an inexpensive forward P/E ratio of only 10.  Yet forward P/E ratios only have meaning when (possibly inflated) earnings expectations are met.

DISCLOSURE: No Positions.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 12:01 PM | Permalink | Comments (0)

By. Dr. John C.K. Daly

The ongoing tragedy of Japan's Daichi Fukshima nuclear complex will prove to be a boon for renewable energy in Japan, and astute investors should begin carefully to follow Tokyo's new priorities.

Before the March 11 twin disasters of a massive earthquake followed by a devastating tsunami, about 30 percent of Japan's electricity was generated by nuclear power, and Tokyo had ambitious plans to raise its market share to 50 percent over the next two decades, with renewable accounting for 20 percent, Japanese Prime Minister Naoto Kan told journalists earlier last month.

That optimistic policy is now in tatters, and Kan added, "However (following Fukushima), we now have to go back to the drawing board and conduct a fundamental review of the nation's basic energy policy."

Kan is now touting the government's "Sunrise Project," which has been moribund for the last seven years. The goal of the Sunrise Project is to reduce the cost of solar power over the decade to a third of current levels and to one-sixth by 2030 as an incentive for more people to install it.

At the 50th anniversary of the Organization for Economic Cooperation and Development in Paris Kan told reporters, "Japan will now review its basic energy plan from scratch and is set to address new challenges."

The scale of the government's turn away from nuclear and fossil fuel power is extraordinary, as currently renewable energy resources, such as solar and wind, only make up about 1 percent of Japan's total power supply. Even with hydropower, the ratio is about only 9 percent.

According to China Business the earthquake and tsunami halted production at most of Japan's giant solar power companies, including Kyocera (KYO), Sharp Corp ADR (SHCAY.PK) and Sanyo Electric (SANYY.PK) because of the subsequent lack of electricity. Prior to the earthquake China and Japan essentially shared the European photovoltaic (PV) market; since the earthquake analysts predict that Japan will lose one quarter of its market share.

The shift has already started, as The Nikkei business daily reported on Wednesday that Softbank Corp, Japan's third-largest mobile phone operator, has announced plans to assist in the construction of about ten 20-megawatt facilities, costing about 8 billion yen ($100 million) each. But, as in many Western countries dominated by the nuclear and oil industries, solar energy policies have up to now enjoyed fitful support in Japan, where pioneers such as Sharp Corp and Kyocera Corp have lost their lead to overseas rivals that received larger subsidies and lower production costs. Furthermore, the cost of solar panel installation in Japan is double that in Germany.

So, who will be one of the major beneficiaries of this policy shift towards reducing solar costs?

China, surprise surprise.

China now has over 400 PV companies and now produces approximately 23 percent of photovoltaic products used worldwide. Three years ago China produced 1,700 megawatts of solar panels, nearly half of the world production of 3,800 MW, of which 99 percent were exported. According to Huang Xinming, head of a research institute at JA Solar (JASO), a large Chinese solar power company, JA Solar has just developed a new technology that could cut the cost of producing silicon, an important material in manufacturing solar panels, by 60 percent.

Expect to see a flood of yen into China's PV industries; smart Western investors will head east as well, where the sun always rises.

Source: http://oilprice.com/Alternative-Energy/Renewable-Energy/The-Fukushima-Cloud-s-Green-not-Silver-Lining.html

By. Dr. John C.K. Daly for OilPrice.com. For more information on oil prices and other commodity related topics please visit www.oilprice.com

Posted by Guest Contributor at 03:12 PM | Permalink | Comments (0)

by Tor Valenza a.k.a. “Solar Fred”

This article is part of a multi-part series published at Renewable Energy World.  You  can read the other parts here: one, two, three, and four.

The Trina Solar (TSL) factory tour and testing facility tour is over. It took perhaps an hour, maybe less.

The next stop is a small auditorium where Ben Hill, Trina’s VP of sales, gives us a PowerPoint presentation that includes Trina’s history, market share, company philosophy, and their Formula 1 racing branding initiative. Afterward, Trina’s CEO, Jifan Gao, appears, and we are able to ask him questions through a translator.

What I want to know about is maintaining quality control, their sustainability practices, potential manufacturing in the U.S., not to mention how Trina will address solar PV commoditization. (Due to the long length of this post, I’m saving this subject for my next and final Solar Fred in China post.)

On Chinese Quality Concerns

Throughout my trip, I’ve heard nasty stories here in China about manufacturers taking shortcuts and not manufacturing to specs, especially for foreign companies moving their manufacturing here. My travels in Shanghai allowed me to talk to several people in a number of industries, and all had similar stories of shortcuts and poor quality from suppliers. If you check the comments section of my second China post, there are several solar examples from readers. However, based on this press conference and other outside reports, it’s clear that Trina doesn't have these issues. Why?

First of all, Trina is a Chinese company. That means they don’t need anyone to translate or facilitate anything, and they are well aware of problems with outside suppliers and QC manufacturing issues. Their solution to supplier QC is to, well…have as few suppliers as possible and to keep the remaining suppliers as close as possible. That is, Trina’s a vertically integrated company; from solar ingots to wafers to modules, they own it. So if Trina’s taking shortcuts, they’re only shortcutting themselves. The only thing they don’t supply is the raw silicon, glass, and a few other minor components, but even there, Trina is encouraging these suppliers to be manufacturing on campus or near their huge solar PV park in Changzhou.

Beyond that, the company already scores high on outside benchmark tests, such as Photon International’s ongoing module output test of major PV brands. Trina’s 180w randomly selected module is in 4th place after two years of STC output. Plus, as mentioned in my last China post, Trina’s well known to be “bankable,” and banks have far better due diligence than our factory tour and press conference.

On Environmental Concerns

Making solar PV wafers and modules ain’t pretty. There are a lot of toxic, non-yummy chemicals and waste water in the manufacturing process that nobody would want added to their drinking water or crops. In 2008, there was a Washington Post report about a solar PV manufacturer dumping PV waste chemicals into the ground and rivers outside the solar factory, poisoning residents and farms.

To their credit, Trina is conscientious and transparent about their environmental efforts. They’ve reportedly invested more than $12 million in recycling programs, reduced electricity consumption in all workshops, switched to low-consumption lights, shortened cycle time for selected machines, and invested over $80 million in sustainable manufacturing. Part of that money went toward building a new waste water plant with a capacity of 10,000 tons/day, potentially recycling 60% of all water from the manufacturing process.

As to the overall carbon footprint per module, Hill tells us they’re in the process of calculating that figure. Once they know what that number is, Trina says it is committed to reducing it.

Finally, Trina is certified ISO 14001, which means they comply with some international environmental management standards. In addition, they’re a member of PVCycle for end-of-life module recycling, and according to the Silicon Valley Toxics Coalition, Trina scores an 89 out of 100.

On Building Factories Here…and There

In our press conference of 30 international reporters, Trina’s CEO, Jifan Gao, got the same question at least three times, including one from a Chinese reporter. The question: “When are you going to build a factory in my country?” Or, in the case of the Chinese reporter, the question was, “When are you going to build a factory in my region?”

It’s flattering to be so desired, no? In any case, Trina is a publicly traded company, so Gao’s (translated) answer was thoughtful, but vague enough not to move Trina’s stock price in any direction. And that answer was essentially that Trina is always assessing customer needs in each country.  If a particular market needs a new factory and Trina can swing it and produce modules at a competitive price, then they’ll build a factory there.

In other words, Trina’s open to building a factory in fill-in-the-blank-country/region—but there are currently no plans. For now, they have a total of 17,000 employees worldwide, 13,000 of which are in Changzhou, and they said their workforce is still growing globally.

I speak with other Trina executives later, who tell me that as much as customers want American energy independence, they rarely ask for a made-in-America panel. Price is their first consideration. Politicians who support or oppose solar policies don’t see it that way, of course. I’ll have more thoughts about this in my next and final China post.

Until then, UnThink Solar.

Tor Valenza a.k.a. “Solar Fred” advises solar companies on marketing, communications, and public relations. Contact him through UnThink Solar or follow him on Twitter @SolarFred.

DISCLOSURE: Trina is NOT a client, but did pay the expenses for me and about 30 other reporters to visit their factory.

Posted by Guest Contributor at 10:27 PM | Permalink | Comments (0)

by Joseph McCabe, PE

More and more solar electric installations are using AC micro inverters and DC to DC optimizer electrical balance of systems (BOS) components. This BOS gear goes directly on the back sides of PV modules providing higher valued electricity than output from the PV cells alone.

Two years ago I considered micro inverters as only necessary for lazy designs or bad installation practices.  I’ve changed my attitude towards these approaches after organizing two years of forums as the American Solar Energy Society (ASES) Solar Electric Division Chairperson. These forums brought together experts who compared and contrasted AC micro inverters and DC to DC optimizer BOS equipment.

PV panels previously could not be installed in partially shaded locations because shade over a small area of the panel would drastically reduce the power production of the entire PV system. Now, shaded systems can benefit from AC micro inverters because each PV module can operate independently, instead of at an aggregated system level. Miss-matched PV modules were previously binned before installations so that each string had similar performing modules. Now the new electrical BOS gear eliminates problems with under, or over performing modules.  More recently, I have learned about the cost reduction and performance enhancing promises of these distributed technologies.

These electrical BOS approaches have evolved substantially in the last few years, and have come a long way since the first failed introduction of micro AC inverters in the late 90's.

Micro-BOS Approaches

Micro electrical BOS components promise easier designs, lower installed costs, along with improving annual performance. Module level electrical BOS solutions for PV have many different flavors. All strategies promise to reduce the impact of individually miss-matched PV module performance over time, possibly reducing wiring and installation labor costs. Some products have communication strategies which help owners understand real-time performance and maintenance opportunities. Depending upon the project specifics, the levelized cost of energy could be reduced 20% or more.

AC micro inverters attempt to optimize efficiency by converting the DC voltage from PV modules into AC voltage that match the electrical grid’s specifications. This enables AC wires to be used, along with widely available AC electricians. Some DC to DC optimizers strategies boost the DC voltage to an optimal level. Others boost and / or buck (reduce) to maintain a specific DC voltage. There are parallel connections that add amperage, and series connections that add voltages. DC to DC optimizers raise the system voltage, lowering the wiring costs, but still need a box to invert the higher DC voltage to AC. Standard AC inverters are being optimized to work with DC to DC equipment.

Project specifics will determine which micro approach, if any, would be most appropriate. The trends are for residential systems to have AC micro inverters, and large systems to have DC to DC optimization.

The Shoot-Off Forums

At last year’s ASES Shoot-Off Forum, we had AC micro inverter companies in the same room with DC to DC optimizers comparing and contrasting their gear. This year we separated the forums into one AC micro inverter and one DC to DC optimizer group. Next year we will likely further divide the forums into companies that are shipping and companies that hope to ship.

This year’s forum included a presentation from the leading company shipping these types of solutions, Enphase Energy. Founded in 2006, they have shipped over 750,000 AC Micro Inverter units, with 25,000 installations in North America in the last 30 months. They have a 13% market share for US residential installations below 10 kW.  According to Enphase, micro inverters will be 11% of all world wide inverters by 2014, which means we need to keep a close eye on these market trends reshaping the PV industry.

For the first time in public, Ampt LLC presented their large-scale PV systems approach with their DC to DC optimizer technology. Ampt’s roots are intertwined with Advanced Energy Industries Inc. (stock symbol AEIS), which makes thin film deposition power conversion and thermal instrumentation equipment as well as PV power inverters. On May 3, 2010, Advanced Energy (AE) acquired all of the outstanding common stock of PV Powered providing AE with a full line of DC to AC Power Inverters. The Co-founder and Chairman of AE is Douglas S. Schatz. He is listed as an inventor on Ampt patents and is Chairman of Abound Solar (previously AVA Solar). A nice central station thin film PV solution is evolving from this AE / Abound Solar and Ampt relationship. In my option, thin films can benefit from these micro technologies because of the soft shape of the power curves and immaturity of thin film technologies in comparison to crystalline PV.

At the forum, SolarBridge Technologies announced volume production of their AC micro inverter including strategic partnerships with PV module manufactures. They are offering a 25-year warranty through their PV module panel integrators. This makes for a central warranty location, as long as the PV module companies stay in business. Matching module warranty with the micro gear is a very good marketing strategy. Very long mean time between failure (MTBF) numbers were presented by various companies, in the 400 to 500 year ranges. The high operating temperatures of this gear exposed to the heat of the sun make these MTBF’s highly questionable. The PV industry will surely become more savvy in estimating and marketing MTBF in the future.  

Other unique strategies were presented at the forum. eIQ Energy presented their parallel DC to DC optimizer including an integrated wiring harness solution made by Shoals Technologies Group. Tigo Energy explained how their DC to DC optimizer solution uses a combination of real-time module and string-level information to compute the optimal operating state of each PV module. There are many more micro approaches and business models being promoted in today’s micro electrical BOS space.

Future Competition

Be on the look out for two international leaders in traditional PV AC inverters to introduce micro inverters; Power-One (stock symbol PWER) and SMA Solar Technology AG (stock symbol SMTGF.PK/S92.DE).  In September 2009, SMA purchased OK4U, one of the original micro AC inverter technologies. Kaco New Energy Inc’s transformer-less inverter was shown as a partner for the DC to DC strategies in the forum, and like other existing inverter companies, will have good opportunities to customize their grid interactive technologies with micro technologies.

Beware, these micro technologies are highly duplicate-able. This means they will probably be championed by very intelligent electrical engineers from developing nations. I heard a rumour from this year’s Solarexpo conference in Verona that there was an Enphase knock-off from China, everything the same, except the very important aspect of quality.

Copycat designs will be enabled by National Semiconductor's May 2011 announcement of the availability of their integrated circuits (IC’s) for use in the design of PV system micro inverters, power optimizers, and charge controllers.  National Semiconductor ended its original June of 2008 SolarMagic business of selling complete micro components and calling it a “per-panel electronics solution that maximizes power output of multi-panel installations”. Now, they are backing up the supply chain to supply IC’s  instead of BOS components. Texas Instruments has been marketing PV power IC’s for a few years.  

The largest inverter companies, and the smallest companies enabled with computer chips from National Semiconductor and Texas Instruments are creating an exciting playing field for micro PV BOS solutions. All these approaches continue to put pressure on lowering installed PV system costs,  increasing the annual performance and increasing the market for less than optimal installations.  We will be seeing increased innovations from electronics integrated directly on the back of DC PV modules. It is all very exciting; the innovations, and our learning how they fit into the PV industry has just begun.

For more in formation on the American Solar Energy Society please visit ases.org and plan on attending the annual conference held in Denver May 13th 2012.

Joseph McCabe is a solar industry expert with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. McCabe has a Masters Degree in Nuclear and Energy Engineering. Joe is a Contributing Editor to altenergystocks and can be reached at energy [no space] ideas at gmail dotcom.

No Disclosures.

Posted by Joe McCabe at 05:38 PM | Permalink | Comments (1)

Tom Konrad CFA

Last week, the announcement that Principal Solar, Inc. was now available for public trading landed in my inbox.  It's currently trading under the symbol PSWWD.PK but will transition to PSWW.PK on June 23rd.  I went ahead and used the latter in our Solar Stocks list.

The press release was remarkable only for the lack of hard facts about the company, focusing instead on the bright future of the solar industry. But experienced investors know that an industry can have a bright future while the individual stocks tank.  A rising tide need not lift all boats. a rising tide could, in fact, smash most of the current boats against the rocks while new, more efficient competitors set sail at high tide.  That certainly has been the pattern in solar manufacturing.

Despite the fluff in the press release, I thought the Principal Solar strategy might be worth investigation.  They plan to concentrate on "rapidly advancing... solar energy through a unique roll-up strategy."  Since Principal is planning on rolling up solar developers and installers (as opposed to manufacturers) I thought that this was at least interesting in that there are few, if any solid  pure-play solar installation companies available to public stock investors.

Other developers I'm aware of are Envision Solar International (EVSI.OB), which designs attractive solar for parking lots, but lacked financial muscle when I looked at it a year ago, and California-based Premier Power Renewable Energy (PPRW.OB) and Real Goods Solar (RSOL) neither of which I have yet looked at deeply.  Not totally unique, then, but one of just a few publicly traded options.

Although the California firms are better established, I decided to take a deeper look at Principal.  The near complete lack of substance in the press release perked my interest, if only to see if I could unearth any information that might be useful in an investment decision.

I continued to find a lack of hard facts.  An inquiry to the company's PR firm confirmed that they have not released any financial statements, but they plan to release financial information mid-summer.  While reverse mergers like the one Principal undertook are notorious for their lack of transparency, the lack of any financial statements (even unaudited) takes opacity to a new level.  I declined an interview with CEO and former telecoms entrepreneur Michael Gorton.  No doubt Gorton is a great communicator and visionary, but I'm more interested in numbers.  Without those numbers, i.e. audited financial statements, I would not touch any company with the proverbial ten foot pole. 

When the numbers do emerge, it might be worth another look, but I'm not optimistic.  A scan of the management bios shows a lot of telecoms and IT experience but much less solar industry experience.  One of the four bullets in their "Core strategy" is "Establishing the Company as the market thought-leader by issuing thoughtful and timely White Papers and impactful press releases to the mainstream media."  In other words, a key part of their core strategy is public relations.  I much prefer dull companies that are poor at communicating their story but good at making money.

As they say in the company's home state of Texas, Principal Solar seems to be "All hat and no cattle."  Maybe that will change come mid-summer and the promised financial information, but I'm not holding my breath.

DISCLOSURE: No Positions.
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 10:00 PM | Permalink | Comments (0)

Dana Blankenhorn

There are a growing number of “solar bears” out there like Jim Chanos, a professional short-seller who is convinced China is poised for a 2008-style crash and who is also selling short stocks like First Solar (FSLR) and Vestas Wind (VWDRY.PK). (What does Chanos like? Would you believe Citibank?) (Picture from Wikipedia.)

Personally, I don't know whether Chanos is right about those stocks or not. First Solar is a popular short because it's the best-performing U.S. solar play. Fly high and the assumption is you'll fall fast.

But two big mistakes are being made here:

1. People are confusing specific companies with the industry.  Costs per-watt in the renewable industry are continually going down. This makes picking a winner tough, but it is proof that there is serious upside to the sector as a whole. After all, what is happening with the price of fossil fuels? Most are up, way up. If your costs are declining and your opponents' are rising, you're winning.

