Liz Nelson

The largest thin-film panel manufacturer in the world has an optimistic view of the immediate future for renewable energy demands. First Solar (FSLR) had an impressive charge for several years until the final quarter of 2008 when the stock value of the photovoltaic manufacturer began to plummet. Over the course of four years, the stock had dropped from approximately $311 per share to a dismal $11.43 nearing the end of the second quarter in 2012. At the beginning of April of 2013, the stock had nearly tripled in value and continues to gain momentum.

The beginning of First Solar's downward spiral came in the form of U.S. government not developing a proper action for subsidies and credits as these would help reduce costs making solar power a cost effective solution all-around. During the same time First Solar's stock hit its all-time low, European subsidies were pulling from open fields to rooftop models. Combined with the competitive market for eco-friendly energy development, the solar power company suffered from little sales growth by the middle of 2012.

Many photovoltaic companies are feeling the brunt of the lack of support from the governing bodies of respective countries. Other manufacturers such as SunPower (SPWR) rely on lower-scale residential installations and are able to thrive in the European market due to the subsidy change. First Solar is attempting to overcome the recent obstacles by providing a more cost effective solution without relying on these subsidies in order to make the process cheaper. Since the company's stock hit its all-time low, the focus has been slightly shifted to produce goods for areas that can be utilized without government relief. 

1. Future Contracts - Currently, First Solar is one of the contenders for developing 500 to 1,000 megawatt power plants that are to be assembled in the Middle East and North African areas. Experts state that the solar giant could easily win a large portion of these bids greatly increasing the company's revenue based on the low-cost effectiveness of the manufacturing process of the thin-film panels. This comes on the heals of First Solar's acquisition of TetraSun, a start-up silicon cell developer that has created a proprietary method of cost-effective manufacturing. The acquisition will give First Solar more diversity when bidding on projects and expand the market creating more opportunities later on by reducing costs in manufacturing which reduces the price to consumers.

2. Environmental Sustainability - First Solar is committed to sustainability in a variety of forms. When it comes to the carbon footprint left behind by energy production, First Solar systems are cleaner than nuclear sources. Surpassed only by wind generation, photovoltaic power generation is one of the most environmentally sound applications currently in production. Recycling of these CdTe photovoltaic modules at the end of their lifespan that are featured in First Solar's developments continues the waste reduction even further.

3. Social Sustainability - A social conscience is what makes a good eco-friendly organization, and First Solar proves to be mindful of the future of humanity. The solar power giant has generously donated panels, equipment, and training to a wide variety of locations stretching from schools in California to non-profit organizations in Australia. First Solar has also teamed up with a number of other organizations around the globe in order to bring solar awareness and efficient productivity to as many people as possible regardless of their location.

4. Economic Sustainability - Launching campaigns to inspire job creation, First Solar provides knowledge and training to a variety of locations around the globe. The goal is to reduce the overall cost of photovoltaic manufacturing in order to compete with markets that are based in fossil fuels. With energy security on the minds of a great deal of people and governments world-wide, First Solar puts forth manufacturing efforts to ensure this security never diminishes. If we are unable to tap solar power, the planet has far more immediate and pressing concerns relating to our Sun.

Siemens discussed pulling out of the DESERTEC project in 2012

 Some companies have begun to rethink strategies regarding renewable energy development as the value of such products are over-shadowed by doubt in their opinions. Siemens (SI) discussed pulling out of the Sahara Desert project, DESERTEC, and solar power in general, in October of 2012 due to variables such as falling government subsidiaries. This is shortly after being criticized over the controversial move of making a deal for windmill plants in Morocco occupied Western Sahara earlier in 2012. With as much attention as renewable energies have witnessed recently, First Solar is primed to be on the ground level of a variety of projects and is anticipating greatness in the future.

As long as companies like First Solar can keep the cost of building power plants low, the success will only increase. Since the middle of 2012, many photovoltaic manufacturers have been looking for methods and innovative creations in order to reduce these costs. First Solar has done a great deal to accomplish this task as well as restructure internally. With the acquisition of TetraSun, First Solar has been on the rise with manufacturing projects all around the globe. Between August of 2012 and nearing the end of April 2013, FSLR stock rose from $19.99 to $44.08. As manufacturing costs decrease, buyers are interested in building solar arrays once again and First Solar has the ability to offer a very competitive price while still being able to generate a profitable net income.

This is a guest post by Liz Nelson from WhiteFence.com. She is a freelance writer and blogger from Houston. Questions and comments can be sent to: liznelson17 @ gmail.com.

Posted by Guest Contributor at 11:30 AM | Permalink | Comments (0)

James Montgomery

A pair of analyst reports issued last week came to roughly the same conclusion about the market for solar PV inverters: It's getting crowded and complicated, with top incumbents facing challenges in maintaining near-term growth in an increasingly fragmented market.

Those PV inverter stalwarts will need to pursue more restructuring and mergers & acquisitions to stay atop the shifting and broadening customer base, addressing everything from tough-to-crack markets (e.g. China, Japan) and embracing newer technologies such as module-level power conversion, i.e. microinverters, say IMS Research and GTM Research. This consolidation has already started to play out: SMA (S92.DE) bought Chinese inverter maker Jiangsu Zeversolar New Energy in December 2012, and earlier this month Advanced Energy (AEIS) acquired REFUsol, a German maker of three-phase string solar PV inverters.

And Wednesday there was another M&A splash in solar PV inverters: Swiss machinery component conglomerate ABB Group (ABB) is acquiring No. 2 PV inverter company Power-One (PWER) for approximately $1 billion.

The $6.35/share cash consideration — which, including Power-One's $266 million net cash, amounts to a 6.4× multiple on 2012 EBITDA and 13× on projected 2013 earnings — was a 57 percent premium to Power-One's closing on April 19 and a 50 percent premium on its 90-day average stock price. (PWER's stock already has shot up today and absorbed all of that premium.) The deal is expected to close in the second half of this year, and be accretive to earnings in the first year. Power-One will be slotted within ABB's discrete automation and motion division, alongside power control and quality, industrial motion, and electric vehicle charging and components.

The solar PV inverter market is expected to grow 10 percent annually through 2021, say the companies, citing data from the International Energy Agency (IEA). IMS Research pegs it as a $7 billion market today and exceeding $9 billion in 2016, rising 14 percent annually through 2017. Within that, the inverter segment is "the most attractive and 'intelligent' part of the PV value chain," the companies say.

Global PV inverter revenues. (Source: IMS Research/IHS)

Here's what both sides gain from the deal:

ABB: Gains better access to the Americas region (USA, Canada, Central/South America). Power-One is active here and is targeting this as a key growth segment for 2013 at all levels, residential, commercial and utility. The company's Trio (commercial) and Ultra (utility) inverters were recently UL-certified. Adding Power-One also gives ABB inroads into residential and commercial markets in Europe and worldwide beyond its traditional utility-scale focus, points out Cormac Gilligan, a lead analyst on IMS Research's inverter team.

Jefferies analyst Scott Reynolds likens this deal to ABB's 2012 acquisition of Thomas & Betts, which expanded its portfolio into low-voltage technology but also added 6,000 distribution points and wholesales in North America. Power-One "has a significantly larger sales and distribution footprint than ABB which will enable the combined entity to accelerate growth," he writes in a research note.

Power-One: Gains access to ABB's broader worldwide footprint for manufacturing and R&D capabilities, including in-house know-how of power electronics. It also can leverage ABB's brand and background for "bankability" in securing access to finance, Gilligan says. ABB also cites its own strengths in the wind inverter sector, plus monitoring/control, infrastructure, and services.

As a combined entity, ABB and Power-One will still have to balance the trend of decreasing prices for PV inverters that will squeeze profits. And like everyone else they'll have to secure inroads into emerging markets (Asia, Middle East, South America). Markets in Japan, China, and India in particular will be key: working with local suppliers and meeting each country's unique requirements (e.g., JET certification in Japan) and price points.

To that end, M&A activity in the PV inverter market is likely only just getting started. ABB pursued this Power-One deal now because waiting for more clarity in market direction could very well lead to paying more, said Joe Hogan, ABB CEO, during an investor conference call. There are no midsize or large deals in ABB's short-term pipeline, he noted, and emphasized that "you won't see us ever do a solar panel deal" because "we're not a machinery company at all."

Some might question ABB's long-term appetite for solar M&A given last fall's backpedaling of investment CPV startup Greenvolts. But PV inverters are very much in the company's wheelhouse of expertise in power electronics, power management and grid interactions, Hogan reiterated. Solar PV inverters have to interface with grids in diverse regions with unique technical and regulatory requirements, and "we know how to do that. It's in our DNA," he said.

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

Posted by Guest Contributor at 09:37 AM | Permalink | Comments (0)

Doug Young

Yingli (NYSE: YGE) has become the latest player in China’s struggling solar sector to get a lifeline from Beijing, as an interesting picture starts to emerge of the relative health of the sector’s major players and who is likely to lead a coming consolidation. The list of who gets these lifelines could also reflect the relative importance Beijing places on China’s wide and varied field of solar panel and panel component makers, meaning some of these lifeline recipients could emerge as potential leaders to help consolidate the sector in the months ahead.I should make a big disclaimer here by saying my observations are based only on public disclosures that I have seen, and that some of the industry’s other major players could also be quietly receiving their own state-backed lifelines that they simply haven’t disclosed yet with official announcements. But that said, I do suspect that most of the big solar names will disclose any big new state support they get, since such support is usually critical to their survival.

With that lengthy disclaimer as an introduction, let’s take a closer look at the latest news that has Yingli saying it has secured 2 new loans worth a combined $165 million from China Development Bank, a major policy lender that is quickly emerging as Beijing’s main tool to bail out the solar sector. (company announcement) Yingli didn’t say very much else in its announcement, except to state the obvious that the loans would help to strengthen its balance sheet.

Investors welcomed the news, bidding up Yingli shares by 8.5 percent after the announcement. Other big solar players also rallied, with Trina (NYSE: TSL) up 9.6 percent, Canadian Solar (Nasdaq: CSIQ) up 4.4 percent and JA Solar (Nasdaq: JASO) up 3.4 percent. Even beleaguered LDK (NYSE: LDK), which is rapidly selling off assets to stay afloat, rose 4.6 percent, though bankrupt Suntech (NYSE: STP) managed to buck the trend and fell slightly.

With its announcement, Yingli becomes the latest in China’s solar sector to receive a temporary reprieve from China Development Bank. Mid-sized manufacturer ReneSola (NYSE: SOL) announced its own new 320 million yuan ($51 million) credit line from China Development Bank in March (previous post), which followed LDK’s announcement a month earlier that it received a similar 440 million yuan in new financing from the bank. (previous post) China Development Bank has also provided past financing for Suntech, and late last year provided major new funds for wind power equipment maker Ming Yang (NYSE: MY) to build new projects in India. (previous post)

So the big questions become: How can one interpret this flurry of activity by China Development Bank, and what’s likely to happen next? I would expect we’ll see CDB make 1 or 2 more similar big loans to other major players in the next month or two, giving everyone the funds they need to survive for the next couple of quarters. The bank will then use its clout with the companies to promote consolidation, providing financing and other assistance to force a series of mergers and closures of smaller, inefficient players.

Investors are likely to look favorably on most loan recipients, as many will believe those companies are likely to emerge as the top new players after a state-led consolidation. If I were a betting man, I would say that loan recipients do indeed look like Beijing’s picks to become future leaders. That’s because even though CDB is a policy lender with less emphasis on earning profits, it’s still unlikely to pour money into companies that Beijing thinks has no future.

Bottom line: Yingli’s receipt of a lifeline from Beijing indicates it and other similar loan recipients are likely to lead a state-sponsored restructure of the solar sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:45 AM | Permalink | Comments (0)

Doug Young

A restructuring storm continues to blow through China’s battered solar sector, with word of a potential major asset sale by Suntech (NYSE: STP) and a debt default by LDK Solar (NYSE: LDK). Of these 2 news bits, the Suntech one is easily the most interesting as it finally helps to make sense of reports last week that billionaire investor Warren Buffett might want to buy the former solar superstar that last month declared bankruptcy. But Suntech investors will be disappointed to learn the latest reports don’t seem to include a major cash infusion from Buffett, who isn’t really known for investing in such troubled assets.All that said, let’s take a look at the latest Chinese media reports, which say that Suntech may be looking to sell its Italian assets as part of its bankruptcy restructuring. The main asset up for sale would be its 88 percent stake in GSF, a fund that was building solar plants in Italy mostly using Suntech-supplied solar panels. Some readers may recall that Suntech came under fire last year after disclosing its relationship with GSF, since it was using sales to the firm to inflate its own revenue figures.

But let’s move past that scandal to the latest reports, which say that Suntech could sell its stake in GSF to raise some badly needed cash. GSF has an enterprise value of up to $800 million, but Suntech’s stake would likely be worth far less than that amount since the solar plants that are GSF’s main assets were built when solar panels prices were sharply higher than their current levels. A Suntech spokesman said the company intends to operate GSF for now, though he did add that it will consider its options to maximize shareholder value.

So where does Warren Buffett come in to all this? Media reports have suggested that Buffett may actually be interested in purchasing Suntech’s GSF stake, most likely at a steep discount to GSF’s current value. Suntech’s battered shares briefly jumped last week after media reported rumors that Buffett was interested in buying Suntech’s core manufacturing assets in its hometown of Wuxi.

This latest report that Buffett would buy Suntech’s GSF stake makes much more sense than the earlier one last week. That’s because Buffett has a record of buying existing solar power plants, which is essentially what he would be getting by purchasing Suntech’s GSF stake. It’s easy to calculate the rate of return for such plants, since costs and revenue are all well known quantities. These latest media reports point out that Buffett is likely to ask for a steep discount for Suntech’s Italian assets if he really makes a bid, meaning Suntech isn’t likely to get anything close to the $700 million that the stake may officially be worth.

From Suntech let’s look quickly at LDK, which didn’t surprise anyone with its announcement this week that it has "partially” defaulted on payment for some of its convertible bonds due to lack of cash. (company announcement; English article) This current partial default was relatively minor, involving a $23 million payment that was due on April 15. But the media reports also point out that LDK has another $240 million in debt coming due in June, and that a default on that amount could well trigger the second bankruptcy for a major Chinese solar panel maker after Suntech.

LDK is trying desperately to sell off its assets to various state- and privately-owned entities to avoid Suntech’s fate. It does seem to be attracting some interest in those assets, which it is selling at sharp discounts. At the end of the day, perhaps it will avoid a bankruptcy through such asset sales. But when all is said and done, such sales are probably the same as a bankruptcy reorganization, since the “new” LDK is likely to be a fraction of its original size if it even continues to exist at all.

Bottom line: Suntech could sell its Italian assets to Warren Buffett at a big discount, while LDK could avoid bankruptcy by selling off most of its assets.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 01:55 PM | Permalink | Comments (0)

By Harris Roen

Three companies in solar had gains yesterday. Duke made a significant acquisition; First Solar offered positive guidance; JinkoSolar posted an upsetting loss.

Duke Energy Corporation (DUK)	More Info
Duke Energy Renewables acquired two PV power projects in Southern California. Highlander Solar 1 and 2 have a combined capacity of 21 MW, and have 20-year power purchase agreements with Southern California Edison. Operations should become commercial in mid-2013. This brings Duke to more than 100 MW of generating capacity. The stock is up 18% for the year.	Press release
First Solar, Inc. (FSLR)
First Solar announced strong guidance for 2013, beating analyst estimates. Revenues are projected to be 13%-19% above 2012 levels, and consolidated operating income should reach $430-$460 million. The stock went up 2% for the day on the news, and is up 70% for the year.	Reuters article
JinkoSolar Holding Co., Ltd. (JKS)
JinkoSolar released a disappointing fourth quarter 2012 earnings report, posting a $122 million net loss. This is more than double the loss from the same quarter last year. For the fiscal year, JinkoSolar had a net loss of $248 million, reversing a net income of $43 million for the previous year. Despite this, the stock jumped 4% for the day, and is up 5% for the year.	Press release

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.

Disclosure

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article, but it is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

Remember to always consult with your investment professional before making important financial decisions.

Posted by Guest Contributor at 10:05 AM | Permalink | Comments (0)

Doug Young

Solar Lifeline image via Bigstock

Intriguing rumors that billionaire investor Warren Buffett might be eying bankrupt former solar superstar Suntech (NYSE: STP) are breathing new life into embattled solar shares, as traders bet that western investors could help to revive the sector. Such a move would indeed be a major vote of confidence in this tarnished industry, since most observers believe that no private investors would want to bet on this group and a state-led rescue will be necessary to save the shaky sector. But all of that said, I’m quite skeptical that the latest rumors are true, since Buffett isn’t know for investing in problem-plagued companies or sectors.

Regardless of whether they’re true, the rumors that Buffett might want to buy Suntech helped to spark a rally in Chinese solar shares, with Suntech’s own shares up nearly 16 percent in Monday trade. (English article) Other solar shares joined the rally, with Trina (NYSE: TSL) and Yingli (NYSE: YGE) up 7.6 percent and 4.5 percent, respectively. Even mid-sized players joined in the rally, with Canadian Solar (Nasdaq: CSIQ) and JA Solar (Nasdaq: JASO) also gaining 9.7 percent and 3.7 percent, respectively.

Let’s take a look first at the reasons why the rumors might be true to see why investors were so excited. Buffett has shown a recent interest in new energy companies, some of which could be poised for big growth as many governments try to wean their economies from overdependence on traditional fossil fuels.

One of Buffett’s earliest investments in the area came in 2008, when he purchased 10 percent of BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), a China-based maker of electric cars and buses.  More recently, Buffett has also invested in solar power projects in California and Arizona, and in an Illinois-based wind farm. (previous post) While the US-based investments are likely to produce their promised returns, results from the BYD investment have been decidedly worse as the company’s EV program struggles.

Now let’s take a quick look at the reasons why an investment in Suntech doesn’t really sound like something Buffett would consider. Leading the list is the complexity of Suntech current situation, after the company defaulted on more than $500 million in debt and was forced into bankruptcy last month by its largest lenders.

Not only is Suntech now in bankruptcy, but the case is being heard in a court in Suntech’s home city of Wuxi where the local government wields big influence. Buffett would have to be very brave to try his luck in this unfamiliar territory, which is hardly like a bankruptcy case in the US court system.

The case is further complicated by Suntech’s problematic founder Shi Zhengrong, formerly one of China’s richest men but now better known for creating many of the problems that led to his company’s rapid crash. Shi’s refusal to yield control of his company in exchange for a government bailout was largely responsible for the bankruptcy that was ultimately forced on Suntech.

Many expect that Shi will be pushed out of the company as part of a restructuring that will see government entities become Suntech’s controlling stakeholders. Beijing and the Wuxi government might actually welcome Buffett’s participation in such a restructuring, since it would provide the company and also China’s broader solar sector with a huge new credibility boost.

But I suspect that Buffett is too smart to get involved in such a messy affair, especially since there’s no evidence just yet that the industry can be commercially viable in its present state. Accordingly, this latest rumor is probably either just wishful thinking by Suntech or some of its rivals, or perhaps it was deliberately created by traders looking to make some quick cash from the stock rally. I expect the rumor will quickly disappear after this week, though it’s still is possible Buffett could invest a year or two from now when the sector finally returns to more stable footing.

Bottom line: Rumors of a Warren Buffett investment in Suntech are most likely false, though Buffett could ultimately invest in China’s solar sector when it returns to health.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 09:13 AM | Permalink | Comments (0)

Doug Young

Mid-sized solar panel makers JA Solar (Nasdaq: JASO) and ReneSola (NYSE: SOL) are both in the news today discussing their finances, in what looks like an attempt to calm the nerves of investors and creditors who are no doubt worried following the bankruptcy forced upon former industry leader Suntech (NYSE: STP) earlier this week. All of these companies have billions of dollars in debt which they used to build up their manufacturing operations over the last decade, and big amounts of that money will be due for repayment in the next 2 years.

Meantime, the fate of Suntech itself remains cloudy because the process is happening in an Chinese courtroom where local government officials wield big influence; but Chinese media are giving some indication of how things might proceed, with the government in the company's hometown of Wuxi looking like it will play a major role in the coming reorganization.

Let's start off with the news from JA Solar and ReneSola, which, like everyone else, are both losing money and struggling under big piles of debt accumulated during China's solar panel build-up. Chinese media are quoting a JA Solar official saying the company has already prepared sufficient funds to repay $120 million worth of its bonds that will come due in May.

The reports cite CEO Xie Jian saying the company's bonds "don't have default risks", although those words didn't stop the price of the company's bonds from falling. Its publicly traded shares also fell 3.5 percent in New York, and are down 9 percent this week.

Meantime, ReneSola has put out its own statement announcing a new credit line from policy lender China Development Bank worth 320 million yuan, or about $51 million. (company announcement) The announcement doesn't say much, though the company says its ability to secure new funds in such a tough environment underscores ReneSola's relatively strong financial position.

I don't want to be too cynical, but it does seem like someone needs to point out that China Development Bank is hardly a traditional commercial bank, and I seriously doubt ReneSola could have gotten similar funds from any real commercial lender. People who have followed the current crisis will know that China Development Bank has been mentioned on numerous occasions as Beijing's most likely financial vehicle for a broader industry bailout that could come later this year. This latest news would seem to indicate the bank will help Chinese solar panel makers to keep operating by providing necessary funds until the broader restructuring plan is implemented.

Lastly, let's take a look at the latest report on Suntech in the China Daily, whose headline on the saga cites analysts saying the decision to declare bankruptcy was a "wise move". Since the China Daily is an unofficial spokespaper of Beijing, it's probably safe to assume that government officials in both Beijing and Wuxi agree with this characterization of the bankruptcy declaration, which was forced on Suntech by its creditor banks.

The report, which largely cites unnamed industry insiders, says there is a good possibility that the Wuxi government will take over Suntech's debt, which includes more than $1 billion owed to 9 Chinese commercial banks. The report also indicates that newly named Suntech director Zhou Weiping, who has strong ties to the financial industry, may play an important role in the reorganization. It indicates that Suntech founder Shi Zhengrong may assist in the coming reorganization, but is unlikely to stay around after that. All of these moves look designed to calm investor worries as government entities keep the sector alive until a broader industry reorganization plan is announced.

Bottom line: New comments from JA Solar and ReneSola are aimed at easing default concerns among their creditors, with Beijing likely to continue funding the sector before a broader reorganization.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 11:46 AM | Permalink | Comments (0)

Doug Young

The inevitable has finally happened at tanking former solar star Suntech (NYSE: STP), which has been forced into bankruptcy ending a months-long battle between the company's founder Shi Zhengrong and just about all the company's other stakeholders. In the meantime, I would be remiss not to mention another solar news tidbit that has panel maker Yingli (NYSE: YGE) forming a new strategic tie-up with GLC-Poly Energy (HKEx: 3800), in what could eventually become the first mega-merger in the struggling solar panel sector.

Let's start with Suntech, which has been in the headlines nearly non-stop these last 2 weeks as it formally defaulted on more than $500 million in bonds that came due last Friday. Suntech founder Shi Zhengrong has been fighting nonstop not only with the bondholders, but also with his company's bankers and officials in the city of Wuxi where Suntech is based.

Nearly everyone wants Shi to leave the company as part of any rescue plan, and the company's various stakeholders have partly succeeded in that goal by first stripping Shi of his CEO title, and then his chairman's title as well. But Shi remained in the picture because of his holdings of 60 percent of Suntech.

Now the government and Suntech's state-owned lenders have finally joined forces and petitioned a local court in Wuxi to have Suntech declared insolvent, according to a company announcement. (company announcement) Chinese media reported that the court accepted the petition on Wednesday, and ordered that the company undergo a bankruptcy organization.

That should theoretically set the stage for the cancellation of Suntech's US-traded stock, which would eliminate Shi's last remaining influence at the company. Such a share cancellation would mark the end of a spectacular downfall for Shi, who was once China's richest man with a fortune worth more than $2 billion.

Interestingly, Suntech's shares were unchanged in Wednesday trade after all the latest news. But at 59 cents each, they are already at a tiny fraction of their all-time high of around $80 reached back in 2008. Some shareholders may think that Suntech stock will retain some value under the reorganization, as China may want to keep the company publicly traded. But that may be a dangerous gamble since such a move would leave Shi with some influence at the company. Accordingly, I would put the chances of Suntech's stock becoming worthless at greater than 50 percent.

Meantime, let's look quickly at Yingli's new tie-up with GCL-Poly. (company announcement) There's not much detail in the announcement, which looks like a good fit since Yingli is a leading solar panel maker and GCL-Poly is a top supplier of material used to make those solar panels. Both companies are also among the largest in their respective spaces, though GCL-Poly's market cap is quite a bit bigger than Yingli. If this partnership goes smoothly, I could see the 2 companies eventually combining, producing a new leading player for this beleaguered sector that is in desperate need of more consolidation.

Bottom line: Suntech's upcoming bankruptcy reorganization is likely to result in the cancellation of its stock, wiping out founder Shi Zhengrong's fortune and removing him from the company.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 10:24 AM | Permalink | Comments (0)

Doug Young

New developments have come rapidly over the past week at Suntech (NYSE: STP), leaving the former solar superstar on the brink of collapse as its founder Shi Zhengrong blocks a potential government rescue. Shi’s exit is believed to be a main condition for the government bailout, and his refusal to leave could well result in the failure of a company that is otherwise an industry leader with strong potential. To prevent such a collapse, the government should take the unusual step of forcing Shi to go so that Suntech can begin a desperately needed reorganization. Such interference should be used only rarely in a true market economy, but does make sense when it means saving important companies in crisis.

Suntech’s current woes are grounded in a 2-year-old crisis for solar panel makers, which are suffering from massive overcapacity due to a huge build-up over the last decade. Most companies are now deeply in the red, and their shares have also plummeted. Suntech’s shares have come under particular pressure and now trade at $0.70, a fraction of their nearly $50 price back in 2008.

Dr. Shi Zhengrong Suntech Founder, Chairman and CSO. Photo credit: Suntech

But Suntech’s woes go beyond the industry’s general malaise. The company came under fire last year when it disclosed a relationship that allowed it to book millions of dollars in revenue by selling panels to a company that it controlled. That relationship sparked a confidence crisis as investors feared Suntech may have engaged in other dubious business practices.

The crisis came to a head last week when more than $500 million worth of Suntech debt matured even though the company lacked cash to repay the money. Some 60 percent of Suntech’s bondholders agreed to a two-month extension of the deadline, but at least one said it would sue, further compounding Suntech’s woes. (English article) Meanwhile, media reported that Suntech could declare bankruptcy by March 20. While all this was happening, Shi was removed from his posts as CEO and chairman of the company. But he retains a place on Suntech’s board and continues to control the company through his 60 percent ownership of its stock.

Government entities in Beijing and Suntech’s hometown of Wuxi are reportedly ready to provide desperately needed funds to ensure the company’s survival, as part of a broader State-led rescue that would see the industry consolidated around about a dozen its the biggest players. Suntech would almost certainly be among those consolidators if it can reorganize without Shi’s interference.

But Shi has shown he has no intention of leaving, even if that means driving Suntech to ruin. To prevent that, Beijing and Wuxi should force Shi from the company, using their clout with government agencies and Suntech’s State-owned lenders to apply pressure through actions like withholding funds and revoking business licenses.

This kind of interference is rare in the West, but has occurred in times like the global financial crisis when governments stepped in to save companies like General Motors (NYSE: GM) and RBS (London: RBS). Without such intervention, Suntech’s downward spiral could easily continue to the point where the company fails, resulting in the loss of a major player with the potential to reorganize and regain its place as a global leader.

Bottom line: The government should move more aggressively to push Shi Zhengrong out of Suntech, or risk seeing the company fail.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 09:12 AM | Permalink | Comments (0)

by Debra Fiakas CFA

The last post “SolarCity's Investor Disconnect” visited the oft repeated flogging of a company missing consensus estimates.  SolarCity (SCTY:  Nasdaq) reported strong sales growth in the December 2012 quarter, but the net loss was far deeper than expected  -  at least as suggested by published consensus estimates.  Investors immediately held the company accountable for the miss.  A closer look at the consensus reveals it is there is a great deal of disagreement on SolarCity’s fortunes.

We can debate whether a company should be measured against a shakey consensus earnings estimate.  However, that would be a waste of time.  Since the stock has been trimmed back, it makes more sense to figure out whether there is anything happening at the solar panel installer that makes sensible a contrarian, long position.

Along with top- and bottom-lines, SolarCity reported a string of accomplishments in the year 2012.  The customer base grew more than four times.  That is probably why total leased solar systems topped $1 billion by the end of the year.    Contracted payments for all those leased systems totals $1.1 billion  -  a number akin to a backlog.

As impressive as all these numbers might appear, for me it is really not enough to get involved with SolarCity.  I need to know the company is running an efficient operation.  SolarCity has this unusual business model with revenue coming from sales of solar systems as well as recurring payments from leased systems.  Financing is a key driver of both revenue streams.

So a look at SolarCity’s financing interval is the first place to begin looking  -  how much financing the company needs to support operations.  We all learned this in financial accounting.  Inventory Days plus Accounts Receivable Days tells us how many days worth of sales have to be financed by the company.  At the end of 2012, Inventory Days Outstanding totaled a whopping 413 days and Days Sales Outstanding in Accounts Receivable were 71 days.

Of course, the cheapest source of financing for operations is credit from suppliers.  At the end of 2012, Payables Days totaled 296 meaning SolarCity is in good enough favor with its suppliers to credit for nearly a year’s worth of supplies.  So we have a financing interval of 206 days (413 days plus 71 days minus 296 days) that have to be covered by some other source of financing.  Put in dollar terms based on sales in 2012 $72.6 million dollars.  The calculation goes like this:  $128.7 million sales in 2012 divided by 365 yields a dollar value of sales per day.  Then multiplied by 206 days tells us what has to be financed.

Having just gone public we have limited visibility on SolarCity’s track record in managing its working capital.  If the financing internal of 206 days at the end of  2012 appears lengthy, the same measure for 2011 was absurdly low at just 11 days.  SolarCity it seems was able to string suppliers along on average over three years!

We can take a couple more insights from this exercise.  Collections on accounts receivable is excellent  -  just 71 days.  What is more, the number of days worth of sales held in inventory has been more than cut in half.  Still there were 413 days worth of sales sitting in inventory at the end of 2012.  There is still room for improvement.

Thus we get a bit of encouragement and a bit of reality from SolarCity’s balance sheet.  Shares of SolarCity have been trimmed back, but not enough for me.   I would pay the price if the company were closer to profitability or further along in managing working capital.
 
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. 

Posted by Debra Fiakas at 12:17 PM | Permalink | Comments (0)

by Debra Fiakas CFA

This week solar panel installer SolarCity (SCTY:  Nasdaq) made its first earnings announcement following its initial public offering in December 2012.  The event was much anticipated even if only to get a glimpse of the company’s most notable (or it’s that notorious?) investor Elan Musk. 

Billionaire Musk was mostly recently in the public eye because of a spat with a New York Times reporter over one of Musk’s other major investments, Tesla Motors (TSLA:  Nasdaq).  The reporter was entrusted to road test one of Tesla’s electric sports cars and ended up writing a scathing article about the failure of the car to hold up to performance promises.   It turned out to be one of those “they said this and he said that” situations with Musk and reporter talking past each other in the social media.  In the end Musk prevailed after Washington Post and CNN reporters figured out their fellow journalist at the New York Times was probably just not car savvy enough to make a road trip in any car, let alone one that requires consistent driving skills as well as a strategy for charging batteries.

Musk came out of the road test brouhaha a bit diluted in my view.  So it seems SolarCity is in the same shape as its largest shareholder. 

SolarCity reported $14.0 million in total revenue in the December 2012 quarter, twice the top-line in the prior-year quarter.  That sort of top-line growth was expected.  Unfortunately, SolarCity reported a much deeper loss than expected  -  $0.54 per share compared to the consensus estimate of $0.44.  For all the billions invested by professionals there, a dime is big on Wall Street.  The stock price immediately gapped down by 8.2% as trading opened the morning after SolarCity’s earnings release and conference call.

Admittedly, my interest in SolarCity is after the fact.  I am always amazed at the hair trigger response of investors to quarterly earnings surprise, especially when an unseasoned security like SCTY is the target.  Certainly, the “shortfall” or “upside” is an instructive guide for investment decision makers, but only when the benchmark consensus is reliable.

In fact, there is quite a bit of dissent in the SolarCity earnings consensus.  There are seven contributors to the Thomson Reuter’s consensus estimate for the March 2013 quarter.  The mean estimate is a negative $0.29 per share on $29.2 million in revenue.  However, the range of estimates is so wide you have to wonder if these seven analysts are looking at the same company.  The lowest earnings estimate is a loss of $0.48 per share and the highest is a loss of $0.04 per share.  That is a pretty wide range in viewpoint.  Some of this can be explained by disagreement on the amount of sales the company will record in the quarter.  The range of sales estimates is from a low of $21.3 million to $33.8 million.  Still, it appears there is some difference of opinion on costs and expenses as well that is driving loss estimates.   The same sort of disagreement is in evidence for year 2013 and year 2014 estimates.

Granted, a group of analysts will have differences in expectations for any given company.  However, just three months after the SolarCity IPO, you would not expect to see such wide disparity in estimates.  After all, the roadshow exercise should have laid SolarCity open to a fairly thorough vetting.  What is more all analysts would have started from largely the same vantage point  -  the prospectus.

 Yet here we are today with SCTY trading 15% off its pre-earnings release price at $19.27 per share  -  all because the company failed to report earnings in alignment with what is clearly a jumbled set of expectations.  Should a company be held accountable when investors cannot agree on a benchmark?

Perhaps the more important question is why so many smart people cannot pin down sales and profits in the first place.  Could it be that SolarCity’s communication with investors is…well…lacking? Indeed, there may be a bit of pattern here in Mr. Musk’s investment portfolio.  Both Tesla and SolarCity appear to have trouble getting their message across to the public about performance expectations.

Fortunately, for those of us who are late to the party, disconnection of this sort presents a perfect buying opportunity.  Next post, we will look at all the reasons a long position in SCTY makes sense and a few more reasons to be cautious.
 
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. 