2. A lot of analysts are focused only on the outlook for grid-scale projects, and most projects aren't very big. You don't get big new plants without multi-year timelines and (often) subsidies. But small plants, even non-plants (like the cells on my sister's house) can add up. And with costs declining, growth is certain.

Measurements like those of Ernst & Young are especially misleading. “China widens lead over U.S.” reads the headline, but in fact the outlet there is only marginally improved, and outside the area of wind energy our outlook is actually stronger.

The outlook for wind and solar is further improved by things like GE's new mini-gas plants, which can take up for intermittent power sources while storage technologies develop. And for every company the stock pickers are dissing, like First Solar, there's always one they're hot for, like SunPower (SPWRA), which has just bought PowerLight Corp.

If you don't confuse companies with an industry, and if you broaden your outlook, you're going to find a lot to like in renewables -- a lot worth training and hiring for.

DISCLOSURE: None.

Posted by Dana Blankenhorn at 01:58 PM | Permalink | Comments (2)

Debra Fiakas

The chip makers dominate discussion of the solar energy sector.  Nonetheless, a passing comment in a recent blog post introduced me to an interesting company that seems to have been over looked in the solar story  -  Apollo Solar Energy, Inc. (ASOE:  OTC/BB).

Apollo produces tellurium, a little known chemical element that looks deceptively like tin.  It is typically a by-product of copper and lead mining operations, but can be found hiding beside gold as well.  While these are very common metals, tellurium is quite rare on earth.  Outer space is another story.

Although the primary use of tellurium is in metallurgy applications, Tellurium is used in cadmium telluride solar panels.  Commercial-grade tellurium, which is not toxic, is usually marketed as minus 200-mesh powder but is also available as slabs, ingots, sticks, or lumps.  There have been concerns that current supply sources for tellurium could not keep up with demand from solar panels.  Estimates of world production are sketchy at best.  A mash-up of U.S. Geological Survey data suggests world production is in excess of 200,000 metric tons per year.

More than 90% of tellurium is produced from anode slimes collected from electrolytic copper refining.  The remainder is derived from skimmings at lead refineries and from flue dusts and gases generated during the smelting of copper and lead ores.  It is not surprising then that tellurium is produced mainly in China, the United States, Peru, Japan, and Canada  -  the main copper producing countries.  

Apollo in China calls itself a refiner of tellurium and high-purity tellurium-based metals for specific segments of the electronic materials market, i.e. solar panels.  Apollo is sourcing its tellurium from Dashuigou mine located in Sichuan Province, China and another mine in Shimian, Majiagou.  Apollo touts the Dashuigou and Majiagou mines as the only two known deposits in the world in which tellurium is the primary mineral.  

Apollo’s refining operations are Chengdu, Sichuan Province.  The company says this facility could ultimately have the capacity to produce more than 300 tons of high-purity photovoltaic cell materials and 42 other types of electronic materials.

Despite a number of potential competitors already supplying tellurium to the market , Apollo appears to have had no problem in finding customers.  Apollo negotiated a five year supply agreement with First Solar (FSLR:  Nasdaq) in November 2010.  First Solar is among the largest producers of solar cells and panels in the world.  

Apollo reported $9.6 million in total sales in 2010.  The gross margin of 15.6% was insufficient to support hefty general and administrative expenses near $7.0 million.  Consequently, Apollo reported a net loss of $5.8 million.  Cash usage by operations was $1.0 million in the year 2010, suggesting the income statement paints an unnecessarily negative picture.  Stock-based compensation, a non-cash operating expense, was $3.6 million in the year.

ASOE is trading near its 52-week low, largely due to rapidly eroding confidence in China-based companies that have executed reverse mergers into U.S. public companies.  Nonetheless, we are adding Apollo Solar Energy to the Solar Group in our Atomics Index.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ASOE is included in Crystal Equity Research’s The Atomics Index in the Solar Group.

Posted by Debra Fiakas at 08:19 PM | Permalink | Comments (0)

by Joseph McCabe, PE

Solar manufacturers are racing to build the next cadmium telluride (CdTe) photovoltaic (PV) factory in the United States. Three major CdTe on glass factories in the US have been recently announced each with a unique starting point. Abound Solar has won a US DOE loan to support a new 640 MW/yr facility in Tipton, Indiana. General Electric (GE) recently announced buying Primestar. They indicate that they will be building the largest PV manufacturing facility in the world. Finally First Solar has announced a 250 MW/yr facility to be built in Mesa City Arizona near Phoenix.  Let’s take a closer look to see which one of these factories might have the best advantage to be in the lead to generate revenue.  

First Solar
As the largest manufacture of PV modules in the world, First Solar Inc (FSLR) is the defending champion.

First Solar has produced so many factories, it almost seems like their real product is factories, not solar panels. They indicate a total manufacturing capacity of 1.5 GW/yr (that is gigawatts per year) at the end of 2010. They have plants in Perrysburg, Ohio, Frankfurt/Oder, Germany, and Kulim, Malaysia. They plan to increase manufacturing to 2.9 GW/yr including additional facilities in Vietnam and the United States by the end of 2012. They are well capitalized, and will finally be manufacturing in Arizona with a 250 MW/yr factory, where the corporate headquarters is located. Don't blame First Solar on the long delay to manufacture in Arizona. Arizona has a backwards micro-economic energy policy. They import their fuel while exporting their dollars. With the 3,739 MW Palo Verde nuclear power plant dominating the electrical generating landscape of the state, solar energy has been a hard sell even with all that sun. The CdTe technology is very appropriate for the hot Arizona climate because of First Solar’s advantageous temperature coefficient in comparison to crystalline silicon PV technology. While Arizona has been debating solar for the last ten years, First Solar was building factories all over the world. This new facility is expected to take one year to build. Can Abound or GE build a factory and create markets faster?

Abound Solar
Privately held Abound Solar is the young colt with a rich patron.  In December 2010 Abound Solar closed on a long-anticipated $400 million loan guarantee from the U.S. Department of Energy (DOE) to fund the expansion of the company’s manufacturing capacity. They have an existing facility located in Loveland, Colorado with a nameplate capacity of 200 MW/yr.

Having a loan from the US DOE might seem like a great opportunity. However, getting the money and building the factory might take longer than anticipated. The first PV company announcing such an award was Solyndra, a copper, indium gallium and selenium (CIGS) thin film on tubes of glass PV technology. DOE had announced the Solyndra loan guarantee in March of 2009; however Solyndra failed to complete their initial public stock offering. With major delays, Solyndra indicates their annual production run rate will be approximately 200 MW/yr per year by the end of 2011, effectively eliminating them from this race.

Abound Solar, originally named AVA Solar, comes out of Dr. Sampath’s laboratory at Colorado State University. They have a few market channels for the PV product and have been exhibiting at trade shows for a couple of years.

GE
General Electric's (GE) deep pockets might make the company seem like the odds-on favorite. But history has shown what GE can, or can't do, when they buy PV technology. In 2004, GE purchased Astropower at bargain basement prices. At the time, Astropower had a nice niche to purchase scrap silicon and produce well respected solar modules. Astropower filed for bankruptcy in February 2004, and then GE purchased all the assets for $15 million. GE never really capitalized on that PV investment. With that purchase came a residential PV shingle called the Astropower Gecko shingle. Before PowerLight had developed the SunTile (now the SunPower SunTile), Gecko was in the market and getting lots of California attention as a replacement to concrete tile roofing that made electricity. Have you heard of Gecko lately?

GE could have what Clayton Christensen describes as the Innovator’s Dilemma described in his book titled the same. The subtitle explains the book “When New Technologies Cause Great Firms to Fail”. GE was not able to capitalize on the Gecko PV roofing technology, nor the well-respected Astropower modules. One sunny note is the leader of the GE Solar organization, Danielle Merfeld, Director of the Solar Technology Platform at GE. She is an extremely technologically and business savvy person able to jockey any PV technology to a successful finish line. If she doesn’t succeed with GE due to the Innovator's Dilemma, she will eventually succeed at another PV company.

GE has been a majority equity owner of PrimeStar Solar since 2008. In March of 2010, GE announced an expanded relationship with Primestar, located in Arvada, Colorado with an existing 30 MW/yr nameplate capacity CdTe factory. Then in October 2010 GE and Solar Frontiers, a CIGS PV on glass technology, made a surprise announcement of a technical and commercial agreement indicating problems with the Primestar relationship. Apparently with the new April 2011 GE announcement that it was buying Primestar, this Solar Frontiers deal might not be going as well as expected. This most recent GE Primestar news announcement indicated they will build the largest CdTe factory in the world, but did not indicate the specific location.

BP Solar
Today’s handicappers will do well to remember how British Petroleum (BP) lost to First Solar in the last race.  Before BP failed with the Deep Oil Horizon platform they had failed at CdTe. Opened in 1998, they closed their Fairfield, California CdTe plant in 2002, right about the time that First Solar was introducing its product to the market. First Solar’s IPO was in November of 2006 priced at $20 a share. Is there such a thing as corporate hindsight where directors can be held accountable for missing the potential $12B capitalization that First Solar now commands? BP was supposed to stand for Beyond Petroleum; now perhaps it stands for Beyond Prosecution. BP had decided that thin films were not going to be successful and eliminated all their investments. More recently they have closed their US PV crystalline silicon factory in Frederick, Maryland. BP Solar is an unfortunate scratch in today’s manufacturing race.

My Bet
Important factors this time around will include the ability of the thin film tool makers to execute on the factory orders, and if any one of them are caught in a Japan material shortage due to the tsunami after effects.

So who is going to win this race? My trifecta bet says First Solar to win, Abound Solar to show, and GE to place: It will not be a photo finish.  

Disclosures: Long FSLR

Joseph McCabe is a solar industry expert with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. McCabe has a Masters Degree in Nuclear and Energy Engineering.
Joe is a Contributing Editor to Alt Energy Stocks and can be reached at energy [no space] ideas at gmail dotcom.

Posted by Joe McCabe at 07:15 PM | Permalink | Comments (0)

Green money managers' stock picks after the Japanese nuclear crisis.

Even as the nuclear disaster in Japan unfolds, it's clear that the world's energy industry will be forever changed. Russian reactors were never considered safe, but a Japanese to have a nuclear meltdown is an entirely different story.

Market Reaction

Since Monday, nuclear stocks and ETFs have been plummeting. As of Wednesday night, The Market Vectors Uranium + Nuclear Energy ETF (NYSE:NLR), the iShares S&P Global Nuclear Energy Index (NASD:NUCL), PowerShares Global Nuclear Energy Portfolio ETF (NYSE:PKN), and the Global X Uranium ETF (NYSE:URA) are down 17%, 14%, 16%, and 29% respectively.

Yet we still need energy, and when the dangers of traditional energy once again rise in our awareness, the safety of renewable energy gains appeal. Over the same three days, the most liquid of the Clean Energy ETFs, the Powershares Wilderhill Clean Energy ETF (NYSE:PBW), the First Trust ISE Global Wind Energy ETF (NYSE:FAN), and the Guggenheim Solar ETF (NYSE:TAN) gained 1%, 2%, and 11%, respectively, even as the S&P 500 fell 3%.

The market thinks that the outlook for clean energy in general and solar in particular, has improved greatly. This makes sense, because as the Japanese rebuild their energy infrastructure, they will stay away from nuclear, and focus on electricity that's safe, and quick to deploy. Green energy fits the bill.

Stock Picks

If green energy will do well in general, which stocks will do the best? I emailed my contacts among green investment fund managers, and asked them each to pick one stock they thought was particularly well positioned. Here are their picks.

Garvin Jabusch: LDK Solar

Jabusch manages the Sierra Club Green Alpha Portfolio. He thinks that, in the long run, solar will be the big winner, followed by wind. His top pick is LDK Solar (NYSE:LDK), which his fund holds. He also blogs about green investing, and has just finished an article on Japan, Nukes, and Solar.

John Segrich CFA: Capstone Turbine

Segrich manages the top-performing Gabelli SRI Green Growth Fund (SRIGX). Like many contrarian investors, he's not great at following instructions (I asked for no more than three sentences), but he has interesting things to say:

The big beneficiary in the aftermath of the Japan nuclear crisis will be natural gas related companies. In particular Japan is likely to rebuild generation infrastructure with natural gas and in particular liquid natural gas (LNG). The pushback against nuclear will not necessarily be the boon to renewable that many are suggesting. Renewables are not failsafe in a disaster scenario (look at how many solar panels were shattered in the quake) and they cannot replace baseload power. Gas is the logical and cleanest and safest solution and we would expect Japan, Italy, and Germany to build more gas vs increase emphasis on renewable. … one interesting way would be to look at companies whose business model is gas based and can handle local based generation with rapid deployment:

Capstone Turbine (NASD:CPST) makes gas powered microturbines that can be locally installed and can provide immediate efficient and clean power generation for stand alone facilities (hospitals, schools, hotels, critical infrastructure) – we are already seeing deployment on infrastructure in the US to provide constant, reliable, failsafe power. I would expect to see adoption of these solutions for rapid deployment in disaster areas such as Japan at the moment to provide critical power on a local level as needed. Longer term, integrating these turbines as a backup/distributed power solution also makes sense for future emergency planning.

Sam Healey: MEMC Electronic Materials

Sam Healey manages a Cleantech stock portfolio at Lamassu Capital. He thinks MEMC Electronic Materials (NYSE:WFR) has two chances to benefit from the disaster. First, the nuclear renaissance stalls, it will boost to the Solar industry, and MEMC will benefit. By year end WFR will be vertically integrated from Poly [silicon] production through installation via Sun Edison and will be able to capitalize on any global expansion of solar power. Second, and more important in the near term, Japan accounted for 10-20% of the global Poly manufacturing of Semi[conductor] Wafers. Therefore, MEMC, will be able to gain share in the near term as it absorbs some of the demand for Semi Wafers, and perhaps will also have better pricing. MEMC does have one plant in Japan that is currently off line as a result of the earthquake.  The plant does not produce raw poly but was one of MEMC's 8 plants that manufacture 300 MM wafers and 1 of 3 MEMC plants that engage in wafer polishing and slicing.  The risk is that they will not be able to replace this production at their non Japan plants.

Tom Konrad CFA: NGK Insulators

My own pick is NGK Insulators (Tokyo:5333, Pink:NGKIF). NGK has fallen along with the Japanese market, but stands to benefit from the rebuilding of the northern Japanese grid. NGK's manufacturing is located in the central and southern part of the country, so the company should not have been too badly hurt by the earthquake and tsunami. NGK also sells the most mature, high capacity grid-based electricity storage technologies: the Sodium-Sulfur (NaS) battery. Especially on a small island like Japan, electricity storage is very helpful for integrating the variable power from solar and wind, and the Japanese are likely to favor this home-grown technology over foreign rivals.

Solar, distributed Natural gas, Electric grid & storage: they could all be winners. What do you think? The comments are open. I've also started a poll.

This article was published on Tom Konrad's Green Stocks blog on March 18th.

DISCLOSURE: No Positions. I did not ask the money managers interviewed if they own their picks, but we can assume they do.

Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

Posted by Tom Konrad at 03:56 PM | Permalink | Comments (1)

Dana Blankenhorn

Nearly all the big computer companies of the early 1970s have since gone out of business. Remember the BUNCH? Burroughs, Univac, NCR, Control Data, Honeywell (HON)? The first two became Unisys, the last three are still around, but none is a real factor in the computer industry as it exists today. Betting on the BUNCH in 1971 would not leave you in the chips in 2011.

Digital Equipment, Data General, Wang, Amdahl? All gone. Along with nearly every company that made PCs in the 1970s save one – Apple. International Business Machines Corp. (IBM) didn't get into the PC market until 1981. Until then they thought it not worth their time.

Point is failure is common in a fast-growing market. Most of the early auto makers failed. It's perfectly natural.

That's the way you have to look at the recent problems with Evergreen Solar (ESLR) and Energy Conversion Devices (ENER). Evergreen has been written about here several times. The doomsayers are all over ENER like bears on a picnic basket.

They're not looking at reports ENER has a hot new patent involving “the deposit of microcrystalline semiconductor materials” on thin film.  Think of that as something you might find in a box at the garage sale afterward. Maybe someone will get a bargain on that.

Fast-growing markets are also fast-moving ones. When technology can change on a dime, when financing conditions and channels are always in flux, there is going to be a high failure rate.

That's one reason I don't own any solar stocks. (I also don't want the ethical risk.)

And it's one reason those who follow the space are desperate for secure leadership to develop. They want to see an IBM in this space, and many have anointed First Solar Inc (FSLR) with the title. Personally I don't think its lead is nearly as solid or secure as IBM's was in 1971, and even IBM went through a lost decade between that time and now. The company was late to the PC party and fumbled away its early lead in PC software to Microsoft. You can lose money on anything.

What matters is not the fate of any single stock, but the progress of the technology and that of the whole industry. That industry is growing, rapidly. It has been doing so for years. It should continue doing so. That industry is hiring. It has been hiring for years and will continue to hire.

But look at the resume of any tech executive you see in the next few weeks, getting hired by some up-and-coming start-up. What you're going to see on that resume are a lot of jobs, at a lot of companies, many of which no longer exist.

Would that keep you from investing in the Internet?

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 08:16 AM | Permalink | Comments (0)

Andrew Williams

London, UK --  On the back of last year's record demand, there are growing concerns that photovoltaic (PV) module supply is set to outstrip demand throughout 2011, leading to significant oversupply in the industry. But are these concerns founded? And if they are, what impact might the oversupply have on the global PV industry?

2011 Forecast

According to analysts at UK-based IMS Research, Photovoltaic (PV) module production capacity increased by nearly 70% over the course of 2010, reaching nearly 30 GW by the end of the year.  Looking ahead, IMS anticipates that 35 GW of annual capacity will be reached within the first half of 2011, despite installations in the same period being predicted to reach no more than one fifth of that amount.

“Demand for PV grew quickly throughout the second half of 2009 and 2010, driving installations in 2010 to reach more than double the previous year.  Most suppliers implemented aggressive capacity expansion plans throughout the year,” says Sam Wilkinson, Research Analyst at IMS.

“Following some reductions and amendments to incentive schemes in Europe, installations will not continue to grow at this rate and demand will not be sufficient to support all of this new capacity,” he adds.