Posted by Debra Fiakas at 12:02 PM | Permalink | Comments (0)

Doug Young

I rarely write about the same company 3 times in a single week, but in this case the developments are coming so quickly at plunging solar panel pioneer Suntech Power (NYSE: STP) that an update to this fast developing story is necessary. Company watchers will know that Friday was the official deadline for Suntech to repay some $540 million in bonds that have just come due. The company has no cash to make that repayment, and earlier this week received a 2 month extension on that deadline from a majority of bondholders. (previous post) Meantime, Chinese media reported earlier this week that Suntech could declare bankruptcy sometime between March 15-20, which means such a move could come as soon as today if the reports are true. (English article)

Not surprisingly, all the talk has taken a toll on Suntech's already-battered shares. Suntech stock has lost nearly half of its value this week, including a nearly 20 percent plunge on Thursday in New York that sent it to an all-time low. Shares were down by 50 percent at one point on Thursday from their previous close, as the company's trading volume tripled from its usual levels.

The trading was so frantic that the New York Stock Exchange took the relatively unusual step of asking Suntech to issue a statement on what was happening. Not unexpectedly, Suntech said it was unaware of any undisclosed events that may have triggered the huge sell-off and surge in trading volume. (company statement) Suntech added that it had no plans to repay the bonds that were maturing on March 15, and added its previous disclosure that 60 percent of the bondholders had agreed to a 2 month extension.

So what's happening here, and will Suntech in its current form live to see another week? I suspect the sell-off was a direct result of the bankruptcy rumors, combined with investors skittishness as the official March 15 deadline approached. Accordingly, many people who previously hoped to make some quick money on a company turnaround finally decided to dump their shares before Suntech's stock became worthless, which is what usually happens with a bankruptcy reorganization.

As to the future, the next week will certainly be a pivotal one for Suntech but may not necessarily mark the end of the current saga. Suntech's founder Shi Zhengrong has been forced from both the CEO and chairman's job at his company, but still remains its controlling stakeholder with 60 percent of its stock.

I suspect the board and Suntech's new top management are pushing for the bankruptcy, which is probably a conditions for a government-led rescue plan. Such a bankruptcy would also conveniently remove Shi completely from the picture by making all of his shares worthless.

It does seem like Shi's control of the situation is weakening daily, and I honestly wouldn't be surprised if the board manages to force a bankruptcy filing against his will. But Shi is also a very determined man, so I wouldn't completely consider him defeated just yet. At the end of the day, I would put the chances for a bankruptcy filing by this time next week at around 60 percent.

Bottom line: Suntech's day of reckoning could come in the next week, with the chances of a bankruptcy filing during that time at greater than 50 percent.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 09:29 AM | Permalink | Comments (0)

Doug Young

Solar investors are feeling decidedly bearish this week, bidding down shares in most major solar panel makers even as a few major names including Suntech Power (NYSE: STP), Canadian Solar (Nasdaq: CSIQ) and JinkoSolar (NYSE: JKS) tried to prime the market with upbeat news. But truth be told, the news from all 3 of these companies looks marginally positive at best, which clearly wasn't enough for investors who have grown tired of the non-stop bad news from an industry that has been struggling for 2 years now due to massive oversupply.

Let's start our solar day with a look at Suntech, which was facing a Friday deadline to repay more than $500 million in bonds, even though it lacked the cash to make the repayment. Suntech has been trying to renegotiate new terms for the bonds since last fall, and has just announced that a majority of those bondholders have agreed to an extension of the current March 15 deadline. (company announcement)

Suntech said that 60 percent of the bondholders have agreed to extend the March 15 deadline by 2 months to May 15 as everyone works toward a "consensual restructuring." Suntech shareholders weren't too impressed by this delaying tactic, with the company's shares tumbling nearly 9 percent in New York trade after the announcement.

Everyone is clearly growing tired of Suntech's stubborn founder Shi Zhengrong, who is doing everything he can to postpone an eventual restructuring of his company. That overhaul will inevitably force him to leave his company and also to hand over most of the 60 percent of its shares he controls. Now it seems we'll have to wait until May for that to happen.

Meantime, Canadian Solar, a relatively healthy player compared to Suntech, has just reported results that look modestly upbeat though still nothing to get too excited about. Perhaps most significantly, the company reported its unit sales returned to an uptrack in the fourth quarter, when it shipped 404 megawatts of panels, up from 384 megawatts in the third quarter. (results announcement) But the fourth-quarter figure was still down from the fourth quarter of last year.

What's more, the company's revenue continued to decline sharply, its net loss continued to widen, and it gave weak guidance for the current quarter, all indicating a true turnaround is probably still at least a year away. The report didn't do very much to help Canadian Solar's stock, which tumbled 15 percent after the report came out.

Lastly there's smaller solar panel maker JinkoSolar, whose chief executive also tried to make some upbeat remarks while attending the National People's Congress taking place in Beijing. Chen Kangping forecast that the best managed solar panel makers could return to profitability as soon as the second half of this year, and that most companies that can survive 2013 should be able to become profitable again next year.

He added that his own company now has more orders than it can handle, echoing similar comments about a recent spike in demand from larger rival Yingli Green Energy (NYSE: YGE) 2 weeks ago. (previous post) Investors greeted Chen's words with indifference, bidding down JinkoSolar's stock by 10 percent.

All of this shows that investors are getting tired of industry executives' repeated forecasts of recovery, even though such a recovery never seems to come. Look for shares to stay in the doldrums until one or more players finally returns to profitability, or until Beijing takes some stronger action to restructure the sector by forcing smaller, weaker players to either close or merge.

Bottom line: The latest sell-off of solar shares indicates investors are tiring of industry executives' repeated forecasts of improvement that never comes.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:49 AM | Permalink | Comments (0)

By Jeff Siegel

Here's Deutsche Bank's latest comments on the state of the global solar market:

“We see the sector transitioning from subsidized to sustainable markets in 2014.”

That's a bold statement, and one that's sure to agitate solar haters.

But that's not our concern. Our concern is simply when it will be safe to jump back into the solar game.

According to analysts at Deutsche Bank, margins will rebound and profitability will return in the second half of this year. This is something we've been saying, too — although I suspect it'll be more towards the end of the second half of the year before we see enough consistency in production numbers to let the bulls back out of the pen.

In the meantime, I find Deutsche Bank's call on subsidies quite interesting. Because quite frankly, if they're right...

This Changes Everything

Deutsche Bank recently raised its 2013 global solar demand forecast to 30 gigawatts. This represents a year-over-year increase of 20%. Analysts say much of this will come as a result of strong demand in the United States, China, Germany, and India.

Interestingly, India's Ministry of New & Renewable Energy recently said India increased its renewable energy capacity by 12.4 gigawatts in the past three years, taking its total up to 26 gigawatts. This puts the Asian nation just four gigawatts shy of its 2017 goal of generating 30 gigawatts of power from renewables.

Of course, this should come as no surprise, as India is desperate to integrate more non-coal-fired power generation due to pollution issues and supply shortfalls.

As I mentioned last year, it's becoming increasingly difficult for India to secure coal supplies. The Economist reported that by 2017, domestic coal production in India will meet only 73% of demand. The country's already spent $7 billion over the past six years  acquiring outside coal pits in Australia and Africa.

India is in dire need of expanding its power portfolio to include less-pollutive sources, too. Last year, India was ranked as having the world's unhealthiest air pollution, according to a Yale study.

It's also worth noting that in India, solar has already reached grid parity — and that's with the high cost of capital.

That, my friends, is likely the main reason you're going to see the Indian solar market grow significantly over the next decade.

Clearly this is enough to make the folks over at Deutsche Bank quite bullish on India solar expansion. And Deutsche Bank isn't the only major player warming up to solar...

A Mainstream Source of Power

Earlier this year, analysts at investment bank UBS put out the following statement:

Solar has turned from a heavily-subsidized marginal technology into a mainstream source of power generation. Thanks to significant cost reductions and rising retail tariffs, households and commercial users are set to install solar systems to reduce electricity bills — without any subsidies.

UBS analysts have estimated there could be 80 gigawatts of unsubsidized solar installed in Germany alone.

Of course, Germany has been the leading catalyst for global solar growth for more than a decade now, thanks to an aggressive feed-in tariff scheme.

Today, Germans get about 25% of their power from renewables. In fact, thanks to a strong solar contribution, solar power now regularly provides significant power to meet peak demand.

Check it out:

This kind of diversification offers an enormous amount of flexibility, particularly during the summer months.

Coming Around the Bend

So, what does all this mean?

Well, for consumers it means that for the foreseeable future, the price of solar installations will continue to fall, making it more affordable for folks to generate cleaner, domestically-sourced power without relying solely on the grid.

For investors, it means we're coming around the bend on solar's dark days — and by the end of the year, it could be safe to jump back in these waters.

The major cell and panel manufacturers will be the most obvious route to take, but we're also staying diversified with solar technology plays.

In fact, my colleague Nick Hodge is very bullish on one little solar tech firm that boasts a unique technology with the potential to make solar cheaper than coal — while doubling power output.

Although this may not be the most mainstream way to play solar, it could prove to be the smartest...

And let's face it; that's all that matters.

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 Jeff Siegel at 09:15 AM | Permalink | Comments (1)

By Harris Roen

As a result of a disappointing earnings release, SolarCity (SCTY) took a shellacking on March 7th. The stock traded down 17.6% to the low of the day, and closed down 14.4%. Still, the stock is up 6.5% for the month, and the savvy investor would have gained 78% if they bought SCTY on the first day of trading in December 2012.

So what happened? Moreover, what is the outlook for this innovative solar company?

It was no surprise that when SolarCity’s earnings results were released on March 6, the company had a net loss for 2012 (chart above). Though not as severe as the cash burn in other years since 2009, the company still lost $13.6 million for the year. This gave SolarCity a negative EPS of -0.54, which came in 23% lower than analysts’ expectations. These same analysts are seeing negative earning persist for the at least the next two years.

 

Not all the news was negative, though. Revenues grew tremendously for this company. Sales were up more than double of what they were in 2011, and almost triple that of sales in 2010 (chart above). The number of clients grew even faster, and though revenue per client decreased, the increased volume of clients more than made up for this (chart below). With the attractiveness of distributed solar in the U.S. going forward, and the expertise and desirable financing options SolarCity brings to the table, continued client growth is virtually assured.

 
What I also find encouraging is that the customer acquisition cost, or the amount of money SolarCity spent to get a new customer, decreased dramatically in 2012. It reached an extreme of about $9,400 spent to obtain each new customer in 2011, but dropped to $1,223 in 2012. Compared to a revenue per customer in 2012 of $4,157, this is a hopeful sign for SolarCity’s business plan if these trends continue.

Though I still view SolarCity as an investment for the speculative portion of a portfolio, the long-term prospects for this company look good. It has had two impressive announcements of late – a contract with WalMart to install more than 4.7 megawatts of solar on stores in Ohio, and a high-profile partnership with Honda. Investors that are willing to ride the SCTY stock price rollercoaster are likely to be rewarded handsomely.

Disclosure

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

Posted by Guest Contributor at 09:21 AM | Permalink | Comments (1)

By Harris Roen

As more homeowners and business become interested in installing solar, a myriad of financing options have evolved. From third-party financiers to Solar REITs, the options available to benefit the renewable energy industry and end users keep expanding. This article highlights what alternative energy investors should know about trends in creative financing for renewables, and which investments should profit.

Solar REIT

What it is:

A Real Estate Investment Trust (REIT) is a security that invests directly in real estate. Investors can buy and sell shares of the REIT like a stock. The REIT can either own the property outright, or own mortgages, or both. REITs generally earn money from rents, or mortgage interest. Solar REITs take this concept and invest in solar properties.

Benefits of Solar REITs:

Typically REITs invest in commercial real estate (hotels, malls, offices, apartments, etc.), which allows investors to become shareholders in profitable real estate projects. A solar REIT generates large-scale financing and allows individuals to own a piece of a significant solar project.

Investment opportunities:

There is one REIT I know of that has a hand in solar, Power REIT (PW). This REIT owns the land under the huge 5.7-megawatt solar farm in Salisbury, MA. It also owns long-term leases on 112 miles of railroad that services Marcellus Shale natural gas developments.

There was an excellent analysis of the company by Forbes blogger (and AltEnergyStocks' Editor) Tom Konrad a few months ago when it was trading around $8/share. The stock peaked around $11/share about a month ago, and it is still probably a good buy if it moves down to the $10 range. Caution is advised, though, due to legal issues the company is working through. However, Konrad reports that there is light at the end of the tunnel for PW.

On another front, Bloomberg New Energy Finance reports that a new California startup, Renewable Energy Trust Capital, Inc., may soon win approval to start raising money as a solar REIT. Should this be approved, I expect more Solar REITs to become available to investors in the years ahead.

Third-Party Financing

What it is:

This is a model where a go-between or “third-party” puts up the money to pay for solar panels that are installed on a house or building. The third party makes money by being paid through one of a variety of creative arrangements. This type of third-party financing may also be used for large-scale commercial solar arrays.

There are many flavors of third-party financing, including joint ventures, lease pass-throughs, sale-leasebacks and others. In one example, a homeowner pays a set rate per kilowatt for the electricity they use from their solar panel. This is paid back to the third party, who owns the panel. Another arrangement is where the homeowner pays a monthly fee for the use of the panels, regardless of how much electricity is generated.

Benefits of Third-Party Financing:

One of the challenges of going solar is that the owner has to pay large up-front costs for equipment and installation. With third-party financing, the owner can get the benefit of clean power and reduced electric bills without having to fork out a large sum early on.

Investment opportunities:

This type of financial arrangement benefits solar companies up and down the business stream, from photovoltaic manufacturers to installers to third-party investors to companies that put the whole deal together. It is the latter type of company I find the most intriguing for investors, and is best exemplified by the recently ballyhooed IPO of SolarCity (SCTY).

SolarCity is not the only player here, there are many other companies implementing this business model including SolarWorld, SunCommon, OneRoof and others. Solar City, though, is the only publically traded company whose mission is solely focused on financing and installing solar for the masses, and they are committed to it on a grand scale. While SolarCity stock will likely be very promising for the long-term investor, currently it is not an investment for the faint of heart. My previous article lays out some of the risks, but once SolarCity hits its stride, returns could be robust and consistent.

A more tangential way to profit from this trend is to buy stock in some of the third-party investors themselves. These companies range the gamut of categories, and include Credit Suisse (CS), Google (GOOG), PG&E Corporation (PCG) and Honda (HMC). One of the more attractive options is U.S. Bancorp (USB) (USB), which according to Greentech Media has financed hundreds of millions of dollars toward residential solar Power Purchase Agreements. USB is trading at a reasonable PE of about 12.

Master Limited Partnership (MLP)

What it is:

A Master Limited Partnership (MLP) is a type of company that allows investors to buy shares of fossil fuel energy projects while getting favorable tax treatment. Since it is a partnership, taxes only go to the investors (or partners), and as a result taxes at the corporate level are avoided. U.S. Senator Chris Coons (D-Delaware) has introduced legislation to expand MLPs so that the MLP business structure can be applied to renewable energy projects.

Benefits of Master Limited Partnerships:

This favorable tax structure allows an MLP to sell “shares” like a corporation, but be taxed like a partnership. This generally allows MLPs to offer high yields for investors, a huge bonus in today’s low interest rate environment. Current MLP statutes only allow this finance model to be utilized for oil, natural gas, coal, and pipeline projects.

This has caused a boom in MLP fossil fuel investments. According to Senator Coons this creative finance structure has infused an estimated $290 billion in capital toward energy projects through about 100 MLPs. Investors have been rewarded: the Dow Jones Brookfield Global Infrastructure Master Limited Index is up 53% in the past three years, as compared to a 38% gain in the S&P 500 over the same time period.

Investment opportunities:

We are in the early stages of the movement toward allowing MLPs for renewable energy projects, but the prospects are promising. Bloomberg reports that ranking member of the Senate Energy and Natural Resources Committee Lisa Murkowski (R-Alaska) and other Republicans support the bill. If the legislation is enacted, I expect several new MLPs to be listed on one or more of the major stock exchanges this year.

Summary

These new trends in financing show a maturing of the alternative energy industry. It also reflects a confidence of large dollar financiers toward the economic viability of renewable energy projects.

Of course, individuals could use their capital to install solar panels on their roof to reap financial and alternative energy benefits directly. This may be an attractive option for some, especially considering the drop on the cost of PV panels. For others, though, taking advantage of one of the options above could be a good addition to a diversified portfolio of alternative energy investments.

Disclosure

Individuals involved with the Roen Financial Report and Swiftwood Press LLC do not own or control shares of any companies mentioned in this article. It is possible that individuals may own or control shares of one or more of the underlying securities contained in the Mutual Funds or Exchange Traded Funds mentioned in this article. Any advice and/or recommendations made in this article are of a general nature and are not to be considered specific investment advice. Individuals should seek advice from their investment professional before making any important financial decisions. See Terms of Use for more information.

About the author

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.