Although in general agreement about the prospects of an oversupply in 2011, other analysts are more cautious about its likely extent.  Adam Krop, Vice President of Equity Research at Ardour Capital Investments believes that the bankable supply of modules will be around 25 GW by the end of 2011 - compared to a conservative estimate of 17–18 GW of demand.  

“While this appears to be a significant oversupply, these numbers are not a great ‘apples to apples’ comparison,” says Krop.

“The 25 GW of supply is based on statements of capacity build from individual companies, but keep in mind these are year end goals, so ramp timing plays a big role.  While nameplate capacity for the industry could be 25 GW, we should discount that number for an adjusted annual run-rate as the lines ramp,” he adds.

Krop also expects some higher cost capacity to be decommissioned in Europe and says that some Chinese capacity plans could be postponed or scaled-back as well.

“[The] real question is how much a supply-demand imbalance will affect pricing and margin structures.  We are incorporating 10-15% price declines for module manufacturers based on a more competitive pricing environment,” he says.

Strong Policy Impact

Although the chances of a global oversupply of PV modules occurring in 2011 will depend on a number of factors, one of the most important is likely to be the ongoing levels of government financial support for the sector in key markets.  In particular, policy developments in Germany, Italy, France, Spain and other European countries have the potential to significantly affect overall global demand.  Given recent trends in policy, it is a fair bet that, as the cost of solar continues to drop, we can expect some additional Feed-in-Tariff (FIT) reductions.  

“If [there is] an oversupply situation in 2011, it will be due to lower demand [as a result of] subsidy cuts in Europe.  The supply side is easier to control as it is a matter of cutting capital expenditure.  Neither is good for stock prices,” says Krop.

“We also need to take into consideration the anticipated growth in China, the US and other markets,” adds Gil Forer, Global Cleantech Director at Ernst & Young.

“But, the retroactive limiting of the number of hours [for which] PV can receive incentives in Spain [and] the retroactive taxes in the Czech Republic, have damaged investor confidence in those countries and caused banks to become more cautious on the sector overall.  This could potentially have long lasting negative effects on financing cost, which is a key input variable for the industry,” he adds.

Forer’s prediction is that, as more supply comes online, it is likely that prices for modules will moderate further, improving the economics in those countries with stable incentive schemes, low cost of capital and/or high insolation, thus increasing uptake.  

“So, overall there is not one global answer, [instead it] will vary market by market,” he says.

For Forer, any growth market is likely to experience frequent, and often rapid, supply and demand adjustments.  However, what makes PV unique is that it relies heavily on policy support, which can change according to political priorities and ability to absorb costs.  

“As more and more segments and geographies enter grid parity, we would expect the market to become less volatile over time.  That said, the increase in capacity, especially coming online in Asia is quite large,” he says.

Impact on Industry

So, what impact might the widely predicted oversupply have on the global PV industry?  For Forer, whilst any oversupply is likely to be temporary, it will be enough to hurt high cost producers.  

“Companies with strong brands and strong customer channels will be less affected.  Most at risk are high cost producers that are not operating at scale and with weak brands,” he says.

“As we saw during the financial crisis, which was followed by oversupply, bankability was key and could again become a more differentiating factor,” he adds.

Further up the supply chain, tier 1 suppliers, typically favoured by the market, remained sold-out throughout much of 2010 – meaning that tier 2 suppliers were able to capitalise and grow shipments significantly.  As a result, both Tier 1 and Tier 2 suppliers have quickly added new capacity going into 2011.  The outlook continues to be good for Tier 1 suppliers, who continue to see high demand for their products in 2011.  

“With a greater proportion of demand served by these Tier 1 suppliers in 2011, Tier 2 suppliers are likely to see less demand for their products, this is likely to result in some competitive pricing and lead to price declines across the industry,” says Wilkinson.

For some, it is quite possible that oversupply, and the ensuing drop in prices, will drive out some of the smaller, higher cost players.  

“Low cost leaders such as Yingli (YGE), Trina (TSL)and First Solar (FSLR) should be in the best position, but again, an oversupply situation would bring multiples and stock prices down across the board,” says Krop.

“Consolidation and mergers of capacity is not likely in my opinion.  Capacity will continue to be built and shifted into China, Malaysia and Taiwan, while technology and branding will be focused in key regions [such as] Europe and the US,” he adds.

 Andrew Williams is a freelance journalist based in Cardiff, Wales, UK. His work has been published in a wide range of publications including The Guardian, The Ecologist, Green Futures, 24 Housing, Professional Broking and Strategic Risk. As well as writing for Renewable Energy World, he also writes regular articles on renewable energy for Wind Energy Update and CSP Today.  This article is reprinted with permission from Renewable Energy World.

Posted by Guest Contributor at 01:56 PM | Permalink | Comments (0)

Tom Konrad CFA

Electric utilities today look a lot like newspapers in 2000: Too much debt in an industry primed for disruption.

Speaking at the Economist's Intelligent Infrastructure Conference, Brad Tirpak, Managing Partner at the private investment fund Locke Partners made the case that electric utilities are as woefully unprepared for the coming disruption of cheap, distributed solar power as newspapers were unprepared for the disruption of the Internet in 2000. 

He outlined the following parallels:

1. Both had long been considered to be sure-fire businesses with dependable income.
2. Both took advantage of the seemingly dependable income to load up on debt.
3. Both face disruption from a disruptive technology (the Internet, and distributed generation and efficiency) with the potential to undermine their businesses.

What Happened to the Newspapers

Newspapers have not gone away, but as readers and advertising increasingly migrated to the Internet, circulation numbers dropped.  When a company is loaded with debt, a small drop in revenues is magnified into a proportionately larger drop in profits.  To stay solvent, newspapers had to raise prices. 

Rising prices drove more readers away, starting the cycle all over again, and eventually leading to bankruptcy for many of the papers.  As you can see from the chart below, many of those papers that survived without bankruptcy lost most of their stock market capitalization as more and more of their income was needed to service their debt. 


The Price of PV

Mr. Tirpak expects a similar story to play out in utilities.  As solar becomes cheaper and reaches grid parity, installations will grow rapidly. 

Edward Fenster, CEO of SunRun made the case that we don't even need further decreases in solar photovoltaic (PV) panel prices to reach grid parity solar even without the federal subsidies.  According to Fenster, solar panels currently cost $1.65 per watt, but total installed cost is about $5.50 per watt.  While some of the extra cost is Balance of System (wiring, inverter, mounting), the majority is labor and permitting.  In Germany and Japan, permitting and installation are only $1.50 per watt: Fenster believes we can get there too by doing away with local permitting on standard installations ($0.50 per watt reduction) and using greater scale and operating leverage ($1.50 per watt reduction.) 

Those reductions would lead to an installed cost of $3.50 per watt.  According to my calculations, that would lead to a 30-year internal rate of return of 4% (IRR) given a 20% capacity factor and a $0.13 cost of electricity per kWh.  If we assume any electricity price inflation at all, the IRR increases with it, and a $3.50 per watt PV installation looks attractive at any interest rate below the IRR.  We can also safely assume that there will be further reductions in both panel prices and in other system component prices. 

What Might Happen to Utilities

PV will probably reach grid parity in the next few years, through a combination of rising utility prices, increasing returns to scale in installation, and cheaper balance of system costs.  If this then leads to rapidly growing PV installations, will it undermine utility revenues, as the internet undermined revenues at newspapers? 

I think the analogy is based on a misunderstanding of both the scalability of distributed PV and the utility regulatory environment.

First consider the regulatory environment.  Utility regulators are charged both with ensuring that utility customers get service at a reasonable cost, and also that utility investors will continue to be willing to provide capital for necessary utility investments.  If the rapid spread of PV were to threaten utility solvency, regulators would take action to help the utility maintain solvency. 

Mr. Tirpak understood this, but made the assumption that the only action regulators could take to protect utility solvency would be to raise prices, which he assumed to mean the price per kWh of net energy used.  If this were correct, then we would indeed see the vicious cycle of increasing rates and declining volumes that has undermined the solvency of newspapers over the last decade. 

It's not all about cents per kWh

Regulators have other options.  First, they can allow the utility to cut any PV subsidies intended to help the utility reach solar energy targets.  If a utility were threatened by too much solar power, such subsidies would clearly be unnecessary to achieve the statutory PV penetration.  Subsidies are frequently cut in response to unexpected growth in PV installations.  In fact, declining subsidies in response to installation growth are often designed directly into these programs.

Once subsidies are gone, the next step to protect utility solvency in response to PV installation would be to change the structure of electric rates.  Although we often think of energy (kWh) as the only thing we buy from utilities, in truth we buy another valuable service: electricity on demand.  Even a home with enough PV to produce all the electricity it needs on an annual basis cannot disconnect from the grid: The power must be kept on at night and on cloudy days, and excess electricity needs to go somewhere when the sun is bright. 

Electricity storage could be used to take a home entirely off the grid, but such storage would be prohibitively expensive.  If a home's average usage and generation is 24 kWh/day (requiring a 5 kW PV installation), then enough battery storage would be needed to get the house through a few cloudy days when generation is greatly reduced.  Deep cycle lead-acid batteries typically cost $$200 per kWh, so three days worth of storage would optimistically cost $14,400, or $2.88 per kW of installed PV, making even $3.50/W PV uneconomic. 

Since PV does not enable users to do without utility service, regulators can increase the fixed cost of utility service without increasing the variable (per kWh) cost.  This price rise will improve utility profits without improving the economics of PV.  Other options would be to switch to time of use pricing for electricity, with low prices being charged when there is excess electricity (which would be when PV is operating, since we are assuming a PV glut) and higher prices when there is not enough (dusk on hot summer days.)

In a private email, Tirpak responded to this argument by saying he could not "quantify the support for solar.  People hate utilities and love solar. Republicans and Democrats support it. At the end, the [utility regulators] will listen to the public as well as reliability."  I certainly have met too many Republicans who hate solar.  As for utility regulators (and I've testified before electricity regulators several times), I simply can't imagine them intentionally adopting policies that would drive a utility into bankruptcy.

I can't quantify the public support for solar, either, but I can put an upper bound on it. Residential solar leasing companies like SunRun now can provide solar electricity to customers in seven states for less than the cost of grid electricity, without any upfront cost.  They're doing good business, and driving rapid market growth, but most homes in those states still don't have solar: SunRun uses innovative strategies like partnering with One Block Off the Grid (1BOG) to assure sufficient volume.  If everyone truly loved solar, they could just hire a call center in India to answer the deluge of telephone calls spend most of their efforts installing panels.

Scalability

There are natural limits on how much PV can be installed by customers.  Many people's homes are shaded by trees or other buildings.  Other customers are renters, and so do not have the option of installing PV.  Industrial and commercial rooftops are seldom big enough to produce enough power to meet relatively high industrial and commercial electricity usage.

Utility scale installations could produce enough electricity, but such installations need to sell their power directly to the utilities, at much lower wholesale rates.  It will be quite some time before solar PV is able to compete at wholesale rates in the absence of subsidies.

Other Disruptors

Tirpak also lists other potential disruptors of the utility model: energy efficiency, smart grid, LEDs, ground source heat pumps, and cheaper hydrogen.  He did not go into detail on why he expects any of these to be significant, but my take is that only cheap hydrogen has the potential to change the story I outline above. 

Smart grid, by its nature, is being implemented by utilities at regulators' request: the smart grid will not allow us to do without the grid, since it is the grid.  Perhaps Tirpak instead meant microgrids, which are enabled by smart grid technology.  While microgrids have the technical capability of cutting the cord to the larger utility, they seldom have the legal authority.  A microgrid supplying power to a small group unconnected to the utility would legally be a utility itself, and subject to utility regulators.  For the reasons outlined above, those regulators would not allow the formation of microgrids to undermine the solvency of the utility.

Efficiency Technologies

The potential for LEDs to further reduce energy use is fairly small.  In 2008, I made a weirdly similar (and similarly overblown) argument that utilities might be undermined by the phase-out of the incandescent light bulb.   My argument was not that this would reduce electricity sales (which it will), but that it will undermine utility energy-efficiency programs.  This will happen because the phase-out of traditional incandescents would make the former stalwart of residential energy efficiency programs, the compact fluorescent light bulb, (CFL) the new baseline.  Current LED bulbs use almost as much energy as CFLs of the same brightness, although the technology has the potential to use only 40% as much.  But even assuming that LED technology reaches this potential, where a CFL saved 75 watts replacing a 100 watt incandescent, an LED only has the potential (at best) to save another 15 watts: One-fifth of the savings of the CFL when compared to an incandescent.  Current technology saves only 2-5 watts over the CFL, at a cost of $40.  If the now mature technology of CFLs did not disrupt utilities, LEDs don't have a chance.

Ground-source (aka geothermal) heat pumps (GHP) are already a mature technology, and so are unlikely to see rapidly falling prices like solar.  That said, they are already an enormously efficient way to heat and cool a building, and their widespread adoption would do much to reduce energy use. That is why I like GHP stocks.  However, GHPs are more likely to be a boon to electric utilities than a burden.   GHPs replace heating by natural gas or fuel oil with electricity, adding to utility sales.  Just as important, the timing of electricity used by GHPs has the effect of improving utility grid utilization.  When heating, GHPs run mostly in the winter and at night, which is just when utilities often have low demand and high generation from wind.  When used for cooling, they reduce summer peak loads by displacing less efficient air conditioners.

More broadly, energy efficiency technologies (which include LEDs and GHPs) are unlikely to undermine utility revenues because of the significant barriers to adoption.  After all, energy efficiency is already much cheaper than grid based electricity, costing only a few cents per kWh saved.  With grid electricity costing five times as much as efficiency already, it seems unlikely that a price shift that makes it cost even ten times as much will make a radical difference in the rate of adoption of efficiency technology.

Hydrogen

Of the technologies Tirpak listed, only cheaper hydrogen has a chance of disrupting the electric utility model the way the Internet disrupted newspapers.  Hydrogen might disrupt utilities by providing a cheap way to store electricity, which in turn would allow individuals to go off the grid.  Yet while hydrogen has the theoretical potential to provide relatively inexpensive energy storage, cheap and efficient electricity storage with hydrogen has not yet even been demonstrated in the lab, at least to my knowledge.  That puts any such technology at least a couple decades away from commercialization.  I'm not holding my breath.

Conclusion

Given that utility customers are captive in a way that newspaper customers never were, it seems unlikely to me that utility stocks in the coming decade will follow the performance of newspaper stocks in the last decade.  Lower prices for and increasing penetration of PV will change the way we pay for utility service, but not free us from utilities all together.  Only the advent of extremely cheap electricity storage would allow us to truly cut the umbilical power line, and until we can cut that line, regulators will find a way to charge us enough to keep utilities solvent.

While regulated utilities should weather the coming solar storm, independent power producers (IPPs) which sell their power into the spot market, or whose power purchase agreements (PPAs) expire at the wrong time, might be threatened.  This is especially true for IPPs with inflexible generation that cannot easily ramp up and down to compensate for fluctuating electricity supply from renewable sources. 

If you're convinced that PV is on the cusp of grid parity and rapidly expanding deployment, don't short regulated utilities, as Mr. Tirpak suggested.  Instead, look at IPPs with mostly coal-based generation fleets and PPAs expiring in five years or so.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:59 PM | Permalink | Comments (2)

by Joseph McCabe, PE

This past week there was a photovoltaic (PV) workshop that probably wasn't on your radar. It was held at the National Renewable Energy Laboratory (NREL) and is called the PV Module Reliability Workshop (PVMRW). This is where the nerds of the PV industry get together to discuss the factors that influence how long a PV module will last and other factors which might influence the long-term performance of a PV system. It wasn't on your radar because it is not something that influences big business. Or is it?

If you track the PV industry it is more likely that you heard about the February 16th Photon CIS conference in San Francisco where high level people were discussing their company capacities and expected CIS efficiencies. But at the PVMRW meeting, held at the same time, people were discussing the challenges with copper indium gallium and (di)selenide PV (CIGS), which is very similar to CIS. CIGS has the promise of low cost manufacturing with high efficiencies. However many companies are taking quite a long time to develop large markets. CIGS products deposited on glass, like Solar Frontiers (100% subsidiary of Showa Shell [Tokyo:5002]), have had many years of advancements leading to the February 15th announcement indicating commercial production at their newest plant located in Kunitomi Japan.

The Promise of CIGS

CIGS holds the promise of low cost production and of being packaged in a flexible module. This month’s Department of Energy (DOE) SunShot Initiative announcement hopes to reduce PV systems costs by about 75 percent to roughly $1 per watt; flexible CIGS PV modules can provide a large system level price reduction towards this DOE goal. NREL specifically indicated the system level cost reductions could be from $0.17 to $0.94 per watt savings using flexible PV modules instead of traditional rigid glass.

The Hunt for the Culprit

The high efficiency, flexible PV module has been hampered by apparent susceptibility to moisture of the CIGS technology. Potential culprits range from the packaging of the modules that allow for moisture to enter into the PV cells to transparent conductive oxides (TCO). TCO are one of the layers in the CIGS thin film PV module.

At PVMRW companies like Dow Corning, DuPont, Saint-Gobain, Mitsubishi Plastics, and 3M were presenting how their materials can protect the PV product, specifically CIGS susceptibility to moisture. If the culprit causing the susceptibility to moisture inherent in today's CIGS technologies is the TCO, as NREL suggests, these expensive and unproven packaging solutions might not be needed.

Various CIGS companies provided reliability perspectives at the PVMRW. SoloPower, which just announced a conditional commitment for a $197M loan guarantee from the DOE for a new facility in Oregon, presented the effects of light soaking on shunts in their CIGS. Solarion compared reliability of their CIGS in a glass-glass encapsulation to a flexible encapsulation. Ascent Solar (ASTI) presented highly accelerated weathering of CIGS and Nanosolar presented their design for reliability on keeping the water out of CIGS. Companies like ADCO adhesives were supplying reliability information on edge seals and other building integrated PV (BIPV) adhesive attachment solutions appropriate for flexible CIGS.

One company's presentation was quite revealing. Sunpower (SPWRA) had quantified and presented various system failures to help understand reliability from their extensive historical field experience. SunPower's acquisition of PowerLight enabled them to compare various manufactures’ products over a number of years of performance data. This sharing of system failure data is indicative of the spirit of this unique PVMRW meeting. Our industry is learning from each others failures so that the industry as a whole will prosper. Just a note, SunPower’s modules were not necessarily those included in the system failures, but other manufactures modules.