Posted by Guest Contributor at 11:21 AM | Permalink | Comments (0)

Doug Young

With only a week before a key deadline for a big debt repayment, solar panel maker Suntech (NYSE: STP) appears to have cleared a major hurdle for a rescue plan by settling a big dispute with one of its major partners. I suspect that settlement with GSF, a builder of solar plants in Europe, was a major condition by Suntech's bondholders for a deal that could see the company avoid both bankruptcy or a takeover by Chinese government entities. In the meantime, Suntech's colorful founder Shi Zhengrong is speaking freely to the media about his forceful ouster earlier this week from the chairmanship of his company, in an ongoing series of power plays taking place behind the scene.

All this may sound quite complicated, but the story really comes down to a battle between Shi and Beijing. Shi desperately wants to remain at his loss-making, debt-laden company which has more than $500 million in bonds that will mature next Friday, March 15. Beijing is offering funds for a potential bailout, but only if Shi leaves the company.

In the latest development of this fast-developing saga, Suntech announced it has reached a settlement with GSF, an affiliated company that was buying Suntech's panels to build solar electricity plants in Europe. (company announcement) The dispute with GSF began last year and is a bit complex, involving GSF's failure to deliver millions of dollars worth of bonds that it had promised to give Suntech to use as collateral for a loan.

Terms of the settlement will see Suntech increase its stake in GSF to 88.15 percent from a previous 79.3 percent. But more important than the terms is the fact that Suntech has settled the matter, which was most likely a key condition for the renegotiation of Suntech's $541 million in bonds that will mature in a week. If that's the case, look for developments to come quickly in this deal, as Shi tries to reach a settlement with the bondholders that will allow him to stay at his company and avoid having to take a bailout from Beijing.

Such a deal would almost certainly force Shi to give most or all of the 60 percent of Suntech he currently owns to bondholders. That stake was worth billions of dollars just 2 years ago before the solar panel sector plunged into a major downturn due to a massive supply glut. But now the stake is worth just $132 million based on Suntech's latest market capitalization, which includes a 4.3 percent rally for its shares after it announced the GSF settlement.

Meantime, let's take a quick look at the latest media reports that show just how bitter and dirty the behind-the-scenes battle at Suntech has become as its reckoning day approaches. According to a report in the China Daily, Shi, who lost his CEO position last summer, said he was excluded from all meetings at the company over the past month before finally being kicked out of the chairman's job earlier this week. (previous post)

Shi added that he was "shocked" by his ouster, and called the move unlawful. This latest settlement with GSF would seem to indicate that perhaps Shi still wields some influence in the company, and that he may be able to craft a rescue plan that would avoid a government takeover. But even if he avoids a government bailout, Shi will most likely have to give most of his Suntech shares to bondholders, who will almost certainly also insist that he step aside and let more experienced executives come in to turn the company around.

Bottom line: Suntech's settlement of a dispute with a business partner could pave the way for renegotiation of a major bond that will mature next week.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 10:57 AM | Permalink | Comments (0)

Doug Young

New developments in the battered solar energy space indicate the day of reckoning is fast approaching for embattled Suntech (NYSE: STP), even as the latest results from rival Yingli (NYSE: YGE) are showing early signs of a rebound for the battered sector. Industry watchers will recall that cash-strapped Suntech has nearly $600 million worth of bonds that will mature on March 15, even though it lacks the money to repay the bondholders.

The company hired investment bank UBS in October to try and renegotiate the debt, though we haven't heard anything from the company since then. (previous post) Just 2 months before that, Suntech founder Shi Zhengrong resigned as the company's CEO but retained his title as chairman. (previous post)

Now Suntech has formally announced that Shi has also resigned his position as chairman, with US high-tech industry veteran Susan Wang set to take over that position. (company announcement) The announcement adds that Shi will retain his position on the company's board. But for anyone who likes to read between the lines, this move looks like the prelude to Shi's compete removal from the company that he founded, and I wouldn't be surprised to see him quietly leave the board altogether when the next elections are held.

Chinese media previously reported that Shi's removal from the company was one of the main conditions from Beijing as part of a broader government-led rescue package. With the $575 million in Suntech bonds coming due in less than 2 weeks, it now looks like Shi has been unable to reach a deal by himself with the company's creditors. I suspect Shi couldn't offer those bondholders very much, perhaps 20 cents or less for each dollar, and that many of those creditors think they will get a better deal if they wait for a government-led rescue package.

Against that backdrop, Shi's exit from the chairman's position looks like one of the final steps before the company announces a state-led bail-out that will likely see Beijing and other government entities inject more than $1 billion into the company in exchange for a major stake. Perhaps sensing an upcoming dilution of their shares, investors bid down Suntech's stock by 3 percent in Monday trade after the announcement came out.

Meantime, we should also take a quick look at the latest earnings report from Yingli, which pre-announced much of the report's highlights last week. (earnings announcement; previous post) The main addition in the final report was Yingli's actual profit situation, which looked relatively encouraging. The company's net loss for the fourth quarter came in at $200 million, a marked improvement from the year-ago net loss of about $600 million. But the latest loss was also slightly larger than Yingli's third-quarter loss, as it took a $19 million write-down for unsold inventory.

Shipments grew by an encouraging 40 percent for the quarter, while revenue was up by a smaller 30 percent, reflecting continued pressure on prices. In another piece of upbeat news, the company said it expects 2013 shipments to continue growing at about a 40 percent rate, as the sector rebounds and the company gains market share at the expense of smaller, less efficient players. Yingli shares were unchanged after the results came out, most likely due to the mixed nature of its report and the fact that it pre-announced many of the figures last week.

Bottom line: Suntech is likely to announce a major new rescue plan from Beijing in the next 2 weeks, while Yingli's latest results point to accelerating consolidation in the solar panel sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 09:33 AM | Permalink | Comments (0)

James Montgomery

Roughly one month ago General Electric (GE) leapfrogged First Solar (FSLR) in thin-film cadmium-telluride (CdTe) solar photovoltaic (PV) conversion efficiency, with an 18.3 percent efficient champion cell -- a full percentage point higher than First Solar's 17.3 percent mark set last year. Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

Posted by Guest Contributor at 09:00 AM | Permalink | Comments (0)

Doug Young

A couple of new items from the battered solar sector hint that the situation may be improving for the largest companies, even as smaller players continue to struggle and face the very real danger of collapse. Of course I'd be remiss if I didn't point out that I've predicted a rebound for this embattled sector once or twice before based on optimistic company statements, and in each instance the rebound I was sensing never came. This time the difference could be that many smaller players have now closed or are tottering on the brink of insolvency, meaning they are losing share to the larger, relatively healthier players with more resources.

That situation is reflected in the latest news from Yingli Green Energy (NYSE: YGE), one of the sector's largest and relatively healthy players, which has just announced some preliminary fourth-quarter forecasts that look quite encouraging. (company announcement) Meantime, the smaller, China-listed Chaori Solar (Shenzhen: 002506) sent out the industry's latest warning signal, with word it may miss an upcoming bond payment. (English article)

Let's start with Yingli, as it's one of China's stronger solar panel makers and was actually earning a profit as recently as the second quarter of last year, even as most other players lost money for most or all of 2012 amid a prolonged global downturn. Yingli's preliminary announcement appears to show the company's sliding fortunes may have reached bottom in the third quarter of 2012, as both its sales and margins rebounded strongly in the fourth quarter.

Yingli said its fourth-quarter shipments rose 40 percent from the third quarter, well ahead of its previous guidance for a low teen percentage increase. The 40 percent rise was also much better than the previous 2 quarters, including a third quarter drop of 16.9 percent and a second quarter that saw shipments rise 13.7 percent.

At the same time, Yingli also reported its fourth-quarter gross margins would come in between -8 percent and -8.5 percent, partly due to one-time charges related to excess inventory and idle capacity. While it's never good to have negative margins, the fourth-quarter forecast was still a notable improvement from the -22.7 percent gross margin for the third quarter.

The company didn't comment on its profit situation, but it does appear that it will report another loss for the fourth quarter due to the one-time charges. If that's the case and sales and margins continue to rebound, we could see Yingli emerge as one of the first solar companies to return to profitability in the current quarter.

Shareholders seemed generally encouraged by the preliminary results announcement, bidding up Yingli shares by 2.3 percent after the news came out. A broader rally has seen Yingli's shares more than double from their lows in late November and early December, as investors bet that sunnier days are ahead for the sector as Beijing prepares a broader bailout plan that is likely to benefit the biggest companies like Yingli.

Meantime, the end of last week saw some mixed signals coming from Chaori, which said it might not be able to make a bond interest payment due on March 7 due to a cash shortage. But then a day later a top company executive said Chaori wouldn't miss the interest payment after all, thanks to intervention by the local government. (English article) This kind of intervention has become relatively common as local governments try to prevent companies from failing, though this is one of the first times a government has intervened to help a company with its bond payments.

Industry watchers will recall that former sector leader Suntech (NYSE: STP) also faces a much bigger bond-related headache in March, when nearly $600 million worth of its bonds will come due for repayment. Suntech hired UBS in October to help it renegotiate the debt with holders of the bonds, but we haven't heard any results yet of the negotiations. (previous post) At the end of the day I do expect we'll see Suntech reach a deal with the bondholders, though if it doesn't the government could also still come to Suntech's rescue the way it did with Chaori.

Bottom line: Yingli's preliminary fourth quarter results show the company may return to profitability in the current quarter, while smaller solar players like Chaori will continue to face a cash shortage.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:42 AM | Permalink | Comments (0)

2012 Report Card plus my 2013 trends and predictions.

Ed Gunther

Though I’ll blame my lingering flu, the Photovoltaics: 11 Trends to Watch in 2012 review and 2013 photovoltaic (PV) trends and predictions post has again extended well into February. As usual, I won’t be grading on a curve.

Photovoltaic Market Demand Growth

Last year, I said:

In 2012, I predict at least 25% global PV installation demand growth. I am tempted by the under since the early year Feed-in Tariff (FiT) headwinds seem stronger than ever with serious talk of a 1 GW cap in Germany and PV installations in Italy expected to decline sharply from 2011. Has the German PV market peaked with the estimated 7.5 GW of installations in 2011?

Grade: Fail

For the context of the prediction, both IMS Research and iSuppli believed global 2011 PV installations exceeded 26 GW around this time last year. NPD Solarbuzz now claims photovoltaic (PV) demand for 2012 reached just 29.0 GW (GigaWatt), short of earlier estimates of 30 GW or more. My empirical observation has been prior year demand numbers settle by the end of March, but my prediction is well short of 25% demand growth even using the 26 GW baseline for 2011.

If that’s not enough, the German PV market did not peak in 2011, and eked out a small gain in 2012 PV installations to 7.6 GW.

I wonder if NPD Solarbuzz 2012 PV demand will be revised back upward because of 4Q12 (fourth quarter of 2012) module shipment growth at Yingli Green Energy Holding Co. Ltd. (NYSE:YGE) and JA Solar Holdings Co., Ltd. (NASDAQ:JASO) raising 4Q12 shipment guidance with others maybe to follow?

In the second part of the prediction, I said:

For the US, I’ll prognosticate at least 75% PV installation demand growth buoyed by modules purchased under the expiring 1603 Treasury Grant safe harbor, utility scale solar projects, and residential growth.

Grade: Fail

Per GTM Research, a division of Greentech Media, the US was forecast to install 1.2 GW of PV in 4Q12 and totaling 3.2 GW for 2012. Since the US installed 1.855 GW of PV in 2011 again per GTM Research, that implies about 72.5% growth in 2012, just short of my prediction! Perhaps the final numbers will settle in my favor when the next U.S. Solar Market Insight report is released?

In 2013, I predict near 20% global PV installation demand growth from the 2012 29 GW baseline to almost 35 GW.

For the US, I’ll swing for the fences and prognosticate at least 4 GW of PV installations even though we make things so difficult here for solar. More of these 4 kW (kiloWatt) installations at $2.50 per Watt in Texas would help.

As a bonus, I’ll predict the German PV market will still be larger than the US PV market in 2013. The timing and investor uncertainty caused by proposed amendments to the Renewable Energy Sources Act (EEG) and the national fall elections in Germany will decide this one.

 1603 Treasury Grant and Tax Equity and Solar Finance

I did not make a prediction last year. For 2013, I have a lot of questions.

First, if the US sequester is not avoided, 1603 Treasury Program grants awarded in Fiscal Year 2013 are subject to a 7.6% reduction.

I wonder if US Federal tax reform does happen after the manufactured fiscal cliff and sequester crises pass? How will comprehensive tax reform impact the Investment Tax Credit (ITC) and the chances of the Treasury Grant program being resurrected? If discussions about 2017 and beyond develop, I hope the SEIA (Solar Energy Industries Association) has strategized on an ITC phase out plan much like the AWEA (American Wind Energy Association) proposed for the PTC (Production Tax Credit).

How available is tax equity in 2013 and has the delayed extension of the wind PTC increased the availability for solar?

There are a number of innovative solar finance trends to watch in 2013 including solar leasing, crowdfunding, Real Estate Investment Trusts (REIT), and Master Limited Partnerships (MLPs). Most originated or are developing fastest in the United States.

Of course, solar leasing or so-called third party financing is on fire, and over 70% of residential solar installations in California and other states opted for solar leases in 2012. GTM Research forecasts the residential solar financing market will “rise from $1.3 billion in 2012 to $5.7 billion in 2016” according to the report, “U.S. Residential Solar PV Financing: The Vendor, Installer and Financier Landscape, 2013-2016”.

I’m a bit concerned about the solar lease gold rush and believe the downsides to this model may become apparent by yearend 2013. Much as with car leasing, I expect more regulation in terms of disclosure and proper comparison of lease versus buy options. I was pleased to see a low interest rate loan option being offered to California residents going solar. By the way, “Sunrun Faces Class Action Lawsuit Over Its Marketing” strikes me as frivolous but may be a harbinger of things to come.

On the solar crowdfunding front, I tried SunFunder on the suggestion of Bloomberg New Energy Finance CEO Michael Liebreich at the end of his Energy All-Stars presentation. I found investing in a not for profit SunFunder solar project to be a fun, easy, and rewarding experience. By contrast, I just looked over at the Solar Mosaic website and get the impression I have to sign up just to browse the potential investments. I wonder if Solar Mosaic is targeting certain gross sign up metrics?

I am less enthralled about REITs and MLPs though “Solar REITs: A Better Way to Invest in Solar [Updated]” by Tom Konrad at Forbes has these covered.

As soon as I hear the word securitization in the context of solar, I think of Wall Street and boom, bubble, and bust cycles.

 US solar trade claim against China et al.

Jumping into the trade area, I said:

For political reasons, I’ll go further to argue the imposed tariffs will not be punitive but amount to a slap on the wrist. Indications are China will respond with equivalent retaliation against polysilicon imports from the United States. The message is abundantly clear from a headline just today at DigiTimes: “Four China polysilicon firms demand government start anti-dumping and anti-subsidy investigation against US firms, according to China media”.

 I think the Harmonized Tariff System of the United States (HTSUS) schedule for the complaint subheadings will impose duties in a range from 2.5% to 10% on cells and modules manufactured in China and imported to the US. The duties will be tiered; cells will have a lower tariff than modules to encourage NAFTA (North American Free Trade Agreement) based module assembly.

Grade: Fail

I got a lot wrong here beginning with the countervailing duty (CVD) and antidumping duty (AD) only applying to Chinese photovoltaic cells and not modules. Of course, a recent Coalition for American Solar Manufacturers (CASM) appeal looks to close the PV module/panel loophole.

Global solar trade cases have proliferated since the US China trade case. A European Union (EU) solar trade investigation into Chinese PV manufacturers spearheaded by the SolarWorld AG (FRA:SWV, OTC:SRWRF) led EU ProSun may be decided as early as April 2013 per “EU and China stumble towards solar trade war” by Robin Emmott and Michael Martina for Reuters. Meanwhile, India’s antidumping investigation of China, Malaysia, Taiwan, and US based solar manufacturers has resulted in a US challenge at the WTO (World Trade Organization) concerning domestic content requirements in India’s Jawaharlal Nehru National Solar Mission. The WTO set a precedent on domestic content requirements in the ruling against Ontario, Canada, with regards to their solar Feed-in Tariff program.

Not be left out of the solar trade investigations, the Chinese Ministry of Commerce initiated an anti-dumping investigation of US, EU, and South Korean polysilicon manufacturers last year. US and EU polysilicon manufacturers are also being investigated for countervailing duties. The Chinese decision on the polysilicon investigation is supposed to have been delayed until at least March 2013.

 Polysilicon and solar grade silicon outlook

Regarding polysilicon, I said:

I expect polysilicon spot prices will remain below $38 per kg in 2012 and may briefly dip below $20 per kg at some point later in the year as the largest polysilicon supply versus demand correction since the Internet bubble plays out.

Grade: Fail

In another tough grade, polysilicon spot prices did not dip briefly below $20 per kilogram (kg) but smashed it for an extended period of time. I heard of polysilicon prices as low as $14 per kg for high quality material, and I’m sure a topper will claim a lower price for material of unknown vintage. Reports conflict if these spot prices were for material direct from polysilicon oligarchs or second hand, resold material.

Using the latest data, polysilicon prices appear to have reached an inflection point in February and are on the rise per IHS Inc. (NYSE:IHS) as polysilicon spot market volumes declined to 20% of total sales in December 2012 indicating inventories had been cleared.