Reliability is Location-Specific

For the first time I was hearing multiple discussions for location specific reliability evaluations. All modules are currently required to pass a set of tests that help build confidence in the safety and potential performance of the PV over time. However, there is not necessarily a correlation of those tests and the actual longevity of the PV product. It has only been assumed that these tests can represent a high probability of long-term performance. The tests reflect a general understanding of failure mechanisms for a relatively hot-humid location. New location specific reliability testing can open up hot dry markets for specific PV technologies, and can help to guarantee performance of PV products that might perform better in cold or humid climates. NREL’s Rommel Noufi suggested looking at today’s highways for what our PV industry might look like in the future. What he meant is that the highways are full of various manufactures and models of transportation solutions, and similarly, there will be many PV solutions for various locations and purposes in the future.

There were three tracks at the PVMRW; crystalline silicon, concentrating PV and thin film. CIGS discussions dominated the thin film track possibly due to the high interest in long term performance opportunities. Kudos has to go to NREL and the DOE for supporting this annual PVMRW workshop. And thanks should go out to the nerds of the industry who have worked for many years to build the current state of reliability in the PV industry. Over the past few decades it is these groups of people that have enabled PV systems to build the confidence in the PV market place that enables more than 20 years of reliable system performance.

DISCLOSURE: No positions.

Joseph McCabe is a solar industry nerd with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. Joe is a Contributing Editor to altenergystocks and can be reached at energy [no space] ideas at gmail dotcom. 

Posted by Joe McCabe at 09:35 PM | Permalink | Comments (0)

Dana Blankenhorn

Back in December I wrote skeptically of New Energy Technologies Inc., (NENE) whose SolarWindow was written-up here in September, mainly as a result of this press release.

The press release drew press coverage, including an October mention by CNBC anchor Erin Burnett. I should add here Ms. Burnett has not done a Maxim cover shoot – the photo by the story is a fake.

But is the story a fake?

Since the fall NENE has been on a roll, rising in price from about 60 cents to over $1.60.

The company says it has appointed a new CFO with an impressive resume.  (but noted it's not his full-time job). So after seeing yet-another mention of the company today I did a little checking.

Skeptics are not hard to find. The blog Sanity Defense used the phrase pump and dump for this company in November.  Stock Gumshoe laughed at the company's publicity and the author of its press materials. [Ed. note: See Tom Konrad's Oct 30 take here.]

NENE, it turns out, is not this company's original name. Until January 2009 it was known as Octillion, The name changed a few months after it appointed Harmel Rayat as its secretary-treasurer.

During the Internet Bubble Mr. Rayat ran an outfit called EquityAlert, which the SEC charged with being an e-mail “pump and dump” house. In 2007 Canada Stockwatch ran a “profile” of Mr. Rayat detailing several of his “deals” at which point Seeking Alpha ran a story titled “Stay Away from Octillion.” Other commenters have been more blunt – stay away from Rayat, they warn. 

So in 2007 Octillion, with Rayat at the helm, claimed to own solar patents which are New Energy Tech's business. But its July 2007 prospectus shows it only notes a license to commercialize patents held by the University of Illinois. Three years later the company was saying its technology came from the University of South Florida  – previous agreements were canceled for undisclosed reasons, according to Stock Gumshoe.

Rayat is listed in SEC documents last May as owning 43% of the company, through something called Alberta Ltd.  He recently sold over 36 million shares of NENE.  The sales were described in a filing last December.

If you're looking for Mr. Rayat, in other words, he's long gone. Flickr has a picture of him at a 2009 Vancouver restaurant opening. He looks happy.

NENE, meanwhile, keeps on logging the column inches. Here is a description of the company's latest demonstration at Gizmag, which doesn't seem aware that Octillion and NENE are the same outfit. Glass Magazine ran with the release too. The press release, published at the Penny Stock Blog, headlines this as the “largest solar window” yet shown and another step toward commercial development.

The current CEO is John Conklin, who is said to have a quarter-century of experience in renewable energy and industrial processes. But does he?

He is said to be founder of National Solar Systems LLC of New York – but that company is (according to the Web site linked from his profile) based in Saudi Arabia. He's also listed as founder of Tellurium Associates LLC. He calls it “an industrial and environmental process design and operations consulting Company.”  It's listed as an environmental consultant in a small commercial building currently available for sale at $32/sq.ft. 

Anyone starting to smell a rat, using our hopes and dreams to steal our money and reputation? I am.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 10:34 PM | Permalink | Comments (0)

by Debra Fiakas

Smilers never lose
And frowners never win
So let the sun shin in
Face it with a grin
Open up your heart and let the sun shine in.

Age of Aquarius
The Fifth Dimension, 1969

Investors have not opened their hearts or pocket books for Entech Solar, Inc. (ENSL:  OTC/BB) despite its products that do indeed let the sun shine in, that is into commercial and industrial buildings through innovative tubular skylights.  Shares of Entech Solar are currently priced below a dime.  

Entech has also developed a concentrating solar module marketed under the brand name SolarVolt that converts the energy from sunlight into electricity.  The SolarVolt relies on a unique optical design that concentrates the sun’s rays toward an array of photovoltaic cells.  Because the solar input is concentrated the module requires 95% less silicon than conventional photovoltaic cells.  Accordingly, the SolarVolt’s cost/performance case is compelling  -  at least from a raw materials standpoint.

Unfortunately, Entech has yet to gain much traction in the marketplace.  Sales totaled $173,000 in the first nine months of 2010.  Consequently, the Company reported a net loss of $14.4 million in the period, largely on selling, general and administrative expenses.  Operations are using approximately $2.56 million in cash per quarter.  The Company had $1.7 million on the balance sheet at the end of September 2010, not enough to sustain operations through the end of the year.

It should not be a surprise that earlier this week CEO and Chairman of the Board David Gelbaum invested another $1.0 million in the company.  Gelbaum was given another 15.0 million shares for his generosity, bringing his ownership in the Entech to 46.9%.

Gelbaum founded the company with Mark O’Neill, who is the current chief technical officer, and Robert Walters, who is VP of Marketing.  Gelbaum’s background is in quantitative modeling of derivatives, so we will give him a pass on the weak performance in market penetration.  However, both O’Neill and Walters boast extensive experience in engineering and technical sales.

The Entech Tubular Skylight was introduced in January 2010, and contributed only nominally to 2010 sales.  Management still apparently holds out hope for improved sales volumes in the final quarter of the year.      

Concentrating solar technology is a seductive resolution to the high cost of solar photovoltaic power generation.  Earlier this year the Company elected to focus on the electricity-only model, leaving the thermal application to a time when market conditions are more receptive.  The SolarVolt was submitted for independent certification testing in September 2010, and the company has targeted mid-2011 for introducing a fully certified product to the marketplace.

ENSL may be a penny stock plaything for day traders today.  However, we suggest investors put Entech on their watch lists for news on the Company’s efforts to get certification of the SolarVolt concentrating solar module.  Certification may be that tipping point that triggers customer interest.


Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  ENSL is included in Crystal Equity Research’s Earth, Wind and Fire Index in the Solar Concentrating group.

Posted by Debra Fiakas at 07:05 PM | Permalink | Comments (0)

Dana Blankenhorn

When most people think of solar energy, they see flat panels on a roof.

They don't think about thin film. They don't see it.

This is one of the many advantages of CIGS  and other thin film solar technologies. So what if its efficiency is half that of a panel? It conforms to the shape of the place where it lays.

Thin film can also be productized in ways no panel can. It can be turned into something retailers can sell or bloggers will drool over. Try doing that with a panel.

With the exception of the 800-pound Gorilla First Solar Inc (FSLR), it's true that we're still measuring the annual supply from these manufacturers in megawatts, figures utility companies can't (and often don't want to) hear, except as window-dressing or a source of subsidies. But changing that equation is as simple as getting the right product into mass production. (Skeptics should listen again to the words of former DEC CEO Ken Olsen. "There is no reason for any individual to have a computer in his home.")

Personally I think I've seen the future and it's thin.

Copper indium gallium (di)selenide is also not the only possible formula for a thin film. Sharp (SHCAY.PK) is looking at amorphous silicon, despite Applied Materials' (AMAT) failure with it. Maybe they will succeed, and maybe they'll fail too. The search for new materials will go on. (Like the man told Dustin Hoffman in The Graduate, "One word. Plastics.")

There is a ton of competition in this space. Analysts at Greentech Media recently wrote a list of just CIGS thin film companies for a story on one of them. Want to hear it? Solar Frontier, Q-Cells (QCLSF.PK), Solyndra, SoloPower, MiaSolé, Wuerth Solar, Stion, GSP, Nanosolar. They can't all be wrong, can they?

And is that an exhaustive list? Far from it. Venture capitalists are funding more all the time, often on the promise of greater efficiency. While analysts at Greentech Media are very positive about companies like AQT Solar that can get into production fast and cheap, or SoloPower, with its claims of UL Labs approval, it's clear to me that this is the first mile of a corporate marathon.

Put it this way. How many PC makers from the late 1970s can you name? (Other than Apple.) In terms of this market, I don't even think we're at 1977 yet.

There are just so many directions in which improvement can happen with thin films. Efficiency, production cost, durability, materials cost, etc. It's true that the total power being supplied by CIGS right now looks pathetic next to standard panels, but the advantages are just too obvious.

That's why companies like Dow Chemical  and (now) Intel are putting cash into the space. Dow likes the idea of solar systems that go on with the roof, that in fact are the roof. Intel likes Sulfurcell, a German company that claims (as others do) that thin films can be as efficient as panels.

The way to look at this is not through the eyes of current production, or short-term profits. It's about the technologies behind the curtain, the new materials and techniques that can get that to market. A good venture capitalist will invest in 10 plays knowing only three will ever bring him any return, but in hopes that 1 of those three will be huge. That's the right attitude to have.

What does it mean when every roof, every wall, every tent and bleach blanket can be delivering solar power to its owner? Remember, electronics and many electrical devices are requiring less-and-less power every year.

More to the point, what does it mean to an industry that depends on long-term contracts for construction of panel systems if the wall can deliver just as much power for the cost of wallpapering? Or painting? That's a silly question today, but one that the people in this business should probably start thinking about.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 06:57 PM | Permalink | Comments (0)

Dana Blankenhorn

The lessons of technology investing also apply to solar investing.

The decision by Evergreen Solar (ESLR) to move to China has some analysts saying "ha-ha" over solar energy. But in fact it reveals a basic fallacy in the way solar power, and solar power stocks, are analyzed by Wall Street.

It's a manufacturing assumption. Solar panels are said to be a manufacturing business. So if prices are going down, that's bad. If governments are no longer seeing solar as just good PR, if they're treating it as a real industry that has to make its own way, that's bad too.

Here's the simple truth. Solar is a technology business. Not only that, it's a new technology business.

Evergreen Solar never understood that, and we're all paying the price for it.  So is the state of Massachusetts, which seems to have thought that luring a solar manufacturing plant was the same thing as luring a car plant.

It's not. It's a risk.

In fact, all solar stocks are a risk. What they require is risk capital.

There are many directions in which solar technology can improve. Systems can become more durable. They can become more efficient. They can use heat and ultraviolet radiation, not just visible light. And the fact that technology becomes cheaper over time is a feature, not a bug. We should assume it and cheer it, not fear it.

As a practical matter, this means that while the capital advantages of Chinese producers are impressive, they're not the whole story. They are not the end game. When it comes to solar technology, this is the era of Fairchild, not of Intel. There are still too many breakthroughs ahead to know who is going to become Intel.

Another warning. There is a basic misconception in technology investing. We say, “had you put $100 into semiconductors in 1970 you'd have a bazillion-gazillion dollars today” or we say the same about Intel or Apple. But it's never that simple or easy. I know people who lost money on Apple, and Intel, because they bet on it at the wrong time. If you put your money into Intel a decade ago, it's gone nowhere since.

So it's a dart board. Even investing through an ETF is no guarantee. For instance, the Chinese market leaders are now looking to develop projects, not just make equipment .

This is what early chip companies tried to do. They tried to make computers because Moore's Law was constantly on their tail. How did it work out? Not too well. Because they're different businesses. And there's a big difference between being a producer of panels and an owner of production capacity. Best of all (for Americans) neither business is where the future lies.

It lies with technology. It lies in the lab.

So I'm going to end this piece with a name, PVT. 

You can't buy it right now, it's privately held. Their relatively simple idea is to use both the heat and light on a solar panel to generate power, transferring the latter through an Energy Transfer system linked to a home's water heater.  Lots of people already have solar hot water heaters, just as an increasing number of people have solar panels for electricity. This just combines the two.

How long will this remain competitive, before other breakthroughs make it obsolete? I don't know. I only know that will happen.

The only lesson is to not look at solar power stocks the way you would look at utilities or manufacturing. Look at them the way you look at technology stocks. Which means you're buying the story, you're buying the sizzle, you're buying tomorrow, and you better be ready to get burned several times before your portfolio is warmed.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 09:24 PM | Permalink | Comments (0)

by Joseph McCabe, PE

Have you noticed the corporate pitches that compare their products to iPhones or iPads to try and force the feeling that they are "like Apple"? Bill Ford just pitched the Ford electric car in this manner. If Apple is the gold standard, the question becomes, what solar company is closest to being just like Apple? I think the answer is none, at least not yet.

The Apple Model

Apple has a design culture that attracts design professionals to their product. They also have a completely vertical integrated product where their case, graphical user interface (GUI), input devices, high resolution screen and system packaging is all designed around the Apple culture. They have their own proprietary operating system and a steady stream of income from content sales off iTunes.

An analogy to some of Apple’s business strategy might be solar industry business plans, however these are innovations which typically are not unique or proprietary. An example is when SunEdison (now owned by MEMC NYSE:WFR ) institutionalized third party financing. Lots of companies have followed suit.

Solar Companies Today

Grid tied photovoltaics (PV) aspires to be a “set-it-and-forget-it” kind of product, not needing the interaction of a GUI and operating system. Smart grid integration could enable PV to have more of an operating system value proposition, but that hasn't happened yet.

As far as design, I don't think there is a company that comes to the solar professionals mind when considering who is first-in-class with design. Sunpower (NASD: SPWRA)  has the black background module to match their technological improvements in back contact grids along with the highest power module efficiency. Some thin film PVs are better than others at being monolithic black and not fading over time, but these aren't great design features. Flexible thin film amorphous silicon like UniSolar (NASDAQ: ENER) can be seen as looking different from glass based PV modules with aluminum frames and structures, but possibly due to lower efficiencies have not created a robust market. Design features will someday separate specific companies within the solar industry, but that hasn't happened yet.

First Solar (NASDAQ:FSLR) just announced the purchase of the tracking company RayTracker Inc., a company originating out of Energy Innovations (Founded in 2000 by Bill Gross) and IdeaLab. Trackers is where the most appealing designs have been proposed in the past. If you have the time and are interested, check out some of the historical patents on solar trackers. Some wild concepts came out of the funnest bunch of innovative thinkers in the 80's and 90's, mostly because at the time the thought was if you build the best sun tracker, the world will reward you. RayTracker Inc. has now been rewarded for the many years of incremental improvements in their technology and execution of their business plan.

There are a few companies that have tried to package up solar systems into compelling designs. Akeena Solar ( NASDAQ:WEST ) has complete systems solutions with some installation labor savings but no real unique design features. Other companies like Applied Solar (used to be Open Energy Corp) and Lumeta (owned by DRI ) have been integrating PV modules without metal structures directly into roofing for some years. Many solar electric carports are coming to the market with daily news announcements for larger and larger solar carports installations. Envision Solar ( OTC:EVSI ) had one of the first architect designed solar carports, but these companies have yet to capitalize on design in an Apple way.

Solar Companies Tomorrow: Purpose Solar

The future of solar has the potential for design and operating systems to be combined in an Apple way. I call it Purpose Solar, where the solar system provides a needed service like clean drinking water (direct current PV powered reverse osmosis), water pumping, air-conditioning / refrigeration, street lighting, ect. These have traditionally been called off grid applications, not in the limelight of our industries alternating current grid connected focus. But at a consistent $90 a barrel for oil, and lower cost of PV modules, off grid is the place where PV will be taking a larger and larger portion of the worlds energy pie. As the world realizes that an $80 barrel of oil is history, diesel generators currently used for off grid applications will be replaced by off grid PV system.

There are companies currently providing Purpose Solar systems like the PV power drinking water purification systems from World Water & Solar Technologies (privately held) and SwissINSO Holding Inc. (OTCBB.SWHN) who recently announced a healthy Malaysian sales contract and distribution agreement.

Purpose Solar will be valued by the gallons of drinking water produced, the air-conditioning comfort levels, pounds of ice, and the security from lighting, not kilowatts and kilowatt hours. Designs, operating systems and GUI's can be combined, branded and marketed for solar driven, Purpose Solar, solutions. And it is where finally a solar company can be "like Apple".

Joseph McCabe is a solar industry veteran with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. Joe can be reached at energy [no space] ideas at gmail dotcom.

Posted by Joe McCabe at 11:03 AM | Permalink | Comments (0)

Dana Blankenhorn

As a rule "penny stocks," public companies routinely selling for less than $1 a share, and sometimes just a few pennies, make me nervous.

While the intent is laudable – to give small investors a chance to bet on long shots just like the boys on Sand Hill Road  – the result has always looked like a rigged casino.

Because of its low capitalization and small float it's easy to “pump and dump” a penny stock, boosting its value with some publicity, then selling it short. And if the deal were worthwhile, why isn't the smart money in there already?

Needless to say I would never buy one.

Over the holidays I spied a release about Sunvalley Solar, a California company that says it has filed a patent application covering what it calls a more efficient solar cell design.

“Because of an array of nanostructures with space varying periodicity and orientation, the Sunvalley patented solar cell is less affected by the spectral wavelength, angle, and/or polarization of the incident light,” the release said.

Pretty opaque. But it seems to mean that the structures in this cell face in different directions, allowing a cell to be efficient on a wide variety of solar angles. Cool.

So I did some research on Sunvalley and found they're a penny stock, trading over the counter under the ticker symbol SSOL.OB. (Not just a penny stock, but its shares currently sell for about four-tenths of a penny each.) Got my "spidey sense" tingling. I decided to look at it some more.

The Web site features a highly-educated collection of Chinese-Americans, most with degrees from Beijing University or Tsinghua University. In Chinese these can translate as Harvard and Yale, or Cal and Stanford. But you can be robbed by someone from Stanford as easily as one from Texas A&M in Kingsville. (Go Javelinas.)

Sunvalley also has a manufacturing deal with Baoding Tianwei Solar Films, southwest of Beijing.  Tianwei is tied-in with Tsinghua University with an educational program and Sunvalley CEO Zhijiang “James” Zhang is a Tsinghua alumnus.

So it's real on the front end. What about the back?

CEO Zhang says he needs large-scale manufacturing to proceed with his Green Farm Solar Investment Program in the Imperial Valley of California. The idea is to use government incentives to help finance thin-film development on land owned by date producers like Seaview Packing and Leja Farms, who aren't using all their sunlight.

Real on the back end. Sort of.

Zhang believes thin film is better for these desert locations than crystalline panels, even though they are less efficient. The patent allows his panels to maintain this efficiency while remaining stationary in a field surrounded by plants.

That's his story. Anyone buying?

It seems like Sunvalley has a business model, waiting customers, it has what seems like a new technology and a legitimate manufacturing partner lined up. I would still call it a long shot -- if its prospects were really that great it would have investment bankers crawling all over it.

As best as I can determine, Sunvalley decided to take itself public by buying-out an Edmonton-based outfit called Western Ridge Minerals in a reverse merger. This could let it raise capital while directors retained control. With 800 million shares it has a market cap of about $3.7 million.

It could still be a scam. Heavy promotion caused the stock's value to rise in September, then it tanked again. Words like "shady" were used in describing it around Thanksgiving.

Some things that look like scams are. But some aren't. Which do you think this is?

Disclosure: No Position

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 05:26 PM | Permalink | Comments (0)

Dana Blankenhorn

When people first get excited about solar energy, one of the first things they think of doing is to invest in it. And the first place they think to throw their money is thin-film solar manufacturer First Solar Inc. (FSLR) of Tempe, Arizona. 

First Solar is what I might call the  “big iron” play in solar. That is, it mainly produces large, flat panels that are installed by utilities and connected to the grid.

It's a good business. The company regularly earns 25% on assets, 30% on equity, and it's managed conservatively.

So why is it that if you bought in during the mid-point of its 2007 run-up you're only at break even and that since October of 2008 the stock has been basically flat?

It's a mystery to me but here are some theories.

One reason is what I call the wall of worry. The wall of worry is a good thing. No stock rises when everyone wants to buy it. It's only when there are lots of people willing to sell, for whatever reason, that it can climb. But the wall can also hold you down, and it seems to be holding this stock down.

What is everyone worried about? Lots of things.

Technology can change fast. Shorts seem to love the stock, betting on it to fall based on price cuts, changing government policy, or German and Chinese competition. Thus analysts are as likely to downgrade First Solar as upgrade it. It's generally assumed to be a buy at 12 times earning and a sell at 17 times – at $132 per share it can look toppy. But that number is based on anticipated earnings, not current earnings. (Its P/E based on currently reported earnings is over 17.)

Another reason they worry might be that when Michael Ahearn left the CEO slot last year to be replaced by ex-Honeywell executive Robert Gillette, Ahern sold half his FSLR holdings, for $142 million. Ahearn, who is in his mid-50s, said he would become a lobbyist.

Who retires to become a lobbyist? (Lawyers and activists, maybe?) Who leaves a growing company in his mid-50s if everything is A-OK? (Someone looking for a different challenge, perhaps?) I should also note that Ahearn lists his background as investment banking and law, not operations.

The best reason for worry, to me, is whether the company can stay on top of the technology.

New solar technologies may be flexible, they may harvest heat and infrared light as well as visible light, they may not look like panels or be bought by utilities. They may come out of nowhere. Their hype may be justified.

Gillette has to navigate these choppy waters and be ready to buy breakthroughs at high prices when they become ready for the market. Is his background in aerospace and operations right for the job? I don't know. But I don't think anyone has the perfect background when things are changing so fast.

One important disclosure point. I don't own any First Solar stock. (I have some Applied Materials acquired in the 1990s, long before they got into solar, as well as Intel and GE shares bought around the same time.)

In terms of technology history First Solar reminds me a little of the old Digital Equipment Corp., the minicomputer maker that rose to prominence in the 1960s and fell in the 1980s because it failed to adapt to the PC era.

But DEC had its chance, and First Solar has its, too.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Posted by Dana Blankenhorn at 02:45 PM | Permalink | Comments (1)

Dana Blankenhorn

One thing any new industry needs to do is beware of its own hype.

I still remember, almost 20 years ago now, sitting in on the launch of a tablet PC called Momenta. I was just then finishing a book for New Riders to be called “A Guide to Field Computing,” all about hand-held computers and terminals that could collect, transmit and calculate outside. I had reason to believe.

But I didn't believe. Yes, they had big-time backing, big names in the executive suite. Yes, the press release was slick, glossy and over-sized. Yes, the shrimp at the press launch were fat and succulent. But I'd once been in on a press fete like this myself, back in 1984, launching a home banking-and-shopping product called The Promise that died before the shrimp spoiled.

“Deja vu all over again” is a useful perspective to have right now as we see the hype machine turning for New Energy Technologies Inc.  (NENE) and their SolarWindow.

First launched at a Tampa event in September a SolarWindow is sprayed onto a polymer backing , and its backers claim it can produce electricity on any surface, from any source – even the indoor light can be recycled.

The company's hype has doubled its stock price in three months and the idea itself is logical. But in 2011, you are probably better off moving your clients toward more conventional window adhesives that can cut heating-and-cooling costs, not turn your home into a power plant.

Fact is there are reasons to be skeptical about New Energy Technologies Inc..  (NENE)

• This is still a year away from the market.

• While savings could be substantial, we know nothing about costs.

• What about durability?

• Can manufacturing be scaled?

• There are competitors.

• What about efficiency? How does a property owner make the numbers work?
  

We know, in the long run, how this story ends. Someone is going to get this right. Who and when are open to question. After all, tablet PCs are all the rage these days, and everyone has what I called a “field computer” back in the day.

So color me skeptical about NENE. But this is the direction the world is going in, make no mistake.

Someday every window will be a solar window. Maybe not today, but soon. Don't let the fate of one company determine your attitude about the future, but don't get wedded to any single vendor, either. It's way too early for that.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

Related Article: Green Chip Stocks' "Sunless Solar" Tease

Posted by Dana Blankenhorn at 12:04 PM | Permalink | Comments (0)

by Joseph McCabe, PE

When investing in the solar industry always remember the old joke: Question: Do you know how to make a small fortune in solar? Answer: Start with a large one. There are exceptions to this rule, like when PowerLight was purchased by SunPower the PowerLight principles came away with valuable SPWRA stock options. Powerlight was a structural balance of systems (BOS) company. They had unique rooftop and single axis tracking structural technologies for photovoltaics (PV), and used that IP to win jobs with various PV module manufacturers, the lowest priced ones at any given time.  By purchasing PowerLight, SunPower obtained a healthy revenue stream just when stock prices and P/E’s were soaring. Today SunPower is executing nicely in a more stable stock priced market with many module manufactures P/E’s reflecting more reasonable industrial ratios.

In our previous articles "Metrics for Thin Film Solar CIGS Company Comparisons" and “Finer System Level Details for the Comparison of Photovoltaic Technologies” we alluded to various system level details in the comparison of photovoltaic (PV) technologies and promised this follow up article on structural and electrical BOS components.

Structural and electrical BOS components are increasingly becoming a larger and larger portion of the cost of PV systems. As module prices have dramatically decreased, electrical and structural solutions have not decreased as dramatically. BOS will see more cost reductions, possibly through mergers and acquisitions, in the near future. Something the industry has been hoping for, for decades, is the time when systems, not components, will be marketed by major players. That time is fast approaching.

Now there are newer electrical balance of system’s companies in the market. At the recent Solar Power International conference held in LA this past October, Sam Vanderhoof from [privately held] Petra Solar commented that he saw 27 AC micro inverter or DC optimizer BOS companies, many of them brand new. All of this activity shows that there will be a variety of distributed electronics solutions available in the future.  This includes the better known microinverter approach from companies such as Enphase and next-generation DC optimizers from companies such as Petra, eIQ, SolarEdge and Phobos Energy.  The industry is beginning to understand the tradeoffs associated with microinverters, but has yet to fully grasp the benefits of DC optimizer solutions.  All of these electrical BOS technologies are fairly new and thus their relative benefits and long-term reliability have not yet been sufficiently measured.  Additionally, there is significant new technology being introduced on an almost daily basis. 

Akeena Solar (WEST) has had a complete packaged structural and electrical BOS solutions for a few years called Andalay (Now Westinghouse Solar). It uses the Enphase micro alternating current (AC) inverter and a quick installation framing solution. Structural and electrical BOS companies are merging. Privately held Sunlink Corporation recently purchased the electrical BOS product line from Blue Oak Energy. Even monitoring companies like Fat Spaniel was recently purchased by Power-One (PWER), currently the second largest manufacturer of solar power inverters globally. You will see the same trends with micro boxes on the back sides of PV module manufacturers, where the modules will have either AC outputs or optimized DC solutions.

Vertical integration has been happening in the silicon-to-solar-cells-to-modules side of the solar business. Forward integration is when a module manufacturer buys up structural, wiring, electrical solution components as in the PowerLight/SunPower case mentioned above. Forward integration is happening with the module companies performing in house complete systems solutions. This type of systems approach will become more mainstream with a single warranty and potentially an industry that has AC power ratings in the near future. The industry is going through consolidation as well as forward integration. The good news is that systems solutions will become less expensive, as well as more reliable with one warranty covering the complete system. Be looking for the SunPower (SPWRA), SunTech (STP) and Yingli’s (YGE) of the world to be announcing both electrical and structural BOS relationships addressing specific solar electric market sectors.

When you think of the solar industry, or investing in this industry remember the old joke, and consider the ultimate forward integration possibilities with Berkshire Hathaway. At the 2010 stock holder meeting I was able to ask both Charlie Munger and Warren Buffet about their plans for their solar investment in BYD. It is no secret that Munger has a hankering for solar as shown in his youtube video. Connect the dots, Berkshire (BHK.A) owns a major interest in the company BYD (BYDDY.PK). BYD is known for batteries, cars, but is also a major solar company making modules and inverters. Berkshire owns the roofing company Johns Manville (who have announced BIPV plans). Berkshire owns the building company Clayton Homes and and owns the Electrical Utility companies MidAmerica Energy, PacifiCorp, Rocky Mountain Power, Pacific Power. Munger answered my question regarding forward integrations potentials by indicating that the higher cost of today's solar energy is a small blip when looking at the over all macro economic factors facing the world. In other words he is bullish. I think Berkshire Hathaway has potentially the ultimate forward integration strategy.

Joseph McCabe is a solar industry veteran with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. Joe can be reached at energy [no space] ideas at gmail dotcom.

Posted by Joe McCabe at 07:53 PM | Permalink | Comments (0)

Tom Konrad

Last week, Stock Gumshoe sleuthed out Jeff Seigel's recent tease of a "$0.62 Company [that] Just Perfected Sunless Solar.”  The company is New Energy Technologies (NENE.OB), which was trading at $1.20 after the close on Friday.  Here's what the Gumshoe has to say about the company:

And of course, maybe Siegel’s right, maybe these guys will be to First Solar what IBM was to Smith Corona … I’m just not holding my breath.

For more information on the company, which did stage a demonstration of the technology in Tampa last month, you can certainly visit their website and poke around a little — this solar product of theirs is called SolarWindow, and their other project is called MotionPower (that one somehow generates energy by collecting extra kinetic energy from vehicles who are stopping at drive-thru windows and tollbooths).

You can read the full article at Stock Gumshoe.  The quick rise of the stock probably has a lot more to do with all the attention for a tiny stock than the company's true prospects.  If you like this sort of technology play, you're probably better off waiting until the hoopla dies down and you can pick it up again around $0.60.

DISCLOSURE: No Position

Posted by Tom Konrad at 08:16 PM | Permalink | Comments (1)

by Joseph McCabe, PE

In our last article  "Metrics for Thin Film Solar CIGS Company Comparisons," we alluded to finer system level details in the comparison of photovoltaic (PV) technologies and promised this follow up article on the subject.

System level details begin with the PV modules themselves. Band gap, temperature corrections  and fill factor are just some of the finer technology details, all slightly related in that they can produce system performance differences when comparing similar PV technologies.

Band gap is the quantum-level point where the PV technology absorbs photons. Think of the last time you saw a rainbow with its many colors. These colors are reflecting the visible wavelengths of sunlight. Band gap is akin to the measurement of the number of wavelengths, or colors, that can be absorbed; even ones you can't see. The higher the band gap, the more the PV technology is able to grab the power contained in our terrestrial sunlight. Locations in higher latitudes have different wavelengths than at the equator, so knowing the band gap can be an important performance factor, especially in high latitude locations.

The higher the band gap, the lower the temperature correction. Temperature correction was covered in the previous article, but to summarize again, the lower the temperature correction the better the PV system performance, especially in places like Phoenix Arizona. So higher band gaps mean greater potential energy capture, and better temperature corrections.

Fill factor is the ratio of the technology's actual ability to capture available energy to the energy that is theoretically available. More mature PV technologies like single crystalline silicon have higher fill factors, newer thin films like CIGS have lower fill factors which will be increasing as the technologies mature.  Higher fill factors means more power out of the relatively same cost of manufacturing (more voltage and or amperage and thus more maximum power from the same surface). When comparing PV manufacturing companies’ technologies consider current, and future band gaps, temperature corrections and fill factors. 

Over time, PV performance is typically reduced due to weatherization, packaging and PV cell material degradation. Comparison of different PV technologies should include annual performance degradation. For example, lower grade silicon feed stocks will have higher annual performance degradation. There is the potential for new, high quality PV materials and packaging that have no annual degradation. Certain certification tests attempt to simulate performance degradation over time, like IEC 61215 for crystalline silicon and IEC 61646  for thin films. However these certification procedures do not have the ability to expose the modules to sunlight for the years and years needed to evaluate actual annual degradation. My brethren in the industry might be upset with this suggestion, but under nondisclosure you should ask manufactures for the historical paper trail and results from all certification tests. Huge investments in PV manufacturing companies as well as PV projects should know the documented test results for bankability assurances.

Another finer system level detail in comparing PV technologies is whether it is deposited on glass or a flexible substrate. Glass needs to be held in place with a structure that insure it will not fly away, fall down or break. Flexible PV modules promise to be integrated into building materials, similar to the way United Solar, a division of Energy Conversion Devices (ENER), laminations have been used in single ply roofing and standing seam metal roofing. When a PV technology can reduce the structural balance of systems (BOS) cost there is an economy for the installation due to the lack of glass and the potential for true building integration. Look for CIGS companies like Miasolé, Global Solar Energy, Ascent Solar (ASTI), and Nuvosun to follow in SoloPower's footsteps in certifying the long-term performance and safety of high efficiency flexible PV modules for building integrated (BIPV) and other flexible applications. Perhaps structural and electrical BOS components can be the subject of a future AltEnergyStocks article on the potential for further reduction of PV system costs.

Two approaches in the PV industry can help assure the potential long term performance of a PV system.  One approach is to do internal due diligence, risk analysis and bankability evaluations including all the finer system level details some of which are discussed above. Another approach is to obtain project performance insurance, possibly combined with an acceptable level of internal analysis. Performance insurance is a new aspect to the PV industry which can help to assure project financial performance overtime. Chartis (formerly AIG), Zurich Insurance Group, The Hartford Financial Services group, ACE Limited, JP Morgan, Chubb Group of Insurance Companies, Munich RE and others are beginning to step into this PV performance insurance function. The insurance industry is developing new risk management products for the maturing PV industry like business interruption Insurance, which can be used in lieu of internal assurances. These new insurance products do not eliminate the need to ensure bankability of the modules, systems, and quality of installation, but they can make the job easier.

Joseph McCabe is a solar industry veteran with over 20 years in the business and degrees in Mechanical Engineering, Masters of Nuclear and Energy Engineering and an MBA. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. Joe can be reached at energy [no space] ideas at gmail dotcom.

Posted by Joe McCabe at 01:42 PM | Permalink | Comments (0)

Joseph McCabe

Many people ask me, “which CIGS company is going to emerge as winner in the race towards high efficiency thin film PV’s? To provide an enlightened perspective to the question, some historical perspectives are needed.

First Solar (FSLR) has helped the Thin Film PV Industry by proving that respectable solar to electric area efficiencies can be achieved in a low cost manufacturing processes, with respectable performance over time. First Solar’s technology is cadmium telluride (CdTe) on glass. Previously, amorphous silicon was the thin film leader, with the highest commercially available thin film area efficiencies; currently they have a challenge in today’s low cost, higher efficiency, crystalline PV market. CIGS (copper, indium, gallium and selenium) currently holds the world efficiency record for a single layer thin film PV deposition in a laboratory setting. The promise of CIGS is that it can surpass the commercial manufacturing efficiency of the other thin film technologies in the near term.

In a recent presentation at Intersolar in San Francisco by David Eaglesham of First Solar showed their CapEx (the capital expense for the plant and manufacturing equipment) at $0.75/W, roadmapping (RM, future expected levels) to $0.65/W; manufacturing (mfg) costs (including depreciation and recycling) currently at $0.81/W, RM to $0.52/W; and current area efficiencies at 11%, RM to 14%. So a CIGS-on-glass company will need to compete with these current and future benchmarks to be at least competitive with First Solar. Flexible CIGS might have some greater market opportunities discussed below.

A second order performance factor in the PV technology race is temperature correction. PV is a direct energy conversion technology, which works better at lower temperatures. As PV modules are integrated into conventional building materials such as single ply roofing, standing seam metal roofing, or automobile surfaces, the modules will become hotter, and thus perform less than rack mounted PV modules which have air movement on the back sides. The moral of the finer system level details is that annual performance can vary with the various manufacturers’ module technology and should be a consideration when comparing various companies and technologies. Perhaps this can be a topic of a future altenergystocks article.

There is an additional economic metric which is required of PV systems, called balance of systems costs (BOS). Most PV on glass has similar BOS, between $1 and $3 a watt system level installation costs. The lower the module efficiency, the higher the area related BOS costs. Comparing 10% and 20% efficient modules both with area BOS of $2/W, the lower efficiency module has twice the costs because it uses twice the area. As the price of modules is reduced, the BOS becomes a more dominant factor in the installed system costs. A Deutsche Bank (DB) report expresses the concepts better than can be accomplished here. {July 9, 2007, DB “Technology and economics; thin films and crystalline silicon”} The costs are no longer valid, but the technology discussions are valuable. All manufacturers are being judged on their products utilization in a system that provides long term performance, expressed in the levelized cost of energy from the lifetime costs of the system.