On the 2013 polysilicon outlook, Mr. Johannes Bernreuter, head of Bernreuter Research, said:

The global polysilicon industry will return to the path of growth and increase its production by 6.5% in 2013, according to the latest analysis of Bernreuter Research. The polysilicon market research firm projects the global polysilicon net demand – including that of the semiconductor industry, but excluding the consumption of inventories – will amount to approximately 250,000 metric tons (MT) this year. The spot price is predicted to rebound to a level of US$20 to 25/kg by the end of 2013.

Going conservative, I expect polysilicon spot prices will remain below $30 per kg throughout 2013.

 Thin Film Photovoltaics

For thin film PV, I said:

Beyond the Solar Frontier, I’ll be watching Stion and strategic partner TSMC Solar Limited, a subsidiary of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), along with MiaSolé and the Solibro division of Q-Cells SE (FRA:QCE) for a third thin film contender.

Grade: Pass

After First Solar, Inc. (NASDAQ:FSLR) and Solar Frontier K.K., a wholly owned subsidiary of Showa Shell Sekiyu K.K. (TYO:5002), Stion, TSMC Solar, MiaSolé, and Solibro were the emerging thin film companies to watch though both MiaSolé and Solibro were acquired (saved?) by Hanergy Holding Group, Ltd. However, all of these firms have not been manufacturing at capacity or expanding during the PV shakeout. To this short list, I would add NuvoSun which began ramping a 40 MW production line in early 2012, and AVANCIS GmbH & Co. KG by virtue of being a subsidiary of Compagnie de Saint Gobain SA (EPA:SGO).

Just since my CIGS PV Poll Results and Analysis post in December, Nanosolar has had a reported 75% layoff, and per “State approves $20 million tax credit for SoloPower, as Portland plant struggles to meet job, manufacturing benchmarks” by Molly Young for The Oregonian, SoloPower replaced CEO Tim Harris and President Bruce Khouri left the firm as it has apparently failed to meet production, efficiency, and sales milestones.

OK, I’ll jump out on a limb and predict Nanosolar will line up further investment or be acquired and survive 2013.

 HCPV (High Concentration PhotoVoltaics)

In 2012, I said:

I predict at least 100 MWp (MegaWatt-peak) of HCPV will be installed in 2012.

Grade: Fail

It could have been close, but I’m not counting the 50MW CPV Power Plant in Golmud, Qinghai, China, listed by Suncore Photovoltaic Technology Company Limited as “Grid-tied: Will be the first Quarter of 2013”. Suncore is a Sino-US joint venture between San’an Optoelectronics Co., Ltd. (SHA:600703) and EMCORE Corporation (NASDAQ:EMKR).

In 2013, I believe Soitec SA (EPA:SOI) will become =the= HCPV market leader based on project pipeline and installations leveraging their state of the art concentrator photovoltaic module manufacturing capacity in San Diego and Germany.

 Oil and Natural Gas

On crude oil, I said:

Once again I’ll predict oil will stay below $135 per barrel through 2012 barring a force majeure event including tensions with Iran over the country’s nuclear program. I don’t believe rumblings of oil prices dipping to $85 per barrel or even $70 per barrel unless the global economy tanks into recession.

Grade: Fail

According to U.S. Energy Information Administration (EIA) data, 2012 per barrel oil prices ranged from $83.59 to $111.26 per barrel through November 2012 across domestic and imported supply so there was a brief dip below $85 per barrel for Domestic First Purchase Prices.

“Oil and gas price forecast for 2013” by Chris Nelder for SmartPlanet has a detailed analysis with both WTI (West Texas Intermediate) and Brent average crude oil prices forecasts.

I’ll predict oil will stay above $79 per barrel throughout 2013 unless the global economy tanks into recession referencing the same EIA data. I’ve got to get bailed out by these caveats sometime?

Of course, natural gas prices are even more important from an electricity generation and new capacity addition perspective especially in the United States. In the post mentioned above, Mr. Nelder said:

My forecast is for gas prices to approach $4 by the end of 2013, simply because unprofitable endeavors don’t go on forever and after two years this one feels about played out.

Mr. Nelder also believes the $4 per mcf (1000 cubic feet) natural gas price will reverse the trend resulting in some power generation switching back to coal.

 PV Industry Shakeout

As the PV industry shakeout intensifies in 2012, even more companies across the value chain will fail than in 2011. I predict at least one of the CIS/CIGS start-up companies listed in the PV Blog Poll will fail in 2012.

Grade: Pass

Well, I could have said several. As recapped in CIGS PV Poll Results and Analysis, Soltecture, once known as Sulfercell Solartechnik, began insolvency proceedings in May. AQT Solar put its assets and intellectual property (IP) up for sale in August after promising to commercialize CZTS (copper zinc tin sulfide) technology by 2013.

With “Global Solar Energy Continues Operations and Pursuit of Strategic Alternatives” in December, “Global Solar had reduced its work force by about 70% to preserve operational and production flexibility.” So the Global Solar soap opera continues.

Not content with a single choice, I’ll prognosticate Global Solar will cease operations, and SoloPower will fail to meet it’s milestones to tap the $197 million US Department of Energy (DOE) Loan Guarantee under the 1705 Program in 2013.

PV IPOs (Initial Public Offerings)

I said:

I don’t believe a western PV module manufacturer will IPO in 2012. Outright acquisitions or majority stake strategic investors are far more likely possibilities.

Grade: Pass

Wow, that was a pretty wimpy prediction! The only solar IPOs in 2012 were Enphase Energy, Inc. (NASDAQ:ENPH) and SolarCity Corporation (NASDAQ:SCTY) after both reduced the price range in order to make the respective IPOs happen.

Following the downstream trend, I’ll predict Sunrun Inc., Clean Power Finance, or perhaps Sungevity Inc. will IPO in 2013.

 My 2012 “Out There” Prediction

So I said:

In a multiyear “Out There”, I predict the General Electric Company (NYSE:GE) will either divest it’s majority investment in thin film PV manufacturer PrimeStar Solar or move production offshore by yearend 2014 when they come to their offshoring, portfolio theory, photovoltaic senses.

Grade: Incomplete

Before the 4th of July, the General Electric Company (NYSE:GE) laid off workers and placed their Colorado CdTe solar manufacturing plans on hold in order to develop the next generation of CdTe (Cadmium Telluride) technology with at least 15% module efficiency. As I have said to those who will listen, be careful with the word success in connection with solar companies such as “Another SunShot Success: GE to Make PrimeStar Solar Panels at New Colorado Plant” by Minh Le, DOE Program Manager, Solar Program.

So far, no CdTe follower has succeeded. Will GE wise up and just acquire First Solar already if they favor CdTe thin film solar so much? That’s a question, not a prediction!

Who ever said tough Pass/Fail grading was easy?

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio (where this article was first published) under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 09:01 AM | Permalink | Comments (0)

James Montgomery

Unusually public details about a newly signed solar project deal in New Mexico raise some interesting questions about the purchasing power of solar energy, how close it's getting to grid parity -- and just how much pressure is on upstream suppliers to fulfill that objective.

First Solar (FSLR) has acquired a 50-megawatt (MW) solar power project in New Mexico from the solar division of Element Power. The deal is billed as the state's largest solar project; it also, according to some unusually public information revealed in a regulatory filing, raises some interesting questions about the purchasing power of solar energy.

The Macho Springs Solar Project is on land leased from the New Mexico State Land Office in Deming (Luna County); it's expected to be completed in 2014. (Element Power also has a 50-MW wind project at Macho Springs, selling power to Tucson Electric Power.) Electricity will be purchased by El Paso Electric, which had sought more electric peaking resources for its current energy mix. In a statement, the companies said the project's PPA is still subject to regulatory approvals, which is expected to happen "in the first half of 2013."

In fact, a regulatory filing from the New Mexico Public Regulatory Commission (PRC) is already loose in the wild, revealing exactly what El Paso Electric is paying: 5.79 cents per kilowatt-hour (kWh). That's almost a third of the price that thin-film solar PV projects typically sell for (16.3 cents/kWh), says Bloomberg New Energy Finance, and less than half the 12.8 cents/kWh average price for new coal plants. That's also roughly half of what First Solar will get for its marquee solar projects: Antelope Valley, Topaz, and Agua Caliente, points out Maxim Group analyst Aaron Chew. (We obtained a copy of the official document; but a quick Google search will reveal it too.)

Bloomberg points out that El Paso Power will be submitting more information about whether any renewable energy credits are being applied to the deal to lower its cost. In an interview, Chew points out that New Mexico's performance-based incentives (PBI) will probably add 2-4 cents/kWh. Assuming manufacturing cost targets of $0.60, plus $0.80 adding in balance-of-systems costs, that suggests a system price target of $1.50/W. But don't forget to factor back in the undisclosed price that First Solar paid for this project in the first place, Chew points out. "It is hard for us to fathom how it could possibly build this project profitably," he says.

Paula Mints, founder and chief market research analyst at Solar PV Market Research, says PPA prices were ranging from 8-14 cents/kWh in 2012. Even on the high-end that's a tough pill to swallow for suppliers; at the low end it's brutal. Meanwhile, she points out crystalline silicon modules have been selling in the $0.65-$0.75/W range -- roughly the same, and with higher efficiency, than First Solar's manufacturing costs alone.

We've contacted First Solar for clarifications, though they've already publicly declined to comment on the details of this deal. The project will use First Solar's thin-film panels, since the company only does EPC for projects using its thin-film technology. To that end, Chew points out that First Solar's project pipeline is stocked for probably a year and a half, but he calculates that with the company's current capacity (1.6 GW, averaged to 450 MW a quarter) it needs to keep pulling in a lot more deals -- and maybe is willing to make a little less in this deal, or is making up the difference with other projects, to keep its factories humming.

Still, the big takeaway from this new deal is that El Paso itself "is still only paying six cents for solar out of pocket," Chew notes. That means two things: yet more evidence that solar energy is becoming more attractive and competitive; and that the economics are becoming severely compressed on the manufacturing side, even more than we knew.

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

Posted by Guest Contributor at 09:27 AM | Permalink | Comments (0)

Doug Young

Stock Band-Aid Image via BigStock

  A couple of items from the struggling solar panel sector are showing how the industry is limping forward, receiving minor rescue loans to continue funding operations while manufacturers await a bigger rescue package from Beijing. I can only guess that the bigger package, which has been talked about for much of the last half year, will finally be rolled out by the middle of this year. That will finally allow the industry to try and put itself on more sustainable long-term footing instead of continuing to limp forward in this current state of malaise.

One of the latest news bits is coming from LDK Solar (NYSE: LDK), the unhealthiest of the major Chinese players, which announced it has just finalized terms for a 440 million yuan loan from the Beijing-backed policy lender China Development Bank. (company announcement) Meantime, healthier rival Canadian Solar (Nasdaq: CSIQ) has announced its similar receipt of a $40 million loan to help finance its construction of a new solar plant in Canada. (company announcement) Unlike LDK, Canadian Solar is also being quick to point out that it received the loan from a major western commercial lender, in this case Credit Suisse, rather than having to rely on handouts from Chinese policy lenders.

Let's start with a look at LDK, which is currently in the process of a slow-motion takeover by the Chinese government. LDK recently "sold" one of its most problematic assets to a state-run entity, and also last fall "sold" 17 percent of itself to a consortium of mostly state-owned firms in exchange for a desperately needed $23 million in cash. (previous post)

I use quotation marks around the word "sold" in both cases, since neither of those 2 deals ever would have happened on the free market, and the only reason they happened at all is most likely because the buyers were ordered to make their "purchases" by Beijing. For anyone who hasn't done the math, this latest LDK loan of 440 million amounts to a relatively modest $70 million, which is perhaps enough to fund LDK's money-losing operations for a few months.LDK says the money will be used to upgrade one of its polysilicon plants, though I suspect much of the funds may end up going to other more practical uses like paying employee salaries.

Meantime, Canadian Solar says its $40 million loan from Credit Suisse will be used to finance its purchase of 4 solar plants under construction in Canada. This kind of solar plant construction is relatively common, which sees third-party builders construct new plants in cooperation with a big panel supplier like Canadian Solar. The panel maker, in this case Canadian Solar, would then typically purchase the plant upon its completion, and try to sell it to a commercial power producer.

But in this case, the builder apparently ran out of funds before the completion of construction, forcing Canadian Solar to announce it would step in to buy the plants before their completion. (previous post) While Canadian Solar should be commended for financing its deal from a private commercial lender, the fact remains that it and the rest of the sector are facing growing financial pressure due to their massive losses amid the industry's current state of oversupply.

Look for a few more of these "band-aid"-style loans to be announced over the next few months as companies look for ways to keep funding their operations. But in the meantime, all eyes will be on Beijing as everyone looks for the central government to announce its bigger industry-wide bail-out package by the middle of the year.

Bottom line: New loans for LDK and Canadian Solar represent short-term fixes for the companies, as everyone awaits a broader rescue package from Beijing.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 12:17 PM | Permalink | Comments (0)

Doug Young

Clouds linger despite solar rally

After more than a year of coming under constant assault, shares of solar panel makers have suddenly received an unexpected boost from investors who are suddenly showing renewed interest in the battered sector. Many are attributing the sudden surge in solar stocks to growing signs that China will soon embark on a massive building spree of new solar power plants, which should theoretically provide a major new business opportunity for solar panel makers who have been posting massive losses for more than a year now.

What's most interesting to me is the fact that investors also seem to believe that most solar companies will emerge from an upcoming restructuring without having to declare bankruptcy -- a process that usually results in all of a company's publicly listed shares becoming worthless. This assumption seems a bit optimistic in my view, especially for some of the weaker companies that are almost certain to be taken over by state-run entities before the current industry restructuring is finished. If and when that happens, holders of the companies' publicly listed shares are likely to take a major hit, losing most or quite possibly all of their investment.

All that said, let's take a look at the latest headlines, which have 2 of the weakest players -- LDK (NYSE: LDK) and Suntech (NYSE: STP) -- both recently announcing that they have regained compliance with New York Stock Exchange listing rules that stipulate all company shares must trade at $1 or more. (Suntech announcement; LDK announcement)

I'll admit that I hadn't followed the stocks too closely since shares of both companies went below the $1 level last fall, so I went to look and see when both Suntech and LDK declared reverse share splits that most companies in their situation usually perform to bring their share prices back up above the $1 mark. But after extensive searching, there was no sign that either company had done such a reverse share split.

Instead, it was investors who helped each company back into compliance with NYSE listing rules by more than doubling the value of both Suntech and LDK shares over the last 2 months. Suntech shares now trade at about $1.75, after moving below the $1 mark last September and trading as low as 77 cents each in November. Similarly, LDK shares now trade at about $2, again after falling as low as 71 cents last fall.

Another company that fell below $1, JA Solar (Nasdaq: JASO), actually did have to perform a 5-for-1 reverse share split to bring its stock back above the $1 mark. But even JA Solar has seen a rally in the last few weeks, and and its current price of $5.39 per share means the recent rally would have lifted its share price above the $1 mark even without the reverse share split.

In a sign that the industry is indeed still going through a major shake-up, JA Solar has announced that its chairman is taking over the role as CEO, again showing that this is hardly an industry that is worthy of serious investment again just yet. (company announcement) But for some reason, investors seem to be ignoring the fact that this industry is still highly troubled and are suddenly buying solar shares again.

To all of those people who have recently purchased solar shares on hopes of a major turnaround, I would warn that the bloodbath isn't over just yet and I still do believe that many of the companies will ultimately get taken over by Beijing and other Chinese government entities. Those new masters will then demand the cancellation or severe dilution of all publicly listed shares as part of any rescue plan. When that rescue comes, Suntech and LDK are likely to be among the first to receive bailouts, prompting major sell-offs in their shares that will once again see them tumble below the $1 mark.

Bottom line: A recent rally in solar shares looks unsustainable, with investors in many companies likely to lose most or all of their money after a Beijing-led rescue plan gets announced.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:37 AM | Permalink | Comments (0)

Tom Konrad

Over the last couple of years, investors who were hoping to do well by doing good have gotten bad sunburns.  Since the start of 2011, the two ETFs which track the solar sector, Guggenheim Solar (NYSE:TAN) and Market Vectors Solar Energy (KWT) are down 74% and 75%, respectively, even after the large jumps up in the first week of the year.

That jump was in large part caused by the January 2nd purchase of two large solar projects by Warren Buffett controlled MidAmerican Solar from Sunpower Corporation (NASD:SPWR.)

You might wonder, Why would a famously cautious investor like Warren Buffett invest in a sector with such a lousy track record?

The Difference Between Solar Manufacturing and Solar Projects

The question is a bit of a red herring.  As a value investor, Buffett often invests in companies that have had poor price performance: that’s where great values come from.

More importantly, MidAmerican Solar is not buying Sunpower the company (down 41% since January 2011), but two of Sunpower’s solar projects.  The economics of solar manufacturers and solar projects could not be more different.

Solar manufacturers like Sunpower face fierce competition and have little pricing power for their mostly undifferentiated products (solar cells and modules.)  Worse, the prices of these products have been declining rapidly, squeezing margins.   They also have little control over the prices of their raw materials, which means they find it difficult to pass price declines on to suppliers.  While offerend with the best intentions, changing incentive regimes lead to boom and bust cycles for panel sales.