From the previously mentioned DB report: “CIGS on flexible substrates offers a potential low cost, higher conversion efficiency modules, but has yet to enter commercial production.” And “We believe that flexible substrate CIGS based modules could have excellent applicability for building integrated PV (BIPV) applications as well as other applications like consumer electronics, and portable devices.” Be looking for the flexible CIGS products which have both TUV and UL certifications indicating successful completion of both long-term performance and safety testing.

Some CIGS on glass companies have been around for a long time, for example Solar Frontiers (Formerly Showa Shell, formally Shell, formally Siemens…). They make a beautiful, monolithic black glass modules with respectable performance, perfect for a vertical building integration application. Other companies are newer, some deposit CIGS on glass and others have flexible products and one coats the inside of glass tubes with CIGS. For CIGS, there is an inherent CapEx embedded in the deposition process. Current and RM CapEx should be considered for the various sputtering, electrodepositing, co-evaporation-in-vacuum or sintering processes used in CIGS manufacturing when comparing the various company technologies.

In summary, look for low manufacturing and capital equipment costs for a high efficiency CIGS technology which can reduce balance of systems costs. The winner in the race towards higher efficiency CIGS thin film PV systems will be the company that can provide long term confidence in their product, at system level costs similar or lower than First Solar, and solid business plan execution.

Joseph McCabe is a solar industry veteran with over 20 years in the business. He is an American Solar Energy Society Fellow, a Professional Engineer, and is internationally recognized as an expert in thin film PV, BIPV and Photovoltaic/Thermal solar industry activities. Joe can be reached at energy [no space] ideas at gmail dotcom.

Posted by Guest Contributor at 05:52 PM | Permalink | Comments (1)

Tom Konrad, CFA

One of the best things about Solar Photovoltaics (PV) is that they can be installed close to load but need not take up open space.  Now public company Envision specializes on solar shading for parking lots that not only produces power, but also shade where it's needed most.

I lived in Tucson, Arizona for two years in the early 2000s.  Like everyone who lives in the desert Southwest for any length of time, I became very aware of what would happen if I left my car in an open parking lot for more than ten minutes: it would get very, very hot.   Without a windscreen sunshade, you were liable to burn your hands on the steering wheel if you were not wearing gloves, but even with it, the car interior would feel like an oven.  It would take 5-10 minutes of the air conditioner running at full blast just to bring the temperature down to a bearable 90° F (32C).  If you don't consider 90 degrees bearable, don't move to Tucson, or get used to only going outdoors before the sun is up, at least in the summer.

Needless to say, Tuscon residents become adept at spotting one bit of shade in a parking lot from a scraggly mesquite or palo verde.  These spots of shade are at a premium because such desert trees are small and usually only cast enough shade for a single parking spot at most.

With that experience in mind, the value of Envision Solar's (EVSI.OB) photovoltaic parking lot structures is quite clear.



Solar Trees

When it comes to solar, I much prefer developers to solar manufacturers.  Solar manufacturers face the prospect of ever declining prices for their product and a constant need for technological innovation to keep up in a fierce competitive landscape.  Solar project developers, on the other hand, have strong public support and interest in their product, combined with rising prices for the electricity they sell and declining prices for the solar panels they buy.  They also have much lower fixed costs, meaning that while the threat of new entrants will keep them from ever becoming wildly profitable, they also do not have huge capital investments that can lock them in if building solar installations becomes unprofitable.

The low barriers to entry for solar developers mean that strong product differentiation is valuable. 

Envision has developed parking lot structures they call "Solar Trees" for attractively shading parking lots while producing solar electricity.  The company promotes their products as "addressing the unused millions of acres of parking spaces."  I there's actually more too it than that, because in the sunnier parts of the country, there is value in both the electricity and in the shade.  In an extremely sunny city such as Tucson, Phoenix, or Las Vegas, I would expect that most shoppers would be more interested in visiting a store where they expected to get a shaded parking space, since almost all shady parking spaces in Tucson are almost always already taken.

The idea of solar on parking lot shades is not a new one.  I remember seeing one in the parking lot of an Austin Library Branch in 2000.  But earlier parking lot solar arrays were bespoke designs created anew for each individual project.  With a small number of flexible designs, Envision can not only keep engineering costs down, but also talk with some credibility about the cost and performance of previous arrays they have installed over nine MW of projects for clients such as Dell.  They've also teamed up with Bright Automotive to combine the solar parking structures (which require electric service) with electric vehicle charging stations. Along with the ready-to-build, relatively attractive designs, partners and previous clients like these could establish Envision as the go-to firm for parking lot solar.

EVSI Stock

Envision Solar International, Inc. stock started trading on the Over the Counter market under the symbol OTCBB:EVSI on May 3 through a reverse merger with shell company Casita Enterprises.

I usually like to wait a year or two for a newly listed company to develop a track record as a public company to help me assess the company's financial strength and management effectiveness.  Envision has not yet begun publishing financial statements as the newly merged entity.   I took a few minutes to look over their electronic investor kit, in the hope of finding some hard numbers.  Unfortunately, all the kit contains is an investor presentation without any hard numbers as to assets, revenues, debt, and income.  Until such information is available, I can't say if the stock is worth $0.04, $0.365 (the price it closed at on May 3), or $3.65. 

It's an interesting company, and I'll probably take another look at it when there is more to go on.  For now, the stock is a pig in a poke.

DISCLOSURE: No position.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:45 AM | Permalink | Comments (3)

J. Peter Lynch

I have been reading your articles for years and always thought your stock market related insight was interesting and helpful for me as an investor. At the current time I am worried about the market and am wondering where you think the market is currently, given the major run up we have had in the past year. I would also be curious about your view on solar stocks and what you see for them.

-- Claude M., France.

Claude, great questions.  You are really going to make me think about this one. Sorry for the long answer but the question really got me going.

Every step of the way since April of 2009 we have heard the popular financial press and the frenetic cable pundits tell us a litany of things to worry about - foreclosures, unemployment, the growing deficit etc. and it still continues today.

However, all along this troubled path the market has steadily moved up, climbing a classic “wall of worry” with all the major averages advancing significantly from the March 2009 lows - S&P 500 +77%, Dow Jones +68% and Nasdaq + 94%.

These are very strong numbers, by any historical measure and the logical conclusion to draw is that the market must be close to a top. I certainly understand that and in fact, personally “feel” (read that as “emotion”) that this is the case. But what is important to understand is not your or my emotions or what we think “should” be, but what is. Sounds simple and obvious, but believe me, it is not.

As I stated on 3-17-2009, a few days after the market bottomed and this bull market started:

I have been a student of the market since 1975 and I can assure you that there is plenty of FEAR out there now. Nothing is 100% for sure, as we all know. But I think we are either at a significant bottom or very close to it. Everything is so “oversold” at this time, that I think the worst case is that we get a significant rally in what could still be a bear market.

Once again, sounds obvious with all the historical data available. But how many people recognized this and had the courage and discipline to jump in at that time?

Currently the market is performing in a very orderly manner and the underlying technical measurements are sound and are still pointing to a higher market with the major longer term uptrend still intact, despite all of the worries and other concerns.  It is also true that the market is currently at a HIGHER relative level of risk (overbought short term) and things could change quickly.  But the market has done this before – back in late 2003 and early 2004 the market stayed at a comparable high level of risk for extended periods of time climbing another classic “wall of worry.”

At this time, some additional relevant historical data is worth considering. Since the beginning of this new bull market (March 2009) the stock market has had two meaningful corrections of greater than 5% and less than 10% (June – July 2009 and January-February 2010) and no corrections more than 10%.  This situation is historically a sign of a healthy unfolding stock market.   A market that goes “straight” up with no corrections is a dangerous situation not a healthy situation. 

As I said, the market has not had a correction of 10% or greater since March of 2009.  Why is that significant?  It is significant because there has never been a bull market in the last 80 years that has not had at least one 10% correction before it topped out (Credit: Invest Tech Research). As a result, it is likely (from an historical statistical point of view) that we will have at least one 10% correction and then another move upward before the end of this bull market.  Historically a lot of money has been left on the table after the first 10% correction, if you sold out too soon and did not give the market a chance to run its course.

Where we are now?  Somewhere toward the end of Stage 2!

I always think that a picture can tell a better story than hundreds (or thousands) of words, so take a look at the diagram below.  This is a snap shot of the classic stock market pattern, how it “usually” unfolds and where I think we are now on the curve.

These stages are the four classic stages of a typical market cycle that generally moves from fear to greed and back.

Stage 1 - Capitulation:  This was late 2008 and early 2009. The world as we know it is ending and all was lost. If you go back and look at the “headline hysteria” back then this would not seem far from the truth and the general consensus at the time.

Stage 2 – Doubt and Skepticism:  This is the period we are in currently, climbing a wall of worry. The market has been moving up for over a year and still most people do not believe that this can be real. This psychological fact is reflected in the various measures of investor sentiment according to the American Association of Individual Investors, which are currently approaching levels that are historically seen at correction or market tops. It is a scary time, but the main trend is still intact and can remain intact for quite some time, even at these levels. But a watchful eye is necessary at this time. Risk is higher, but opportunity may still be around until we see indications of entering stage 3.

Stage 3 – Euphoria:  Here is where the greed factor and fear of being left behind starts to come into play and usually after one last correction the market takes off on its last glorious run up, taking the general public with it. This always ends the same way. After this last run up there are no more buyers, the professionals are sellers and the public is left holding the bag with only hope to cling to. During this stage you will start to see very positive headlines and the pundits pointing to a bright future.

Stage 4 – Hope followed by Fear:  As the market begins to roll over and start down the slopes of hope investors keeping hoping that it will come back. Despite the clearly deteriorating underlying technical factors, people just do not want to believe (i.e. emotional decision) that it is happening.  They seem to think “this time it will be different.”  But alas, that is very seldom, if ever, true and the hope gives way to fear and finally to capitulation when investors dump all the rest of their stock (Feb-March 2009).

My advice to you is do not lose heart. I have been an investor for over 35 years and I know all of the above perfectly. But that does not mean that I do what I say and what I know from experience.  It is a constant battle and the best you can do is be aware of it, learn from it and try to develop an unemotional method to deal with it. It is an amazing 4-stage phenomenon (cycle) and the good news is that it has consistently repeated over the years and I would expect will continue to do so. If you are NOT invested now, I would not start now and I would at least wait for a pullback from current over-bought conditions.

Solar Stocks

Solar stocks did great for the first 12 months of the current bull market (3/09 – 3/10) — up an average of 124%. But as I mentioned in an earlier article the vast majority of that gain was centered in a 8 Chinese stocks — CSIG, CSUN, JASO, LDK, SOLF, STP, TSL and YGE — which were up an amazing 267.96% on average, certainly the major reason that the group as a whole was up 124%. Without the Chinese companies the solar group would have actually underperformed the major averages for that 12-month period.

 Looking a bit deeper, more than 50% of the 267.96% gain was from 2 stocks — CSIG and TSL.  This is an extreme case of narrowing (2 of 21) leadership in a sector and is usually a bad sign for the sector. Also the fact that all of these leaders were Chinese companies indicates to me that the trend is clearly to lowest cost.  Good for the Chinese companies, maybe not so good for U.S. and European companies.

Looking at the first quarter of 2010 the numbers reflect this narrowing with solar sector underperforming the general market significantly.

Solar Stock Performance  First Quarter 2010
All Solar Stocks Average		-9.89%
Dow Jones		+4.11%
S&P 500		+4.87%
NASDAQ		+5.68%

So what does this mean for the investor interested in the solar market sector?

 It means that the industry is starting another transition phase in its long-term growth.  This is a period of “lowest cost wins” and of industry wide profit margin compression. It means that because of these factors and probably a host of other factors (lower natural gas prices, uncertainly of government policy etc.) that the solar segment has been a lagging market sector and probably not one that is optimal at this time for new investment. Especially given the higher risk level that the general market is at now.

It also means, in my opinion, that the U.S. has to wake up and start to move forward now (instead of our usual approach of thinking about having a meeting to discuss planning to do something maybe sometime in the future when all the stars are perfectly aligned — i.e. all talk and very little action of any significance) with a strategy to compete with our lower cost Chinese friends. I do not think we can beat them at their own game – lowest cost via cheap labor.

What the U.S has to do now is to do what we do best — innovate.  This is the time for investment and focus on new technologies and “out of the box” thinking. This is a time to increase focus, investment and activity rather than slow down and wait for someone else to do something that we have historically always been the best at doing. The ball is in our court.

Mr. Lynch has worked, for 33 years as a Wall Street security analyst, an independent security analyst an investment banker and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, the leading publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and advisor to a number of companies. He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy – www.sunseries.net.

Posted by Guest Contributor at 08:18 PM | Permalink | Comments (2)

Tom Konrad, CFA

Prospective investors in solar manufacturers should consider the competitive forces that constrain the industry's long-term profitability.

In the first part of this series, I showed how a competitive analysis of the corn ethanol industry in early 2007 illuminated the forces that soon caused ethanol company stock prices to collapse in late 2007.  I also implied that the solar cell manufacturers, including industry leaders such as Sunpower (SPWRA) and First Solar (FSLR) are vulnerable to these forces and may not be able to maintain high returns on capital over the long term.

I'm not predicting that solar stocks will collapse later this year, as happened with ethanol stocks in 2007.  The dramatic timing of my article on ethanol companies with the quick collapse of ethanol stocks was coincidental.  Competitive analysis of an industry can illuminate long term trends, but short term stock prices often have very little to do with long term trends or underlying economics.  Given that solar stocks have fallen considerably over the last two years (see chart), a further drastic decline seems unlikely.

Solar ETFs KWT and TAN compared to market indexes Mar 2008 to Feb 2010.

 
Yet a recovery in solar stock prices that might bring solar indexes back into line with general market indexes is also unlikely, because the intense competition in the sector restrains the underlying profitability relative to companies in sectors with average levels of competition.

Returning to Micheal Porter's classic competitive forces model, each of the five forces are each composed of a number of factors.  The more of these factors are above average, the greater the overall competitive contribution of that force.  In the table below, I list above-average factors which contribute to competitiveness, and below average factors, which reduce competitiveness, and the resulting overall competition for each force.

Force	Factors increasing competition	Factors decreasing competition	Overall Competition
Industry rivalry	Large number of firms, High fixed costs, low switching costs, low product differentiation, specialized equipment, diverse companies	High market growth, nonperishable product	High
Threat of Substitutes	Electricity can be produced in may ways, and is usually more conveniently and cheaply available through the grid	Government requirements or subsidies for solar power	High
Buyer Power	Product is standardized	Many diverse buyers	Average
Supplier Power	Suppliers are concentrated (but becoming less so)	Commodity inputs, customers weak	Average to Low
Threat of new entrants	Constant innovation in solar technology, ability to purchase standardized manufacturing equipment, globally traded product, low minimum economy of scale, little brand franchise	Asset specificity	Very high

The key factors keeping competition high are the strong threat of substitutes and rapid innovation bringing new entrants into the industry.  Electricity from other sources such as fossil fuels or other renewable generation is functionally indistinguishable from solar electricity, and may be available at night or on cloudy days.  Hence there are not only readily available substitutes to solar panels, they are often more convenient to use.

I brought up the specter of innovation in solar technology as a risk factor for solar stocks in my recent article on risks for alternative energy investors.  The great hope for the solar industry is that constant innovation will quickly bring down costs to the point where solar power is cost-competitive with electricity from the grid, or grid parity.  But that same innovation, if it comes from outside the current industry, will undermine the economics of manufacturers using current technology.  The advent of First Solar (FSLR) is a case in point.  Because First Solar can produce its CdTe technology at much lower cost per peak watt than conventional silicon manufacturers are able to match, First Solar is able to expand its market share at the expense of other manufacturers while maintaining strong profitability. 

But First Solar may only be in its current privileged position for a few years: other thin-film technologies such as Copper-Indium-Galium-diSelenide (Ascent (ASTI), DayStar (DSTI), and many private companies) or amorphous Silicon (Applied Materials (AMAT), Sharp (SHCAY.PK) and many others.)  Beyond these up and coming thin-film technologies, there is a constant stream of new innovations such as organic PV and PV from abundant materials (IBM) that could potentially be manufactured at much lower cost than current thin film technologies.

There are also non-photovoltaic competitors.  Bloom Energy is trying to present itself as an alternative to solar, but not very credibly.  Concentrating Solar Thermal Power (CSP) has long had a cost advantage for large scale farms, and has the additional advantage of producing on-demand power because it is simple to integrate with inexpensive thermal storage.  PV is not safe from encroaching thermal technologies even at the residential level.  One potential challenger is startup Cool Energy.  Cool Energy's combined heat and power system uses an array of evacuated solar thermal collectors to provide space heating in cold months, and then uses a Stirling engine to convert excess heat in warmer months into baseload or on-demand electricity. 

Conclusion

Because of rapidly falling costs and a vast solar resource, solar PV is likely to produce a significant and growing portion of our electricity in years to come.  But this growth trend is an industry trend, and the growth could easily come from new competitors at the expense of current solar stocks. 

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 01:07 PM | Permalink | Comments (1)

How Solar PV is like Ethanol

Tom Konrad, CFA

High levels of competition in the the solar photovoltaic (PV) industry mean that buy-and-hold investors should look elsewhere.

In May 2007, I published a competitive analysis of the corn Ethanol industry based on Michael Porter's classic Five Competitive Forces model.  At the time, Ethanol stocks were flying high, but my conclusion was that "the prospective ethanol investor should be very careful about investing in corn ethanol producers at random."  If anything, I understated the case.

This chart shows three ethanol stocks that have survived since 2007.  As survivors, they are among the best performers in the industry; several others declared bankruptcy.

Corn ethanol is not a great business to be in; it's too competitive.  If you buy assets at the right price, you can do well, but it's all about timing.  A passive buy-and-hold strategy will  under-perform the same type of strategy in a less competitive industry.  Companies in less competitive industries can maintain higher returns on capital for longer periods.

Solar Manufacturers

It's not a secret that I'm no fan of investing in solar stocks, although I understand why enthusiasts are seduced by the sector.  Unlike corn ethanol, solar PV will likely be a significant part of any future sustainable energy mix, but that is not the same thing as saying that today's solar stocks will be good long-term investments.  Americans watch more television today than ever before, but were network television stations a good investment over the last 20 years?  No, because new entrants came in and stole their audience: the industry has become much more competitive than it was 20 years ago.

Thinking that todays solar stocks will do poorly over the long term is not the same as thinking that the solar industry will flop.  Rather, it is the belief that increased competition will drive down returns at existing companies.  This will be great for buyers of PV panels, but not so great for owners of PV stocks.

Porter's five competitive forces model of competion bears this out, just as it did when I analyzed the corn Ethaonol Industry in 2007.  The next article in this series will take a look at the five forces, and how they apply to solar PV manufacturers.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:27 AM | Permalink | Comments (1)

Tom Konrad CFA

Green energy experts accept that solar panels are one of the least cost effective ways to reduce your carbon footprint.  Nevertheless, many buy solar stocks.  They should rethink their investment strategies.

I recently spoke on "Stock Selection in the Era of Peak Oil and Climate Change" at the ASPO 2009 International Peak Oil Conference.  Whenever green energy enthusiasts find out that I analyze green energy stocks professionally, they react in one of two ways.  Many want to know my top stock pick in general (New Flyer Industries NFI-UN.TO/NFYIF.PK) or in their favorite sector (see below.)    Others tell me about their own green energy investments.  

My guess is that the latter group hopes I will stamp some sort of stock guru seal of approval on their portfolio.  If so, they usually go away disappointed.  This is not only because I have not yet been issued with a special seal by the stock guru union.  It's also because, even if I had such a stamp of approval, I would seldom need to use it. 

I find that even industry experts who know more than I do about green energy fail to apply that knowledge when it comes to investing.  Enthusiastic amateurs are often worse.  The typical green stock holdings of a brilliant cleantech engineer are a couple solar stocks, like First Solar (FSLR) and Sunpower (SPWR.)  People who will lecture tirelessly on the need to improve the efficiency of buildings before slapping solar on the roof don't walk the walk when it comes to their investment portfolios.  Instead, they take whatever portfolio they have, slap on a couple solar companies.  They forget all about the efficiency stocks and other, more cost-effective renewable options such as wind, geothermal, and biomass that they would recommend if they were asked about what we needed to decarbonize the economy.

Invest In What You Know, Use What You Know

To be fair, none of these people are professional investors. They cannot be expected to make the same sort of decisions that a professional would.  On the other hand, many are extremely knowledgeable when it comes to green energy.  The old adage "Invest in what you know" does not mean that a pilot should buy airlines.  It means that that a pilot will have more knowledge of the airline industry than an industry outsider, and my be able to use this knowledge to either choose between well-run and poorly run companies, or to have a better understanding of industry cycles, and buy when industry fortunes are on the upswing, and sell before a decline in profitability.  The key to successful investing is not depth of knowledge, but knowledge that other market participants lack.

Likewise, an energy rater will know that efficiency improvements will deliver much faster paybacks than solar PV.  Yet, based on my informal survey, energy raters are more likely to own a solar stock than an energy efficiency stock  Dedicated greens know taking mass transit or biking to work is much greener than any private car, even an electric one.  Yet these same greens are more likely to have investments in electric vehicles or battery stocks than investments in mass transit or bicycle companies.

"But I Don't Know any Energy Efficiency Stocks"

When I ask these people why their portfolios don't match their lives, they usually tell me they don't know what stocks to buy.  Ignoring the fact that people who aren't willing to do several hours of research for every stock they own should not be venturing into the Wild West of individual stock investing (don't say I didn't warn you) here are a few of my favorite investments in each of the major green energy sectors.

Sector	Investments	Related Articles
Energy Efficiency	Waterfurnace, Cree, Flir	Heat Pumps, LEDs, Infrared
Clean Transportation	PTRP, New Flyer	ETFs, New Flyer
Wind	FAN	Wind ETF, ETFs,
Transmission/Grid	Quanta Services, ABB, General Cable	Transmission shopping list
Batteries / Energy Storage	Enersys, Exide, A123	Irrational Battery Investments
Solar	Solar Millennium, Satcon	Solar Shopping List
Geothermal	Ormat	Geothermal & the ARRA
Smart Grid	Echelon, Telvent	Smart Grid Shopping List
Biomass/Biofuel	Aracruz, Plum Creek, Potlatch	Forestry Stocks and ETFs

Note that this is not intended as a list of companies to buy now.  I currently consider most stocks to be overvalued, and am waiting for a market decline before buying again.  But, if you have an urge to buy a glamorous solar stock today, or are reading this article after the market has descended to more reasonable valuations, I hope you'll use this list to buy stocks in the sectors you know are greener, even if they're not as sexy.

The Right Questions

Using your knowledge from the real world to help choose your investments is another variation on the theme of Asking the Right Investment Questions I recently discussed.  The easiest way to gain an advantage over other market participants is to zig when emotional investors zag.  Solar has a lot of appeal because it lets anyone with a rooftop generate electricity, and emotional green energy investors tend to buy solar stocks.

It's difficult to underestimate the emotional appeal of the personal energy independence photovoltaics seem to promise.  Nevertheless, few rooftop solar installations do add to our personal energy security: They are grid-tied, and stop producing power whenever the grid goes down.  While solar panels can be a good investments with sufficient subsidies and tax breaks, or where electricity is extremely expensive, government subsidies and small markets with expensive electricity are not good foundations for the explosive growth that solar stock speculators are betting on.  

Financial modeling shows that solar will only be a significant part of the most effective carbon mitigation strategies if prices fall quickly and dramatically.  Such cost improvements are possible, but will come with the risk of extreme disruption for the current crop of solar stocks.

Investors swept up in the emotional appeal of solar stocks are providing those of us who pay close attention to the economics of green energy an opportunity to profit at their expense.  Taking advantage of the opportunity is not only likely to benefit the investor, it will also help the companies we do invest in raise capital.

DISCLOSURE: Long WFFIF, CREE, NFYIF, PWR, ABB, AXPW, ORA, ELON, TLVT.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 12:05 PM | Permalink | Comments (2) | TrackBacks (0)

The London Accord took a look at what portfolio theory would suggest as the most effective ways to address Climate Change.  Knowing which technologies don't make the cut is at least as useful as knowing which technologies do.

Tom Konrad, Ph.D., CFA

I recently looked at a paper from the London Accord which used portfolio theory to recommend the best mixes of technologies to deliver different levels of carbon abatement.  The most useful technologies to achieve the needed levels of carbon abatement were Forestry, Hydropower, Biofuels, Wind, Efficiency, and Geothermal. I suggested stocks that investors might consider to invest in each of these sectors.

Other technologies played on bit parts in the abatement portfolios (left) the report found are likely to achieve the needed levels of climate reduction most efficienctly.  

If we were to assume intelligent political policies, these bit-part technologies should be avoided by investors.  The assumption of intelligent political policy is unlikely to be realistic, however:  Some of these technologies will turn out to be good for investors, even if they fail to achieve the desired goals for the climate.  

Below, I try to imagine the political decisions which would lead to each of these also-ran technologies rewarding investors. 

Nuclear

Nuclear power plays a large role in abatement portfolio 1, shown to the left.  This portfolio delivers about 3 gigatons of worldwide CO₂ equivalent (Gt CO₂e) abatement per year, at a cost of $25B annually.  Given that necessary level of abatement is at least 5 times that amount, portfolio 1 represents a vastly inadequate policy response to climate change.  We could get such an inadequate policy response if opponents manage to convince decision makers that an adequate response to climate change will do unacceptable harm to the economy.

Such policies would sad for humanity, ibut good for investors in suppliers of nuclear equipment.

Nuclear does not play a big role in the larger mitigation portfolios simply because it's potential for carbon mitigation is limited.  Nuclear plants take a very long time to build, and concerns about the disposal of waste and the desire of most people not to live anywhere near a nuclear plant are not likely to go away.  Furthermore, nuclear power and other baseload technologies which are difficult to stop and start quickly are somewhat incompatible with variable renewable energy such as wind and solar.  If wind is to meet its much larger potential for climate carbon mitigation, nuclear will have to play an even smaller role.

Solar

Solar only plays a significant role in the most aggressive portfolios, 4-6.   As you can see in the chart above, portfolios 5 and 6 do not produce much extra carbon savings even though they cost two and three times what portfolio 4 does.  The implication is that solar will do best if society decides that action against climate change is worthwhile regardless of the cost (scenarios 5 and 6,) or in a scenario where we decide that we need to be very aggressive about dealing with climate change, but should keep an eye on costs.

One significant caveat here is that the above abatement portfolios are based on the 2007 IPCC Working Group report, "Mitigation of Climate Change."  This report may have had much too conservative assumptions for cost reductions in solar technology (right).

With Sarasin's more optimistic assumptions about cost reductions for solar technology, it plays a large role in all mitigation portfolios on the efficient frontier.  Here "solar" refers to solar photovoltaic (PV) and Concentrating Solar Thermal Power (CSP): solar thermal collectors were not modeled.

Stock market investments in solar make sense so long as you believe that you are investing in a company which is capable of drastically reducing the cost of the technology, and will be able to cut solar costs more quickly than its rivals, including those which are yet to emerge.

Carbon Capture and Storage

Carbon Capture and Storage (CCS), the enabling technology for so-called "Clean Coal" does not play a role  in any of the mitigation portfolios which achieve less than 15 Gt CO₂e (portfolios 1-3) and only small roles in portfolios 4-6.  This is very similar to solar under the 2007 IPCC Working Group assumptions.  However, CCS differs from solar in that all the believable cost estimates I've come across (even those originating from CCS proponents) expect it to remain very expensive.

Coal with CCS also has the same problem as nuclear: because it is difficult to ramp such "Clean Coal" plants up and down, they are relatively incompatible with large penetrations of wind.  If CCS does take its place as part of an efficient carbon abatement portfolio, it will probably be CCS used in conjunction with natural gas turbines, rather than coal. 

Hence, it would only be reasonable to make stock market investments in CCS technology if you expect significant spending on the technology by governments with little regard to cost.  Given the power of the coal lobby, such a scenario is a real, if unappealing, prospect.

Conclusion

I do not include any of these technologies in green investment strategy.  Even though I believe that the optimistic case for quick reductions in the cost of solar technology makes sense, I do not think that I have the skills necessary to pick a company today which will be able to survive the rapid industry upheaval a technological revolution in PV technology would entail.

All three technologies have the potential to receive large amounts of government largesse, even if the economic case for such help is weak.  However, I am not confident that I can predict the direction of such largess, and more deserving green technologies with better economic prospects seem just as likely to receive government money than these three.  Given my uncertainty about the future direction of government support, I think it makes more sense to invest in forestry stocks, building and industrial efficiency stocks, transport efficiency stocks, and geothermal stocks, than it does to invest in nuclear, carbon capture and storage, or solar stocks.

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 02:17 PM | Permalink | Comments (0)

Charles Morand

Tom and I recently received complimentary copies of a new book called "Investment Opportunities for a Low Carbon World", edited FTSE Group's Director of Responsible Investment Will Oulton*. 



The book is a compendium of articles by 31 different authors broken down into three main categories: (1) environmental and low-carbon technologies; (2) investment approaches, products and markets; and (3) regulation, incentives, investor and company case studies.

While Tom will provide a comprehensive review of the book once he's finished reading it in its entirety, I will instead review a few selected chapters over the course of the next couple of weeks.

I decided on this approach as that is how I generally use such a resource; I select the chapters and authors that I am interested in and I read only what I selected. That said, the majority of chapters in this book were of interest to me and I ended up selecting 19 out of 27 that I'm going to read (I won't be reviewing them all!) Truth be told, reviewing the contents section made me feel like a kid in a candy store and I suspect that most alt energy investing aficionados would feel the same. If I like what I read, I will most likely finish the book.    

This first post provides reviews of Chapters 1 and 2 on the wind and solar sectors.

Wind Power

By Mark Thompson, Tiptree Investments ltd

I tend to consider myself pretty well-versed in all things wind power, and so I was especially eager to read this chapter. Overall, I was very pleasantly surprised.

The author provides a good review of the wind turbine and wind turbine component industries. I especially enjoyed the technical discussion on turbine size and optimizing turbine output, which will become a critical competitive element for turbine makers.

For instance, we learn that because of the relationship between diameter and surface area for a circle, the power of one machine can be increased to match that of several smaller machines by simply lengthening the blades, thus lowering requirements for a range of other components and materials (for instance, two turbines with rotor diameters of 40 meters will have a power output of about 1000 kW, whereas one turbine with a rotor diameter of 80 meters can power 2500 kW.) Because of the mathematics of this, power output increases acheived through longer blades should further improve the economics of wind, so this is definitely a trend worth keeping an eye on.  

We also learn that while the turbine market has been chronically under supplied for the past few years, conferring the incumbents an appreciable amount of market power - the author estimates that the top six makers hold a combined 84% market share -, barriers to entry remain high and very difficult to surmount for would-be suppliers. Concerns over quality, durability, track-record and the strength of the balance sheet to support warranties are all factors that make it very difficult to secure funding for projects using a newcomer's technology. It is fair to say that Thompson is bearish on new market entrants.

Finally, we learn that the trend toward turbine makers internalizing sub-component design and manufacturing is restricting investment opportunities in pure-play supply chain opportunities.

However, what I enjoyed the most about this chapter was the detailed overview of how wind projects are built and what factors make them successful. When it comes to wind power, investment commentators tend to focus on turbines and turbine components, even though very interesting opportunities exist in the project development and operation space. In the author's words: "the development process offers some of the best returns in the sector [...]."

One key point made by the author in that regard is that headline figures about the size of various developers' portfolios are rarely - if ever - comparable given the various developments stages involved in bringing a project into operation. The risk-return profile for pure-play wind power developers is far more driven by the quality of the projects than by the size of the portfolio. However, disclosure tends to be weak in that regard, making it difficult for small investors to gauge the real value of a portfolio.

Overall, I thoroughly enjoyed this chapter. In my view, the information would be most useful to a fundamentally-driven investor looking to really understand how wind power and the wind power industry really work. While the chapter does not answer every question an investor might have, it nonetheless provides the right balance of technical and business information to set someone on the right path. It is a reference to which I will go back.  

Those looking primarily for stock picks, however, will be disappointed. The lack of stock picks is probably the chapter's weakest point, especially given that the book is purportedly about investment opportunities. Having said that, investment ideas abound on the Internet these days and books focused too heavily on providing stock picks at the expense of more general information risk having very short shelf-lives.

Solar Power          

By Matthias Fawer, Bank Sarasin

Writing a book or a book chapter on solar power, especially solar PV, is always a risky endeavor as the information could be outdated 12 months after publication. I thus salute the effort of those who undertake to do it, but in my view this sector is best left to specialist consultancies and sell-side analysts because they can easily update their analysis when conditions change, something that happens frequently in the world of solar PV.

Matthias Fawer's chapter does, in a lot of ways, read like a sell-side report. It covers three broad sub-sectors of solar: (1) solar photovoltaic; (b) solar thermal; and (c) solar collectors. Other than for solar thermal, the way in which the chapter is written assumes the reader already has a fair bit of solar knowledge. For instance, unlike your typical generalist piece on solar PV, few if any details are provided on what the main solar PV cell technologies are, how they compare in terms of price and performance and which company makes them.

The advantage of this approach is that it allows the author to jump straight into industry-level dynamics and not waste precious space explaining what many people already know. For instance, we learn fairly early on that Bank Sarasin sees silicon cell production appreciably outpacing module production until about 2012, potentially providing module makers with a margin expansion opportunity. We also learn that the plant engineering firms that had done so well when every cell manufacturer and their grandmother was adding production capacity during 2007 and 2008 could underperform in the next few years.

Of course the drawback from not providing a lot of technical background is that it makes the chapter a lot less useful for the novice solar investor, or even for the investor who knows a little bit but does not follow the industry closely. The author does, however, provide a ranking of the "strategic positioning" of 27 solar PV firms based on a proprietary model, with his top pick being Q-Cells (QCLSF.PK) from Germany.

The section on solar thermal, also known as concentrating solar power (CSP), contains more basic information on the technology, and provides an overall very good introduction to the sector. Unfortunately, there is a dearth of CSP investment options, and this sector is thus effectively off-limit to most retail investors.

The section I liked the most in the chapter was the one on solar collectors for building and water heating, an industry I knew about but had never researched. I learned, much to my amazement, that by the end of 2008 there was 142 GW of solar collector capacity installed worldwide, versus 12 GW of solar PV and 1.3 GW of CSP.

China is by far the largest market for solar collectors and, unlike in other industries, it absorbs, according to the author, 90% of its own production. Fawer expects annual growth to be about 25% until 2011 and to settle at 18% between 2011 and 2020. However, the much larger installed base currently means that the absolute level of new installations could be quite massive. Although the section on solar collector does not provide stock picks, it most definitely poked my interest and convinced me to look further into this.

Overall, while I was a bit underwhelmed by the solar PV section, I found the CSP section useful and the section on solar collectors very interesting. A greater technical focus would have strengthened the chapter given how technologically complex solar is, and more stock picks would have been appreciated. However, I will definitely go back to the chapter when I do research on solar collectors and even CSP.

DISCLOSURE: None

* We are always interested in reviewing books and reports in the areas of alternative energy, cleantech or other environmental industries, especially where they add value to the investment decision-making process. If your organization would like a new book or report reviewed, please contact us.     

Posted by Charles Morand at 06:03 PM | Permalink | Comments (3)

Charles Morand

A couple of weeks ago, I noted the importance of examining parameters other than module costs when gauging the economic competitiveness of solar PV energy. I noted how multiple factors influence the levelized cost of energy produced by solar PV systems, and thus its relative cost position on the grid. Nothing new here.  

However, besides standard test conditions (STC) conversion efficiency, or nameplate conversion efficiency, public data on parameters other than cost per watt-peak is not always easy to come by. That's why I found reading "Potential of photovoltaic systems in countries with high solar irradiation", a paper about to be published in the journal Renewable and Sustainable Energy Reviews, particularly interesting.