Solar farms and developers face a much different pricing landscape.  The price of solar panels (one of their largest costs) has been falling rapidly, and many governments are working to cut the balance of system and soft costs such as permitting which are becoming a relatively large part of their cost structure.  More importantly, they almost always sell power under long term contracts, providing a predictable income stream.  Incentive regimes are also more stable, with projects’ incentives often fixed when the project is built.

The better economics of solar development has not been lost on solar manufacturers, many of whom have been developing their own projects.  It was two such projects that MidAmerican bought from Sunpower.

Invest in Solar Like Buffett

Until recently, small investors’ ability to invest in solar projects was limited to putting solar on the roof of their homes.  And this was a viable option for only a few: they had to own a home with a suitable, un-shaded roof, live somewhere with a favorable incentive regime, and be able to come up with several thousand dollars (sometime tens of thousands of dollars) up front.

Fortunately, new options are rapidly becoming available.

• There are efforts on Capitol Hill  to allow solar to owned in Master Limited Partnerships (MLPs), a tax structure long available to traditional energy sector.
• An IRS ruling could soon make solar PV a qualified investment class for REITs.
• Even without an IRS ruling, Power REIT (NYSE:PW) has found a way to invest in solar farms, and announced its first such investment last week.
• On Monday, Mosaic opened its platform for crowd-funding solar projects with five projects totaling 757 MW.

Mosaic’s Model

Mosaic allows small investors to invest in debt backed by revenues from solar projects.  Mosaic acts much like a bank would, if many banks were interested in funding relatively small solar projects.  It first conducts due diligence on a project to assure itself that project risks are acceptable.   Such risks include the creditworthiness of the power buyer, site design, quality of the equipment, weather and insurance adequacy.

If a project passes muster, Mosaic offers a loan against the revenues from the solar PPA or solar lease.  Mosaic then funds this loan by parceling it off to the small investors on its platform, with a minimum investment of only $25.  Mosaic passes most of the interest on to the investors, and keeps a slice to pay for its costs.   The five projects offered on Monday offered a 4.5% return to investors, with 1% retained by Mosaic out of a 5.5% loan, and had terms of between eight and ten years.

24 hours after they were made available on Mosaic's site, only this project in San Bruno had not been fully allocated to small investors.

With long term CDs currently offering less than 2%, these investments are proving very popular.   As I write, barely 24 hours after the projects were listed on Mosaic’s website, the ones open to small investors are almost fully subscribed, with only $12,475 left unallocated on the largest of the three projects, a 102 kW project on an affordable housing complex in San Bruno, CA.

Because the SEC has not finished writing the rules that would allow crowd-funding under the JOBS Act, these investments were only available to residents of California and New York state, when the Mosaic team has been working with state securities regulators.   Mosaic chose to work with these states because that is where most of the investors who had signed up for their platform live.

Mosaic also launched two projects available nationwide to “accredited” (i.e. wealthy or high income) investors nationwide.  Such investors are presumed to have the resources to better evaluate investments than small investors, and so Mosaic was able to offer them a wider range of projects.

On behalf of an accredited investor, I was able to review these two projects as well as the three open to small investors.  One was very similar to the three projects available to small investors, with the exception of a slightly shorter duration of eight years, compared to nine years for the others.  The final project stood out, in that it is larger than the other four projects combined, and is located in New Jersey, rather than in California.  It also had the longest term, of twelve years for the loan.

As I write, the smaller of the two accredited-only projects is 96% funded, but the large project is only 15% funded.  Nevertheless, I would be surprised if Mosaic fails to fully fund the large project as well.  With more to choose from, accredited investors most likely did not need to rush to get in to projects, as smaller investors did.  (UPDATE: At noon on Jan 8th, the day after launch, all of Mosaic’s offerings except except the large New Jersey project were fully funded.)

Risks and Rewards

The accredited investor I was working with eventually chose not to invest.  While a 4.5% 10 year CD would be a very attractive investment, Mosaic’s offerings are not as low risk as CDs, which are FDIC insured against loss of principal.  Although it appears that Mosaic does an excellent job managing risk, that is nothing like a guarantee.   Since she is able to accept a high degree of risk, she has other attractive investment available.  For example, Power REIT, mentioned above, isriskier than Mosaic’s offerings and currently yields only 4%, but has the potential of significant upside and tax advantages.

A small investor may also have more attractive options, the most common of which is paying off debt.  While interest in a Mosaic solar investment will be taxable, the interest saved from paying of a car loan or credit card debt is saved from after-tax money, and so is essentially tax free, which makes paying down debt at interest rates of 4% more more clearly more attractive than the 4.5% on offer from Mosaic.

Yet Mosaic investments are less risky than most stocks and mutual funds, and provide relatively attractive returns in the current environment.  For an individual without debt to pay off, these seem like attractive investments.

Mosaic President Billy Parish told me by email that the company is working on making its investments available in tax-sheltered accounts such as IRAs.  That would make Mosaic’s offerings attractive to more people, including the accredited investor I was working with.

Not that I expect a Mosaic IRA offering any time soon.  With these solar investments selling like hot cakes, Mosaic’s priority is almost certainly to bring more quality projects to its platform.

Finding more investors seems to be taking care  of itself.

Disclosure: Long PW

This article was first published on the author's Forbes.com blog, Green Stocks on January 8th.

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 08:51 AM | Permalink | Comments (0)

James Montgomery

First Solar (NASD:FSLR) is arguably the leader in thin-film solar photovoltaics (PV). It's relentlessly inched up conversion efficiencies of its cadmium-telluride (CdTe) technology, while chipping away at manufacturing costs (now at $0.67, reported in November). Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

Posted by Guest Contributor at 09:04 AM | Permalink | Comments (0)

James Montgomery

Flexing its billion-dollar muscles once again in the renewable energy space, MidAmerican Energy Holdings Company (famously backed by Warren Buffett's Berkshire Hathaway Inc. [BRK-A and BRK-B]) is buying two co-located solar projects in California from SunPower [SPWR], billed as the world's largest permitted solar PV power development. The deal for Antelope Valley Solar Projects (AVSP), totaling approximately 579 megawatts (AC) combined generation capacity, is for an unspecified amount between $2-$2.5 billion.
To SunPower president Howard Wenger, this deal represents no less than "a historic milestone for the energy industry." Cost-competitive with natural gas peaker plants, the AVSP projects define "a perfect example of how scale is driving cost reduction."

The Facts About AVSP

SunPower has been developing the two co-located AVSP projects for four years, on 3230 acres of private property in Kern and Los Angeles Counties near Rosamond, CA: the 309-MW (AC) "AVSP 1" owned by Solar Star California XIX; and the 270 MW (AC) "AVSP 2" owned by Solar Star California XX, which according to SEC filings includes the option to develop another 49-MW facility, dubbed "AVSP 3." (There is no relation to the similarly named 230-MW Antelope Valley Solar Ranch One project, developed by First Solar and sold in 2011 to Exelon, which is planned to be fully operational by late 2013.) AVSP will incorporate SunPower's own Oasis power plant modular solar technology, high-efficiency solar panels, and trackers to boost energy capture. The company will be the engineering, procurement, and construction (EPC) contractor, and operate and manage the facility under a 20-year services agreement.

AVSP has secured final conditional use permits and has completed full environmental review pursuant to the California Environmental Quality Act. Both projects are under two 20-year power purchase contracts with Southern California Edison (SCE); grid connection will be through the Whirlwind Substation being constructed as part of SCE's Tehachapi Renewable Transmission Project. Construction of the plants, which will create 650 jobs, is slated to begin in 1Q13 and completed by the end of 2015.

A snapshot of MidAmerican Renewables' project portfolio: Solar: 1.271 GW - AVSP 1 & 2; the 550-MW Topaz project in San Luis Obispo County, CA; and a 49% stake in the 290-MW Agua Caliente project in Yuma County, AZ Hydro: 5 MW - A 50% ownership in the 10-MW "Wailuku" project on the eastern coast of the island of Hawaii Wind: 381 MW - Recent acquisitions of the 168-MW Alta Wind VII and 132-MW Alta Wind IX projects in Kern County, CA; and the 81-MW Bishop Hill II project in Henry County, IL Geothermal: 174 MW - Projects primarily in the Salton Sea area of Southern California's Imperial Valley

SunPower: Balancing the Equation

From the beginning, SunPower’s plan for AVSP has been to develop the projects, get them financed (including finding an equity owner), and then building and operating the projects with its own technology. With AVSP’s size and scope, the company specifically was seeking a partner "with a strong balance sheet, who understood the economics and importance of renewable energy," according to SunPower president Howard Wenger. The bidding process was well underway by mid-2011, with "very strong" initial interest from prospective financiers — “We were very pleased with the level of interest and quality of companies and offers,” he said.

Projects of this size and scope are getting harder and harder to come by, and  developers such as SunPower, First Solar, and SunEdison are finding it tougher to refill their pipelines, especially ones with the same favorable economics. "They're selling projects that were priced a couple of years ago when modules were expensive," points out Shawn Kravetz, president of Esplanade Capital LLC. And now they're being delivered in an environment where module costs are much lower and likely will continue to go down for the next year or two. He thinks 2013 will be "an unusually robust year" for those big solar project developers that secured projects over the past several years, but as they try to replenish their pipelines, "high price and low costs — that's not happening anymore."

SunPower in particular needs to keep feeding that downstream business, asserts Kravetz, due to its relatively high-cost manufacturing operation vs. a host of ruthlessly low-cost competitors (think Tier-1 Chinese firms including Yingli [YGE], Suntech [STP], Trina [TSL], and JA Solar [JASO]). As more of these large profitable projects are harvested, that upstream exposure will weigh even more heavily, especially in a solar market that promises to remain challenging for the next year. Stifling cost pressures is rough on the upstream, but makes the financial equation more attractive on the project development side of the equation.

Perhaps most importantly for SunPower: this deal represents a vote of confidence from an up-and-coming energy player with the desire and ability to invest substantially in renewable project development. “MidAmerican Solar’s decision to invest in these projects underscores the bankability and long-term strength of SunPower’s business,” Wenger said. (Investors agreed, spiking the company’s stock nearly 50% with 24 hours of the deal, though they had pulled back about 12% a few days later.) And as Kravetz points out, this isn’t exactly the inimitable Warren Buffett stamping his approval of solar stocks, but “it’s a company owned by him, saying these are energy projects that are a good investment.”

MidAmerican: Sealing the Deal

In Jan. 2012, MidAmerican Energy formed a new unit, MidAmerican Renewables LLC, to manage and grow its renewable energy interests — and the company has professed, and proved, its appetite for renewable energy investments from Day 1. After one year, MidAmerican Renewables' total portfolio of owned assets, including solar, wind, geothermal, and hydro, now exceeds 1.83 GW, including the AVSP projects (see sidebar). That's more than twice the size of the parent group's 872 MW in natural gas energy generation projects.

These AVSP projects satisfied MidAmerican's criteria checklist for any renewable energy generation investment: "All the critical things we look for were there," explained Paul Caudill, president of MidAmerican Solar. It's an area with good solar insolation and a good weather record. There is available land and land that can be permitted. Transmission access is suitable for a grid-type plant, with both existing infrastructure and commitment for network upgrades, Caudill explained; the Whirlwind Substation is "well underway so we know where they are at," and the Tehachapi interconnection "also has very good progress." (MidAmerican was already familiar with the local transmission infrastructure; its recently acquired "Pinion Pines" wind projects, formerly called Alta Wind, are also located in Kern County.) Additionally, there are deals in place with California ISO and a buyer in Southern California Edison.

One other aspect of AVSP's profile was attractive: it used SunPower's technology, which is different than the First Solar thin-film (cadmium telluride) technology used at MidAmerican's Topaz and Agua Caliente projects. "We saw diversification as a strong point," Caudill said. That "diversification" could put MidAmerican in an excellent position to evaluate performance of two competing solar PV technologies on a grid-scale playing field: SunPower's higher-efficiency modules with trackers, vs. First Solar's thin-film panels that have lower conversion efficiencies but perform better in high-temperature environments. MidAmerican, however, rejects that idea, saying they see "tremendous benefits" in having both technologies at its disposal, and it follows the parent company's pattern of using different suppliers — for example, two types of wind turbines (Siemens and GE) incorporated into its wind projects in Iowa.

Beyond "Megaprojects," Going Distributed?

To feed its ravenous appetite for renewable energy projects, MidAmerican keenly tracks what has been "a tremendous amount of development in solar and wind in the past few years," particularly outside of California, Caudill says. "We're very in tune with the industry and where the good markets are." MidAmerican currently has "a fairly sizable pipeline of projects" that it is evaluating; "we're comfortable that there are good solid assets out there."

But those attractive multihundred-MW megaprojects like AVSP, with proven technology and PPA(s) in hand, are increasingly hard to come by -- so MidAmerican is looking to add other types of projects that make sense. "We don't sit down and say, 'we have to invest in a plant that's 100 MW or greater or we're not interested,'" Caudill said. MidAmerican's sweetspot for future renewable project development, Caudill said, "could be substantially smaller than we see today." He expects over the next few years the company will pursue more projects in the 40-MW to 60-MW range, which have their own attractive features: they require less land use, transmission requirements aren't as stringent, and of course costs are lower. And the convergence of costs coming down, energy prices going up, and the economy picking up momentum, he said, opens up emerging markets in areas not traditionally seen as "solar states," in places such as Tennessee and Georgia.

And that likely includes forays into distributed generation deals, Caudill pointed out. He envisions growing involvement in "behind-the-meter projects," working with local utilities and businesses to offset carbon footprints and compete at peak power needs. "The distributed generation market, once it gets fleshed out, could be very strong," he said.

The bottom line for MidAmerican is identifying places where rates are high at peak and that are squeezed on the generation side, Caudill says. "Those drive the market. It's hard to say where we end up next — but I feel strongly that there are opportunities out there."

Jim Montgomery is Associate Editor for RenewableEnergyWorld.com, covering the solar and wind beats. He previously was news editor for Solid State Technology and Photovoltaics World, and has covered semiconductor manufacturing and related industries, renewable energy and industrial lasers since 2003. His work has earned both internal awards and an Azbee Award from the American Society of Business Press Editors. Jim has 15 years of experience in producing websites and e-Newsletters in various technology.

This article was first published on RenewableEnergyWorld.com, and is reprinted with permission.

Want to learn more about solar match-making, which companies are getting into solar and which are exiting? Come to Solar Power-Gen next month and check out our plenary session: Who is Buying Whom and Why? More information about the show is here.]

Posted by Guest Contributor at 08:55 AM | Permalink | Comments (0)

Doug Young

A few of the latest headlines reflect a cooling appetite by banks for funding solar energy related projects, creating a worrisome vacuum that Beijing may need to fill as it seeks to stop struggling sector from sinking further still. Two of the latest such headlines look like particular cause for worry, with Canadian Solar (Nasdaq: CSIQ) taking over financial responsibility for a solar power project from one of its construction partners for unspecified reasons that I suspect are related to waning interest by banks in funding such projects. (company announcement) Another similar recent domestic media report says that a Chinese company that insures solar panel sales has just made its biggest-ever payment to JA Solar (Nasdaq: JASO) after the panel maker couldn't collect payment from one of its overseas customers. (Chinese article)

Both of these pieces of news seem to point to the fact that banks are quickly losing their appetite for funding new solar power plant construction outside China. That could lead to a rapid slowdown in the building of new projects and create even more headaches for the already oversupplied sector.

Meantime, I would be remiss not to mention the latest news from the largely insolvent LDK Solar (NYSE: LDK), whose state-led bailout and takeover has taken another step forward with the "sale" of one of its most problematic assets to what appears to be a state-run entity. (company announcement)

Let's start off this solar round-up with a look at the latest overseas-related news that may point to rapidly evaporating financing for new solar power projects in the key North American and European markets. One report has Canadian Solar, one of China's leading solar panel makers, announcing it has purchased 2 solar power projects being built in Canada by MEMC Electronic Materials' (NYSE:WFR) SunEdison division for about $38 million.

This kind of relationship has become commonplace in the sector over the last few years, with panel makers like Canadian Solar often working closely with plant builders like SunEdison to construct new projects. In these cases, the plant constructor like SunEdison obtains financing for the project, then builds the plant with panels supplied by its partner, in this case Canadian Solar. When the project is complete, the panel supplier would then typically help the constructor find a long-term buyer for the project.

But in this case, SunEdison has apparently sold the 2 projects back to Canadian Solar midway through the construction process rather than waiting for the projects to be complete, putting an unwelcome new financial burden on Canadian Solar. It's hard to know what led to this development, but I suspect that SunEdison was having trouble financing the deal, possibly due to waning interest from its local lenders.

Moving on to the JA Solar case, Chinese media are saying an insurer recently paid the company a record $5 million in compensation after an overseas buyer failed to pay for panels that it received from JA. The report doesn't contain any detail on who the buyer was or why the reason for the default, but it does point out that the market has taken a strongly negative turn recently for Chinese companies that insure overseas panel sales.

Lastly, let's take a quick look at LDK, which announced the sale of its LDK Anhui unit to a Shanghai-based company that I suspect is state owned and acting on government orders. The buyer, Shanghai Qianjiang Group, is buying LDK Anhui for 25 million yuan, even though LDK Anhui has negative net assets of $54 million, and had $485 million in outstanding bank loans.