The Study

In the authors' own words, the paper reports the results of the following study (funded by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU)): 


This study thus examines the performance of the main commercially-available solar PV cell technologies under the same real-world conditions, rather than in the lab. The annual solar irradiation measured on-site at the ideal inclination was 1997 kWh/m2 in Cyprus and 1460 kWh/m2 in Germany. This equates to roughly 5.5 kWh/m2/day and 4.0 kWh/m2/day, respectively. The NREL Photovoltaic Solar Resource map provides a rough guide to equivalent US locations, while Solar4Power's global maps do the same for the rest of the globe.    

The systems were initially deployed in June 2006 and the data reported is for the first year of operation, so until June 2007.

The systems under study are as follows:

Manufacturer (Ticker)	Technology	System Power (Wp)	Size (m2)	Nameplate Module Efficiency (%)
Atersa (uses Q-Cells cells, QCLSF.PK)	Mono-crystalline silicon (tracker)	1020	7.90	12.9
Atersa (uses Q-Cells cells, QCLSF.PK)	Mono-crystalline silicon	1020	7.90	12.9
BP Solar (BP)	Mono-crystalline silicon (Saturn-cell)	1110	7.52	14.8
Sanyo (SANYY.PK)	Mono-crystalline silicon (HIT-cell)	1025	6.26	16.4
Suntechnics (Uses Sunpower cells, SPWRA)	Mono-crystalline silicon (back contact-cell)	1000	6.22	16.1
Schott Solar (Private)	Multi-crystalline silicon (MAIN-cell)	1020	7.87	13.0
Schott Solar (Private)	Multi-crystalline EFG silicon	1000	8.58	11.7
SolarWorld (SRWRF.PK)	Multi-crystalline silicon	990	7.82	12.7
Solon AG (SGFRF.PK)	Multi-crystalline silicon	1540	11.50	13.4
Mitsubishi (MIELY.PK)	Amorphous silicon (single cell)	1000	15.74	6.4
Schott Solar (Private)	Amorphous silicon (tandem cell)	960	18.00	5.4
First Solar (FSLR)	Cadmium Telluride	1080	12.96	8.3
Wurth (Private)	Copper–Indium–Gallium– Diselenide	900	8.75	10.3

The study uses energy yield - kWh produced divided by nameplate kWp - to directly compare the performance of each system. Theoretically, this should normalize out conversion efficiency differences between the various systems and, because other key factors such as inclination are kept equal, the performances of the systems should be roughly equal.

The figure below displays the annual energy yield for the Cyprus location. Ignoring the tracker-equipped system, we note some non-trivial differences in AC energy yields between the various systems, with the Suntechnics (SunPower), Wurth, Sanyo and First Solar systems performing best, and the BP Solar and Schott a-Si systems performing worst.    



The figure below depicts the energy yield by season for the Cyprus location. As can be noted, the thin-film technologies (a-Si, CIGS and CdTe) tend to have higher energy yields in the summer months than most crystalline technologies, but perform in roughly similar fashions or even slightly worse in winter months.



The seemingly wider variations between summer and winter months for thin-film systems are not actually due to the properties of thin-film materials, but rather to the properties of crystalline materials. The table below displays deviation from the average AC energy yield across all systems, as well as the MPP power temperature coefficient. The latter metric shows the drop in system power per one kelvin increase in temperature.

As can be noted, overall, the crystalline technologies tend to experience much greater performance declines under warmer conditions than do their thin-film brethrens. The authors note that the technologies with the lowest MPP power temperature coefficients showed the highest average energy yields during the summer period. 




The phenomenon discussed above is perhaps best captured by the graph below, which displays seasonal module efficiency for the Cyprus systems. Once again, by-and-large, thin-film technologies tend to experience much lower drops in efficiency with higher temperatures than do crystalline technologies, with the First Solar CdTe system showing the most stability.

The authors note that the systems installed in Cyprus showed a lower average measured performance ratio than those installed in Germany because of higher temperatures.



Conclusion

A couple of fairly obvious insights emerge from this article.

First, at least for the time being, crystalline technologies retain an edge over thin-film for applications where available space is an issue. Lower efficiencies in thin-film are forcing much larger system sizes, as depicted in the first table above. The urban roof-top market thus remains crystalline technologies' domain.

However, and far more interestingly in my opinion, thin-film technologies' relative performance stability in warm weathers, as demonstrated by lower MPP power temperature coefficients, makes them superior alternatives for areas where temperatures between seasons range from very hot to hot, and where module temperatures are likely to be fairly high year-round. In Cyprus, according to data in the study, average monthly temperatures stood near or below 15 degrees Celsius (~60 degrees Fahrenheit) during six months out of the whole year. Several potenially large markets will show much higher temperatures throughout the year.    

Incidentally, such regions could become, because of their solar irradiation regimes, very attractive solar PV markets. Areas such as India, North Africa, the Middle East and Australia all come to mind (the scale shows kWh/m2/day).

India recently announced it would be targeting 20 GW installed by 2020, and it was reported that it would institute a production-based incentive, which generally takes the form of a production tax credit or a feed-in tariff. In regions of Southern India with very hot summers and hot winters, thin-film technologies would probably offer the best alternative for ground-mounted installations, which will likely spring up in fields across the region if the incentive is generous enough.

DISCLOSURE: None                   

Posted by Charles Morand at 12:27 AM | Permalink | Comments (0)

Charles Morand

One of the - if not THE - most popular debates in solar PV circles is about when exactly the electricity produced by solar PV systems will reach "grid-parity", or become competitive with like-generation fuels (i.e. non-baseload) on a stand-alone basis (i.e. no feed-in tariffs, mandates or rebates).

A lot of the time, these discussions slip into arcane sub-debates about module costs, as expressed on a dollar per watt basis, and how far they need to fall for solar PV to be competitive. But module costs are only one part of the equation; inverter, installation and other balance-of-plant costs can make up to 50% of the installed cost of a system, and the local solar regimes, cell efficiency, interest rates and system orientation can all impact the levelized cost of the power produced, and thus its relative cost position on the grid.

While such discussions are most definitely intellectually stimulating, the fact remains that the solar PV industry is, by-and-large, heavily dependent on regulatory incentives for growth. Recent figures by REN21 (p. 24 of the PDF document) demonstrate the extent of this dependency. In 2005, Japan accounted for ~24% of new installations and ~35% of total installed capacity for grid-tied solar PV globally, while for Spain the numbers were ~2% and ~2%, respectively. By the end of 2008, Japan made up ~5% of new installations and ~15% of installed capacity, whereas Spain accounted for ~48% and ~26%, respectively. What changed in those three years? Japan canned its residential incentive in 2006 and Spain implemented its feed-in tariff in 2004. Now, both countries have made 180-degree turns, with Spain canning and Japan re-instating. I expect investment flows to reverse. 

Reaching grid parity in certain regions with high wholesale power prices is not going to change that situation overnight - last year, McKinsey & Co published a forecast in which they estimate that economic demand for solar PV will begin outpacing policy-driven demand by about 2015. By 2020, the authors believe, policy-driven demand will still account for a little under a third of total global demand. Regulatory incentives are thus going to account for a substantial portion of installed solar PV capacity for at least the next decade.

That is why solar PV investors should be elated that India has finally decided to join the solar club by planning to have its own targets and incentives announced by September. Early information points to a non-trivial target of 20 GW installed by 2020 (Germany had about 5.4 in 2008), with 1 to 1.5 GW installed by 2012. The scope for solar PV growth in India is massive, especially growth in distributed solar as over 600 million people - mostly in rural areas - currently don't have access to electricity.

As of yet, few details have been made public on the upcoming policy so it is difficult to gauge what this will mean for the solar PV sector. However, if India's solar ambitions turn out to be as big as their IT ambitions, this could prove a welcomed boost for the industry.  

I am finding it difficult to pick stocks in the solar PV sector for three reasons: (1) the intense sell-side focus - exemplified by the fact that every shop on the Street now has a solar PV analyst - makes it very difficult to gain and exploit an informational advantage; (2) stocks tend to be highly volatile, with the success stories trading at astronomical multiples (e.g. First Solar) and the firms experiencing difficulties getting destroyed (e.g. Timminco); and (3) the industry remains relatively young, with new entrants and emerging technologies continually threatening established market positions.

My favorite way to play this sector and macro events like the India announcement thus remains through one of the two solar power ETFs: the Claymore/Mac Global Solar Index ETF (TAN) or the Market Vectors/Van Eck Global Solar Energy ETF (KWT) . While volatility and high multiples remain a factor for the ETFs, they nonetheless eliminate much of the firm-level risk.

I took a long position in TAN in early March, and this has done quite well for me so far. My time line there was 18 to 24 months and that remains the case today. However, the announcement by the Indian government in September could provide near-term momentum for these two ETFs, especially if the program is to be implemented sooner rather than later.

DISCLOSURE: Author is long TAN       

Posted by Charles Morand at 11:00 AM | Permalink | Comments (2)

Charles Morand

It seems as though the darkest clouds are finally dissipating over alt energy's financing horizon. Over the past few weeks, money has started flowing into the sector again, as evidenced by a number of recent deal announcements:

1. On June 9, I reported on the upcoming IPO for Magma Energy Corp., a geothermal exploration company. The IPO's size will be upped from an initial C$50 MM to C$100 MM, a sign of increased market appetite 
2. SunPower Corp. raised $418 MM in early May through a share and debt offering, and recently announced it had reached a $100 MM deal with Wells Fargo to fund commercial-scale solar PV projects across the US
3. John reported a few days ago that A123 Systems had amended the SEC registration statement for its proposed IPO, positing that it could be much larger than initially anticipated
4.  In late May, Suntech Power raised $277 MM from a follow-on offering of its American Depositary Shares (ADSs), and recently received a $50 MM convertible loan from the IFC
5. On June 23, Yingli Green raised $193 MM through a follow-on offering of its ADSs
6. On June 25, Trina Solar secured credit facilities of about $57 MM
7. New Energy Finance just reported a slight increase in asset financing for Q2 2009, although it cautioned that money flows into renewable energy projects were: (1) down substantially from what they were a year ago (~66% in the US); and (2) far below the level where they need to be if greenhouse gas emissions are to be brought under control by 2020

As noted by both New Energy Finance and John, requirements for matching funds under the ARRA mean that firms that want to access government grants will have to put up some of their own money, potentially leading some of them to go to market even if conditions aren't ideal.

The recent upsurge in public market financing also certainly has to do with  buoyant markets and higher oil prices, a window that could close if the general sentiment turns negative in the coming weeks.

This increased financing activity is good news to be sure. Pure-play alt energy firms, by virtue of the sectors they do business in, typically have much weaker balance sheets than conventional energy firms or firms in more established industries. They are thus generally in a much weaker position to ride out a long capital markets drought.

But the industry is far from out of the woods yet, and I remain convinced that questionable firms are in a much weaker position to conceal their flaws behind generalized cleantech exuberance than they were in 2006 and 2007. The last rally lifted some boats that didn't deserve lifting, and sooner or later those boats will sink again.

DISCLOSURE: None       
            

Posted by Charles Morand at 11:44 PM | Permalink | Comments (0)

Charles Morand

There was an interesting post in Barron's tech trader daily on Monday discussing how solar PV stocks are coming under pressure, in part because product prices are falling further than expected. About a month ago, I discussed the potential return effect for households in given states of removing the $2,000 ITC cap. Such measures, it seems, are failing to kickstart demand, and solar recovery might end up being significantly slower than many had been expecting.

Case in point, since hitting a high of $11.49 on June 11, the TAN ETF is down about 12%. KWT, for its part, hit a high of $17.35 on June 10 and is down 11% since. The S&P 500, in comparison, is down about 4% from its June 12 high. While both TAN and KWT are up >30% on the S&P 500 over the past six months, neither is up on the benchmark index over the past 12 months.

I took a long position in TAN in early March at $5.00 when an automatic buy order I had had on it for a while kicked in. At the time, I stated:

This is still very much my belief. I took some profit at $10.00 when an automatic sell order kicked in, and I'll gladly purchase a little more if it goes back down substantially. It must be said, however, that I use sell orders at set return levels to protect profit and not in an attempt to time the market.

Overall, those who are investing in one the two solar ETFs today and hanging on will be happy they did so two years from now and beyond. The road there, however, will be fraught with volatility.

DISCLOSURE: The author is long TAN.

Posted by Charles Morand at 11:21 PM | Permalink | Comments (2)

Different solar incentives encourage different types and locations of solar installations.  Better solar installations will result if we first decide what we want from solar, and then choose the solar incentives we use to match.

Tom Konrad, Ph.D.

Choosing Carefully

This article is based on a presentation I gave at Solar 2009 [11.7 MB].  As with wind, the current incentives for Solar photovoltaics are good for encouraging more solar, but they are less effective at encouraging better solar.  Jigar Shah, founder of SunEdison and Jigar Shah Consulting, told the audience that they should be very careful in calling for a Feed-in-Tariff for solar, saying that "Pigs get fed, hogs get slaughtered," in his keynote address at that same conference.  He was concerned that Germany might become the market of last resort for solar PV because of the supply glut in 2009, and that their government might decide to put a hard cap on the total installations under Germany's Feed-in-Tariff in response.

What do We Want?

Before we advocate for a solar incentive we should look at what we want the incentive to accomplish.  I don't mean the obvious facetious answer "more solar."  James Groelinger, the former President and CEO of EPV Solar, speaking on a panel on investment opportunities in solar, said, "What counts is not modules, systems, megawatts, or capacity; it's energy.... in America we've been rewarding watts installed, while Germany is rewarding kWh produced.  Germany gets approximately 50% more kWh per watt installed than the US, after adjusting for the lower solar resource."

I agree that the relatively low energy production on US systems is probably an indicator of perverse incentives, but Solar should not be considered as solely an energy resource.  For instance, the correlation of PV output with demand is valuable in its own right, and the greater that correlation, the more valuable the energy produced will be, even if greater correlation comes at the expense of slightly lower output.

 We should look at what we want from solar.  We should ask, "What are solar PV's benefits and weaknesses compared to other technologies?"  How important these benefits and disadvantages are greatly depends on how solar is installed.

Benefits of Photovoltaics	Problems with Photovoltaics
Price Stability	Current high cost
No Carbon Emissions	High Embodied Energy
Timing: Correlated with demand	Cloud Transients
Distributed: can be used to defer T&D upgrades	Distributed: May result in stranded T&D assets
Timing: Good complement to Wind
Can be installed on low-value surfaces (roofs, and BIPV)

A look at current incentives show that more could be done to take advantage of more of these incentives.

Incentives for energy production

Many incentives for solar involve direct payments per kWh produced.  These include Renewable Energy Credits (RECs) which consumers often use to buy green power, Renewable Electricity Standards (RES), Feed-in-Tariffs (FIT), such as the one just passed by Ontario and the one in Germany which James Groelinger credits for the higher energy output of German solar farms.   Such incentives clearly encourage production of more energy (kWh), but by not differentiating between when or where the energy is produced, they can lead to perverse incentives.  Energy production incentives typically lead to:

1. South-oriented panels which produce more, but often lower-value, electricity than panels oriented to the southwest.  
2. Large clustered farms which may have quick fluctuations in output when a cloud passes over (cloud transients.)  A recent study, Quantifying PV Power Output Variability presented by Tom Hoff  on the same panel where I presented showed that, if a cluster of PV installation  is sufficiently dispersed (relative to cloud speeds), the variability of solar output from cloud transients will be reduced by a factor of approximately the square root of the number of installations.
3. Installations may cluster on the wrong distribution feeders.  If a local electric substation is nearing its capacity at peak times, placing PV on the distribution system of that substation can allow the utility to delay a very expensive substation upgrade.  On the other hand, most new substation are likely to have significant extra capacity, and placing PV in the areas served by that substation will force the utility to pay back the investment on that substation over a smaller number of kWh, a problem referred to as stranded assets. 
4. The carbon intensity of the electricity displaced by power from PV will vary with time, and, if cloud transients mean that gas turbines must ramp up and down quickly, that will also decrease turbine efficiency and change the carbon intensity of displaced electricity.

From an economic perspective, it makes sense to subsidize peak power production which can help delay a substation upgrade more than pure kWh production, especially if it is from an installation which might strand transmission and distribution (T&D) assets.

Net Metering

Net metering, or allowing the PV owner to sell electricity back to the grid at the same price he pays for it, is also a subsidy.  Net metering may not compensate the utility for the cost of making sure that the power is always there, depending on the tariff.  This is especially true on typical flat-rate residential tariffs, where payments are typically a fixed price per (net) kWh used, and produces incentives very much like the Energy Production incentives discussed above.

A Time-of-Use (TOU) tariff, where a kWh produced when demand is high receives a much higher value than one produced when demand is low, is much better for compensating the utility for the demands a user places on (or removes from) the system.  

In contrast, a typical commercial or industrial tariff, which is based on a low charge per kWh, but a large demand charge payment based on the highest 15 minutes of demand in any given month, can produce very perverse incentives.  Because of cloud transients, PV systems seldom will do much to reduce demand charges, and the low energy payment does little if anything to compensate for the PV investment.  This means that many otherwise ideal spaces on commercial properties are not economically viable for PV installations.  Ron Binz, the Chairman of the Colorado Public Utilities Commission, uses the example of the corners of square farm fields which are irrigated by rotating sprinkler irrigation.  Since farms are normally on demand charges in Colorado, these large areas of otherwise unused, flat space near electric distribution infrastructure are unavailable for PV installations.

Creative tariff structures might be used with net metering to help distribute solar where it could do the most good in helping to defer T&D upgrades.  This could be done with higher per kWh charges for T&D in areas which might soon need T&D upgrades, but probably is not politically possible because of concerns about fairness.

Incentives to Reduce Carbon

If the goal for solar is to reduce global warming pollution, then the best way to do it will be to put a price on Carbon.  This will not only mean that a solar installation which displaces high-carbon electricity (such as coal or inefficient natural gas peaking turbines) will receive a higher incentive than an installation which displaces low-carbon electricity (such as efficient natural gas combined cycle turbines or nuclear,) but it will also take into account the high embodied energy of crystalline silicon PV (if produced using fossil fuels) relative to the lower embodied energy of thin-film technologies.

One weakness of pure carbon pricing (at least from the perspective of solar advocates) is that it does more to encourage less expensive technologies that have quicker energy paybacks.  But if the goal is to reduce overall carbon emissions, that is precisely the result we want.  To take into account the other benefits of solar, other types of incentives will need to be used in conjunction with a carbon price.

Incentives for Investment

Incentives for investment, such as the Investment Tax Credit (ITC) and accelerated depreciation, help with the high cost of PV, but if used alone, without