The sale will help improve LDK's own balance sheet by relieving it of this problematic asset, as the company is slowly rescued by Beijing through this kind of state-led assistance that will ultimately see the company taken over by the government. Look for LDK's state-led bailout to continue and similar deals to follow for other panel makers, with cooling interest from foreign banks in financing solar sector projects only increasing the industry's reliance on funding from Beijing.

Bottom line: New developments indicate foreign banks may be losing their appetite for financing the struggling solar energy sector, putting an even greater onus on Beijing to bail out the industry.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:27 AM | Permalink | Comments (0)

Doug Young

A couple of news bits from the solar sector are showing at once how companies continue to struggle with fallout from the ongoing downturn even as some larger players continue to receive lifelines from Beijing. In the former category, floundering giant LDK (NYSE: LDK) has just announced an arbitration panel's ruling that it must pay hundreds of millions of yuan for equipment that it ordered at the height of the solar boom but which it no longer wants or needs. Meantime in the latter category, mid-sized player Hanwha SolarOne (Nasdaq: HSOL) has just received a major new credit line from a Beijing bank, becoming the latest to get state funding to continue its operations pending the roll-out of a larger industry overhaul plan.

Let's start out with LDK, which is in the slow and painful process of being taken over by the state as it struggles under billions of dollars in debt that it has no way to repay. The company has just announced that a Chinese trade arbitration panel ruled it must honor a contract it signed with a company called JYT Corp to buy equipment worth nearly 300 million yuan, or about $50 million, for making polysilicon, the main ingredient in solar cells. (company announcement)

LDK signed the deal in 2008 when polysilicon prices were soaring and it anticipated demand would continue to rise sharply as Chinese and other global manufacturers ramped up their production of solar panels. Of course anyone who follows the industry will know that soaring production led to a huge supply glut that caused prices to collapse starting early last year, leaving companies like LDK with commitments like this new equipment contract that they no longer needed.

Former industry leader Suntech (NYSE: STP) found itself in a similar situation when it became locked into a long-term agreement to buy polysilicon from MEMC Electronic Materials (NYSE:WFR) at prices that were extremely expensive after the market collapsed. (previous post) Suntech later negotiated an early end to the agreement, but undoubtedly paid tens of millions of dollars in penalties for the termination.

This latest $30 million penalty for LDK wouldn't normally be a huge liability for a healthy company in a healthy industry. But of course LDK is anything but healthy, and this sudden $30 million liability is the last thing the company needs as it tries to renegotiate its huge debt.

From here, let's move on to Hanwha, which has announced its receipt of a $475 million credit line from state-run Bank of Beijing to help it continue funding its operations. (English article) Ironically, the size of the loan is more than 5 times Hanwha's current market value, which has plummeted along with everyone else in the sector during the current crisis. But investors are clearly no longer looking at market values or even companies' long-term prospects, and instead are waiting to see what kind of bigger bail-out package will ultimately come from Beijing and whether their shares will be worth anything after the much-need retrenchment occurs.

We saw clear signs last week that Beijing is prepared to let smaller companies fail as it tries to clear out excess capacity at less efficient firms. (previous post) Perhaps investors sense this latest loan to Hanwha hints the company will ultimately be one of the survivors after the coming clean-up, since Hanwha shares rose 7 percent after the company announced the loan. But if I were a stock buyer, I wouldn't bet on receive much if any money for my shares when the bailout finally comes. More likely, most or all of these Chinese companies will be forced to reorganize under bankruptcy protection, wiping out all of their share value as part of the rescue plan coordinated by Beijing.

Bottom line: LDK's newest liability and Hanwha's new funding to continue operations both reflect lingering fallout in the struggling solar panel sector as it awaits a broader, Beijing-led bailout.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Guest Contributor at 08:50 AM | Permalink | Comments (0)

Doug Young

Solar Injection photo via Bigstock

A report in Thursday's China Daily is providing the clearest indication yet that Beijing is delivering some tough medicine to many of the nation's smaller solar panel and polysilicon makers by letting them go backrupt to return the struggling sector to health. Up until now, much of the talk in China has focused on rescuing the money-bleeding sector through a comprehensive bailout plan designed to create about a dozen major players as the industry's backbone. But little has been said about the bankruptcies and closures that also need to accompany such a clean-up, in a country where state support due to local factors often allows companies to keep running even after they become hopelessly mired in the loss column.

The China Daily article, which isn't available online, starts off with the usual rosy headline "Solar industry to get jolt from new policies", and leads with discussion of a program that will allow more solar energy producers connect to then national electricity grid. But the discussion quickly turns a bit more pragmatic after that, saying the government will limit new projects to make both solar panels and polysilicon, the main ingredient used to make panels.

It's not until near the end of the article that we learn that more than 80 percent of China's top 43 polysilicon companies have stopped production due to the global supply glut. And it's not until the very end that an industry official is quoted saying that the government is working hard to help the industry, but that "the companies still need to rely on themselves and adjust their plans to the new changes."

Those words come from Meng Xiangan, deputy director of the China Renewable Energy Society, who was speaking at a meeting of the State Council led by outgoing Premier Wen Jiaobao himself. The presence of such influential people and the high level of the meeting means the discussion most likely reflects Beijing's increasingly pragmatic stance as it crafts a bailout for this once promising sector that has fallen on difficult times.

Anyone who watches the industry has known all along that mass closures of smaller, less efficient manufacturers in China are a critical element to putting the solar sector back on a sustainable path that includes earning profits. But in China the words "bankruptcy" and "closure" are still largely taboo, especially as the nation's economy slows and government officials are loathe to see unemployment rise. The necessary layoffs are even more unappealing because solar has been designated by Beijing as a key focus industry, meaning regional officials won't want to see the closure of manufacturers that are the pride of their local economies.

China's top 150 solar cell makers alone can produce panels with 40 gigawatts worth of capacity each year, even though global demand for panels is only expected to range between 20-40 gigawatts annually for the next 2 years, according to the report. All of this points to the sobering fact that officials in Beijing are finally realizing that closures, while painful, are a necessary step to bringing the country's solar industry back to health.

That message is probably already being sent out to local governments, which are being told to allow many smaller producers in their areas to quickly close shop and not intervene with financial assistance. Look for these closures to quietly continue for the smallest, least efficient players. Meantime, many mid-sized producers will most likely be combined with some of the largest players after Beijing announces a broader sector rescue plan most likely in the first half of next year.

Bottom line: Beijing is finally taking the necessary step of letting many of its smaller solar manufacturers close as it part of a broader sector rescue plan.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:54 AM | Permalink | Comments (0)

Doug Young

Sunrise over Mount Huang in China.

China's solar panel industry is starting to look more and more like a beggar kneeling on the doorstep of Beijing, with the latest word that the central government is preparing to hand out an additional $1.1 billion in subsidies to the struggling sector. That news comes just after a government official was quoted saying Beijing is considering a plan to double its already ambitious target for a massive building spree of new solar electricity plants, again in a bid to support the struggling sector.

Shares of embattled solar panel makers -- many of which are now trading below the $1 mark -- rallied on this "double happiness" pair of reports, with the healthiest companies notching the biggest gains.Among those, Yingli (NYSE: YGE) posted the biggest gains of about 18 percent, with Trina (NYSE: TSL) and Canadian Solar (Nasdaq: CSIQ) both up around 10 percent. Even Suntech (NYSE: STP) and LDK (NYSE: LDK), 2 of the worst hit companies, notched similar strong gains.

That leads me to my next point, which is that investors expect this latest news to be followed soon by a bigger bailout for the entire sector. Before we look at that part of the bigger picture, let's step back and have a look at the latest reports, both of which are coming from the official Xinhua news agency that often acts as an informal spokesman for policymakers in Beijing.

According to the reports, China has allocated an additional $1.1 billion in subsidies to the solar sector, more than doubling the amount of previously announced handouts given out this year. (Englsih article) That news comes a day after another Xinhua report quoted a government official saying Beijing is considering a plan to raise its target for construction of new solar power plants to 40 gigawatts of installed capacity by 2015, nearly double the previous target that itself was just raised in September.

It's interesting that solar shares rallied on the report about new subsidies, since the $1.1 billion in additional support is really quite minor and won't make a huge difference to any individual company. By comparison, the doubling of the construction target is much bigger and could translate to major new orders not only for the Chinese firms but also for foreign players like First Solar (Nasdaq: FSLR) if Beijing really executes the plan.

My view is that investors are betting that these latest 2 solar signals from Beijing are both just a prelude to a bigger state-led bailout package for the entire industry that is likely to come in the next 3-4 months. That package could see Beijing provide new funding for around a dozen of the industry's strongest players, which would then act as consolidators for the many smaller producers that would either be closed or merged with bigger rivals.

Investors are clearly becoming optimistic that sunnier days could be ahead for the sector in 2013, fueled by this state-led consolidation and a new boom in demand from China. I would partly agree with this view, though would also caution that there could be some hiccups in implementing such massive new plans. As a result, any meaningful pickup probably won't come until 2014.

Bottom line: New signals from Beijing indicate a rescue package for solar panel makers is drawing near, though a true turnaround for the sector is unlikely until 2014.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 11:23 PM | Permalink | Comments (0)

Doug Young

The woes at fast-fading former solar superstar Suntech Power (NYSE: STP) keep on coming, with the company releasing its latest earnings report that shows its woes are likely to continue until its increasingly inevitable takeover by the state. That takeover, if and when it comes, is likely to be as filled with fireworks as Suntech's actual decline, with all signs indicating that founder Shi Zhengrong won't easily yield control of his company to the government-backed funding sources he needs to provide it with desperately needed new capital.

Before we delve too deeply into that part of the story, let's step back and take a look at the actual preliminary results that show the company's business continues to decline as it grapples with a massive global supply glut for solar panels. (results announcement)

Other media are focusing on a part of the announcement that says Suntech will have to restate its results for 2010, as the company adds a provision for that year related to a fraud case it recently discovered involving one of its associated affiliates. That case itself is a bit complicated, but the bottom line is that Suntech thought it had received bonds from the associated affiliate and was using those bonds to guarantee a $600 million loan. It later discovered it never received those bonds, and now is having to use its own funds to guarantee the loan.

In my view, this restatement almost looks like the only bit of "good news" in the report, since everyone already knew about this problem and the final $60-$80 million figure in funds that Suntech will need to guarantee the loan isn't too large and will be recorded in the past.

The much worse news comes in the present, with Suntech reporting that its situation continued to deteriorate in the third quarter with no signs of relief in sight. That's important, because it could mean the company's few remaining customers are starting to abandon Suntech and perhaps going to its rivals, amid growing signs that Suntech's operations could be severely disrupted in an upcoming restructuring that will likely involve an ugly battle for control of the company.

According to its preliminary results announcement, Suntech's revenue for the third quarter will come in around $387 million, about half of the $743 million in reported a year earlier. It added it expects the weakness to continue into at least the first part of next year, which looks slightly more pessimistic than some rivals that have given signs that their business could start to stabilize following the sectors prolonged downturn.

Equally important, Suntech said it is still working to resolve its debt problems, a reference to the fact that nearly $600 million of its bonds will come due in March next year and it has no way to repay the funds. One of my sources previously told me that Shi would like to find a way to repay the bonds using a solution that doesn't require a bail-out from Beijing. But that kind of solution looks increasingly difficult, as bond holders are unlikely to make the kinds of concessions that Suntech would need to repay the debt without government help.

Progress in these negotiations will be the key factor to watch in the next 2 months, as it will determine whether Suntech remains an independent company or gets taken over by the government. I suspect a government takeover will be the ultimate result, as both debt holders and especially Beijing are increasingly losing their patience with Shi and would like to see him leave the company. That would pave the way for a fresh new management team to come in and try to turn around this former solar superstar.

Bottom line: Suntech's latest results indicate the company's deteriorating situation will continue into next year, making a government takeover likely as it struggles to repay its big debt.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 09:57 AM | Permalink | Comments (0)

by Sneha Shah

LDK Solar (NYSE:LDK) which used to be the biggest solar wafer producer has completely stopped production of polysilicon and sharply reduced shipments to preserve cash. The company is effectively bankrupt and surviving due the largesse of state owned Chinese banks which have given $3 billion in loans to the company. LDK has almost no chance of paying down this monstrous debt given that it has been operating on negative gross margins for the last few quarters.

LDK cost structure is way too high compared to its competitors

LDK has a much higher cost structure in most solar segments. Its wafer processing cost is 25c/watt compared to 12c/watt for Renesola (NYSE:SOL), its polysilicon cost is around $30/kg compared to $23/kg for Renesola and $17/kg for GCL Poly (3800.HK). Given that even Renesola and GCL are making losses, the situation for LDK is dire. LDK has diversified into production of cells, modules as well as solar plant construction. However these efforts like the others have also failed spectacularly with its German acquisition also near bankruptcy.

LDKs Giant Polysilicon Plant stops Production

LDK’s biggest failure has been in building up its polysilicon production. The plant took too much time and too much money to get built and never managed to reduce its costs to a competitive level. Despite building a plant with 15000 tons of capacity making it one of the top polysilicon players, the company has never managed to ramp production to make decent profits. Not its plant lies idle as polysilicon prices have crashed to $15/kg almost half that of its cost of $30/kg. It remains to be seen whether this plant will ever restart. The only chance for it to do that is if the Chinese government imposes duties on imports of polysilicon.

LDK Management has no clue what to do

The Management of LDK Solar has performed disastrously right from building the polysilicon plant to diversification into thin film solar panels (Best Solar), acquiring solar system companies (Germany, USA), managing debt etc. They kept on spending money and building capacity even as the whole house of cards collapsed around them. Even as recently as last year , they signed a deal to build a massive polysilicon plant in China’s Inner Mongolia province even as they could not run their poly plant profitably. The company had forecast more than $2.5 billion in sales at the beginning of the year and now they have reduced it to less than $1 billion.

LDK has fired thousands of employees this year and will continue to do so

The company in its latest quarterly results reported a sharp decline in cash as the company continued to burn cash. LDK management has fired 2500 workers as its utilization fell sharply and has fired almost 9,000 workers or 40% of its workforce this year. Given its uncompetitive structure, the company will continue to fire workers. LDK has almost 4 GW of wafer capacity and has used less than 50% of that capacity this quarter.

LDK is Bankrupt but the Chinese Government does not want to let go

LDK is bankrupt and one can easily make that out going through its balance sheet. The company has almost $3.7 billion of plant assets which in reality are of much lower value. If the company takes even a 10% asset writedown of its PPE, it will have a negative worth given that it has only $50 million of equity listed on its balance sheet. LDK has more than $3 billion in loans and it has been reported that a small bank Shanghai Rural Commercial Bank for overdue loans worth 100 million yuan has already sued LDK to recover that loan. LDK recently sold a 20% equity stake for a pittance to a state owned vehicle Heng Rui Xin Energy and changed its management structure. The Xinyu government has also given it a grant. But given its massive problems all loans and grants will only prolong the pain given that LDK has no chance of coming out of this downturn unless a miracle happens.

Sneha Shah is the, editor of Greenworldinvestor.com, a blog about Global Green Industry and Renewable Energy Industry, focusing on Solar Energy, Wind Energy, Energy Storage, Efficiency etc.

Posted by Guest Contributor at 09:15 AM | Permalink | Comments (0)

Doug Young

There're quite a few news bits coming from the solar sector today, with more downbeat news from struggling LDK Solar (NYSE: LDK) even as 2 western panel makers make important new inroads to the China market. Meantime, Canadian Solar (Nasdaq: CSIQ) is also getting some good news in the form of new financing from a major western commercial lender for a new solar power project in Canada.

Let's start with the LDK news, as it's easily the most downbeat in this flurry of new reports. For anyone who doesn't follow the sector too closely, LDK is one of the weakest major players in an industry suffering through a massive supply glut. Its weak financial position has left LDK tottering on the brink of insolvency for much of this year, and the company is actually in the process of a slow and painful takeover by a coalition of state-backed Chinese government bodies. (previous post)

Its latest results show that both the pain and the broader retrenchment continue, with LDK reporting another massive loss of $137 million for the quarter, although that figure was actually an improvement over the loss of $253 million in the previous quarter. (company announcement) The company said it cut another 2,600 jobs during the third quarter, meaning its workforce is now about half of where it was at the beginning of this year as LDK tries desperately to conserve cash.

But its huge debt pile means there's really no way the company can survive without a government bailout, which is likely to be finalized by the end of next year's first quarter. Investors sold off LDK shares after the report came out, with the stock down 10 percent as many are probably betting their shares could become worthless under an eventual state-led takeover.

Meantime, western companies First Solar (Nasdaq: FSLR) and SunPower (Nasdaq: SPWR) have both announced new projects in China, as Beijing embarks on an ambitious plan to support its solar panel makers by building up major new solar power plants. (English article; First Solar announcement) First Solar said it will supply 2 megawatts of thin-film solar panels for a demonstration project in Xinjiang in far western China; meanwhile SunPower said it will form a joint venture to sell its solar panels into the China market. First Solar had previously announced it was setting up shop in China to take advantage of what is expected to be a major construction boom for new solar power plants over the next 5 years. (previous post)

It will be interesting to watch and see how First Solar, SunPower and the handful of other surviving western players do in the China market, where they will face stiff competition from local players like Trina (NYSE: TSL) and Yingli (NYSE: YGE). Both Washington and the European Union have taken recent actions to punish Chinese panel makers for receiving unfair support from Beijing, so it's still quite possible we could see Beijing retaliate by excluding foreign companies like First Solar and SunPower from receiving major orders in China. I suspect we'll probably see some bias towards the Chinese panel makers for these new Chinese projects, but that western companies should also be able to get some sizable orders.

Lastly, let's take a quick look at Canadian Solar, which has secured $139 million in financing from Germany's Deutsche Bank to build a project in Canada. (company announcement) Canadian Solar seems to be trumpeting the announcement as a sign that it can get financing for projects from real commercial banks and isn't dependent on Chinese state-owned banks that often lend for more political than commercial reasons. But in this case, the loan is just a short term one to pay for construction of a major new plant. Once it's built, the plant will be immediately sold to its longer term owner, meaning the risk to Deutsch Bank is relatively small. Still, it's encouraging to see that commercial lenders are still interested in this kind of project, which shows the sector still has some longer term potential as a viable business.

Bottom line: LDK's move toward a state-led takeover continues with its latest poor results, while foreign solar panel makers are likely to benefit from China's plans to build up its solar power sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 09:19 AM | Permalink | Comments (0)

Doug Young

Struggling solar panel maker Yingli (NYSE: YGE) is trying the good news-bad news approach to distract investors from its latest downbeat earnings, announcing its biggest-ever new order on the same day it released its dismal third-quarter results. Based on shareholder reaction, the approach has been quite successful, with Yingli's stock surging more than 13 percent in Wednesday trade after both announcements came out. Investors seem to clearly be focused on the big new order, and are hoping that Yingli may actually be able to manufacture profitably by the time it delivers the solar cells to this major new customer.

Let's start with the good news, since that's clearly the focus of investors who are desperately looking for any signs of optimism in this beaten-down sector suffering through its worst-ever downturn due to a huge global supply glut. The new order will see Yingli supply solar cells with 200 megawatts of direct current capacity to a project being built near San Diego, California. (company announcement)

The massive project was designed to be one of the world's biggest solar power plants to date. The fact that it's in the US is also significant, because that means the plant was designed to be profitable and easily connected to the national power grid -- factors that are sometimes absent in big Chinese projects where politics is often a bigger factor in construction of such plants.

Equally interesting is the fact that the builder of this plant chose Yingli despite a recent US decision levying big anti-dumping tariffs against many Chinese solar panels. Yingli didn't comment on whether the panels it will supply under this agreement are subject to the new tariffs; but I suspect they probably aren't since the addition of such taxes would make such a sale highly unprofitable, rather than just slightly unprofitable under current market conditions.

On the subject of unprofitable, let's move on and take a look at Yingli's latest earnings report that is quite a bit uglier than the new order announcement. There are so many bad numbers in the report that it's hard to know where to start. The company's revenue tumbled by nearly half to about $350 million, and its loss grew more than 5-fold to more than $150 million. (results announcement)

Its margins also tumbled deeply into the negative range, meaning it will be selling the panels from this massive new order at a loss unless its situation improves by the time it delivers the goods. Based on Yingli's stock reaction, investors must believe the company can start to manufacture panels at a profit within the next 6 months or so, which is when the company will probably start to deliver the bulk of its panels under this big new order.

That kind of optimism looks a bit bullish to me, but perhaps could be possible if Beijing rolls out a rumored rescue package for the sector before the end of the next year's first quarter. That package would reportedly see Beijing, using state-owned banks, recapitalize the industry and force a major consolidation around 10-12 of the biggest, healthiest players. This big new order seems to indicate that Yingli could well emerge as one of those consolidators, and could ultimately become a leading global player if and when the solar panel-making sector ever returns to health.

Bottom line: Yingli's award of a major new order from the US indicates it is likely to be chosen as a consolidator when Beijing bails out its solar sector, and could ultimately emerge as a leading player.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 10:50 AM | Permalink | Comments (0)

By Harris Roen

SolarCity, a solar panel installation and finance company, is one of the more promising stories for alternative energy investors this year. SolarCity filed details of its initial public offering (IPO) on Tuesday, making it one of the few alternative energy company IPOs that investors are optimistic about. This article explains what type of business SolarCity is, lays out details of its stock rollout, and reveals important pluses and minuses for investors.

What SolarCity Does

SolarCity’s product is simple; it installs solar systems for homeowners, business (including Wal-Mart, eBay and Intel) and government agencies. In many cases there are little or no upfront costs to the client, just sign the papers and you are on your way to reduced electric bills using clean energy! SolarCity claims that it installs more solar energy systems than any other company in the U.S. Its goal is to reach every home and business to become “the largest provider of clean distributed energy in the world.”

How SolarCity does this, though, is anything but simple. In most cases, the customer does not own solar system. Instead they get the benefits through either a lease, where a fixed monthly fee is paid, or power purchase agreement, where a rate is paid for the actual amount of electricity generated.
SolarCity takes these recurring payments, along with government incentives (including investment tax credits and accelerated tax depreciation), and sells them to investment funds. By doing so, SolarCity has raised $1.57 billion by working with Credit Suisse (CS), Google (GOOG), PG&E Corporation (PCG), U.S. Bancorp (USB) and others. SolarCity then uses part of the cash to cover costs of the solar installation, and reinvests the rest to grow the business.

In other words, if you want solar on your house, one or more global investment funds, with a residual interest by SolarCity, will own the solar panels on your roof. They in turn either lease it back to you, or charging you a rate for its use. To complicate things more, SolarCity plans to expand its current assortment of investment configurations. These configurations now include joint ventures, lease pass-through and sale-leasebacks, but SolarCity plans to add in other debt or equity structures in the future.

The SolarCity IPO

SolarCity will be releasing 10 million shares that will be trading on the NASDAQ Global Market under the symbol SCTY before the year’s end. Shares will be priced at between $13-$15. The company currently has negative net earnings, so determining a fair price for the SolarCity shares can only be based on the hopes of growing future earnings. Its prospects look good, though, as shown on the charts below.

SolarCity has a proven track record of being able to grow its business. Revenues, or sales, have been steadily climbing over the past four years. In fact, in just the first nine months of 2012 revenues came in three times greater than they were in 2009 and 2010. As the company states, its customer payment obligations “have grown at a compounded annual rate of 117% since 2009.” Gross profits have also followed suit.


 
This rising revenue stream is a result of an increasing customer base, which has also exploded in the first nine months of 2012. The number of buildings that SolarCity services is more than double that of a year ago, and the number of customers is almost triple.


On the down side, SolarCity has incurred increasing expenses, which has caused losses to accelerate as well. One would expect operating expenses to be increasing as revenues rise, but the painfully widening net loss is a concern. To be fair, SolarCity has been reinvesting much of these funds to lay the foundation of its business in order to be able to grow successfully.     
 


SolarCity’s debt levels are also growing, but are not considered excessive.  Its innovative financing structure has allowed SolarCity to keep debt at bay, a huge positive for this IPO.

 
Dangers of Owning SolarCity Stock

There are several risks involved with investing in SolarCity, many of which are the standard type encountered by investing in any IP0. Two, though, stand out.

First, much of SolarCity’s current business relies on various government incentives, including rebates, tax credits and performance payments. The viability of these credits over the next five years is a huge moving target, which creates a great deal of uncertainty for this company. As these credits expire, SolarCity’s current business model looks less attractive.

Second, the U.S. Department of Treasury is concerned that it may have over-issued grants and tax credits to SolarCity. The Inspector General issued a subpoena to see if SolarCity overvalued the panels it installed, which would have generated a bigger incentive than it was due. In addition, the IRS is auditing two of SolarCity’s investment funds. The results of these investigations are a big unknown, but if Treasury adjusts the fair market value of the solar systems down, SolarCity could easily be facing repayments in the tens of millions of dollars.

Is SolarCity A Good Solar Sector Play?

Returns on solar stocks have been dismal. Of the 60 solar companies the Roen Financial Report tracks, the average company is down 13.1% for the quarter, with only 25% of companies showing gains. In fact, almost half of the companies posted losses in the double digits for the past 3 months. Much of this carnage is due to the continued oversupply of photovoltaic products, as well as the harsh business climate created by trade wars vis-à-vis the U.S., China and the European Union.
 


It is these exact conditions, however, that benefit SolarCity. The downward squeeze on solar prices makes deployment of these systems more and more affordable. According to the Lawrence Berkeley National Laboratory, since 1998 installed prices for residential and commercial solar in the U.S. has dropped between 5%-7% per year on average. This means the average project cost is half of what it did 13 years ago. This trend is likely to continue, and my even accelerate as breakthroughs in photovoltaic technologies come to market. This creates a very tough environment for solar manufacturers, but it is all good news for companies like SolarCity. Though the risk of government incentives drying up is a real concern for SolarCity, dropping panel prices, along with rising energy costs, could balance out the damage to SolarCity’s business model.

Also, I like that sentiment on solar is so low now. In fact, the word on the street is so negative on solar I have turned short-term bullish on the sector. Witness that the ETF Guggenheim Solar (TAN) was up over 10% in the last 5 days of trading, while the NASDAQ gained less than 2% over the same time period. SolarCity could experience a downdraft in its stock price due to negative views on the sector as a whole. However, as is often the case on Wall Street, overreaction on the sector as a whole may cause an undue drop in SolarCity’s stock specifically.

Final Rundown

I do not normally suggest investors get involved with an IPO, regardless of the fact that it is difficult for retail shareholders to pick up IPO shares. Having said that, SolarCity strikes me as well positioned to expand its market share in a business area that also has a lot of room to grow. It is still a speculative company, however, and much will be riding on its continued ability to rapidly expand its customer base. It will be a company I will be tracking very closely in the years ahead.

Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at cservice@swiftwood.com. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.

DISCLOSURE: Individuals involved with the Roen Financial Report and Swiftwood Press LLC own or control shares Google Inc (GOOG).

DISCLAIMER: Swiftwood Press LLC is a publishing firm located in the State of Vermont. Swiftwood Press LLC is not an Investment Advisory firm. Advice and/or recommendations presented in this newsletter are of a general nature and are not to be construed as individual investment advice. Considerations such as risk tolerance, asset allocation, investment time horizon, and other factors are critical to making informed investment decisions. It is therefore recommended that individuals seek advice from their personal investment advisor before investing.

These published hypothetical results may not reflect the impact that material economic and market factors might have had on an advisor’s decision making if the advisor were actually managing client assets. Hypothetical performance does not reflect advisory fees, brokerage or other commissions, and any other expenses that an investor would have paid.

Some of the information given in this publication has been produced by unaffiliated third parties and, while it is deemed reliable, Swiftwood Press LLC does not guarantee its timeliness, sequence, accuracy, adequacy, or completeness, and makes no warranties with respect to results obtained from its use. Data sources include, but are not limited to, Thomson Reuters, National Bureau of Economic Research, FRED® (Federal Reserve Economic Data), Morningstar, American Association of Individual Investors, MSN Money, sentimenTrader, and Yahoo Finance.

Posted by Guest Contributor at 09:25 AM | Permalink | Comments (0)

by Debra Fiakas CFA

Renewable energy retailer SolarCity has filed for an initial public offering of 10 million shares of its common stock and a few shares owned by existing shareholders.  The offering is valued at between $130.0 million and $150.0 million based on an anticipated share price between $13 and $15 per share.  SolarCity expects its shares to trade on Nasdaq under the symbol SCTY.

Proceeds raised by SolarCity will be used support acquisitions of complementary operations.  Proceeds could also be used to support SolarCity’s capital spending program as it seeks to extend its distributed network of solar systems on residential and commercial buildings. SolarCity’s installed base expanded to 33,792 buildings by the end of June 2012.

The majority of SolarCity’s revenue comes from the sale of solar-generated electricity. SolarCity has yet to produce an operating profit.  Indeed in the six months ending June 2012, the company’s operating loss deepened compared to previous periods.  That said, scale is on SolarCity’s side.  Revenue from solar energy system sales increased to $51.7 million in the first six months of 2012, compared to $11.2 million in the same period of the previous year.  Profit margin on this segment increased to 14.9% compared to negative 46.2% in the prior year.

In my view, this a deal worth considering, but only after the shares get some seasoning.  A $13.00 per share price puts a $932 million market value on SolarCity and implies a multiple of 8.4 times revenue.  This seems a bit pricey given that the company has not been consistently profitable.

The deal was expected a month ago, but was delayed when Hurricane Sandy literally fouled up the works on Wall Street.  I will be watching SolarCity carefully.  The company has so far done a good job of building the sort of distributed power generation system our country needs as it moves away from fossil fuels for electricity generation.  Priced right, it could be an excellent long-term hold.
 
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. 

Posted by Debra Fiakas at 09:04 AM | Permalink | Comments (0)

Doug Young

There's a flurry of news coming from the embattled solar sector, led by a sharp cutback by Suntech (NYSE: STP) at its main US plant that looks suspiciously like it is being ordered by Beijing part of a government rescue plan for the struggling company. Meantime, JA Solar (Nasdaq: JASO) and LDK (NYSE: LDK) are struggling just to stay listed as their market values quickly evaporate. And in a rare but fleeting piece of good news, Yingli (NYSE: YGE), Trina (NYSE: TSL) and others are getting a temporary boost as they reclaim money they previously set aside but will no longer need to use as provisions in the US anti-dumping investigation against them.

Suntech Cuts US Jobs

Let's start with the Suntech news, which looks intriguing because I suspect it reflects intense political jockeying behind the scenes as this former sector pioneer struggles to survive. Suntech says it will shutter two-thirds of the capacity at its plant in the US state of Arizona, bringing production down to just 15 megawatts from the capacity of 45 megawatts. (company announcement)

It blamed the cutback on the industry's huge overcapacity and the higher costs of producing in the US versus China, and said the move will result in the loss of 50 jobs. It's impossible to know what happened behind the scenes in this move, and the explanation of higher operating costs in the US is certainly logical and reasonable.

But the decision also sounds suspiciously like it was at least partly ordered by Chinese government officials who are now negotiating a rescue package to bail out Suntech and want to show their anger at the recent US decision to impose big anti-dumping tariffs on Chinese-produced solar cells. Up until now, Suntech had trumpeted this Arizona facility as proof that it was creating jobs in the US as well as in China.

Suntech had also said it could use its US facility to help it avoid the anti-dumping tariffs imposed by Washington. So its decision now to suddenly idle two-thirds of the plant's capacity seems like a complete reversal of its previous message, leading to my conclusion that the move was at least partly engineered by Chinese government officials. If that's the case, I wouldn't be surprised if Suntech ultimately shutters the Arizona plant completely as part of its eventual restructuring.

Potential Delistings

Moving on to other matters, JA Solar and LDK have both put out announcements regarding their tumbling share prices that have put them in danger of de-listing. In JA Solar's case, the company has just engineered a 5-for-1 reverse share split to bring its New York-listed shares above the $1 mark, a requirement to maintain their listing on the Nasdaq main board. (English article) Meantime, LDK has also announced it has been notified that its shares are in danger of de-listing after they also fell below the $1 level for more than 30 days. (company announcement)

LDK will most likely do its own reverse share split eventually to bring its shares back above the $1 level, assuming its shares are still worth anything when it finalizes its own rescue package now being hammered out with the government. These reverse splits may help each companies' share price, but they do nothing to reverse the fact that their market valuations have tumbled over the last year and a half as the industry struggles with its worst-ever downturn. Both companies now have market caps of about $120 million, representing a tiny fraction of what they were worth before the downturn began.

Rare Good News

Lastly, we'll look quickly at the rare piece of good news for the Chinese solar companies following last month's US finalization of anti-dumping tariffs against them. That news has seen Yingli, Trina and presumably all the others say they will post one-time gains after some provisions they took related to the US tariffs were unnecessary. (English article)

These specific provisions were related to a part of the US investigation that would have made punitive tariffs retroactive back to 90 days before the actual decision. In the end, the US decided not to make the penalties retroactive, making previous provisions taken by the Chinese companies unnecessary. At the end of the day, however, these provisions were relatively small, totaling $13.7 million for Yingli and about double that amount for Trina. And of course these small one-time gains will do nothing to address the much bigger cash shortages and overcapacity now plaguing the industry.

Bottom line: Suntech's cutbacks at its US plant could foreshadow an eventual closure of the facility as part of a government rescue package.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 10:02 AM | Permalink | Comments (0)

Doug Young

President Obama's election victory has dominated US headlines over the last 2 days, but Washington showed it was still hard at work with news that the Commerce Department has finalized punitive anti-dumping tariffs against Chinese solar panel makers. In a way, this kind of quiet ending seems appropriate for a drawn-out process that began more than a year ago with a Congressional probe into a bankrupt US solar firm. With this trade issue now resolved, China, which produces more than half of the world's solar panels, can now focus on simply saving an industry that is bleeding cash due to a huge oversupply glut.

While much bigger work remains for them, the major Chinese firms were all quick to express their disappointment at finalization of the punitive tariffs, with Suntech (NYSE: STP), Trina (NYSE: TSL) and Yingli (NYSE: YGE) all issuing statements on the ruling by the Commerce Department's International Trade Commission (ITC).

Perhaps not surprisingly, reaction to the final decision was muted on Wall Street, where investors have had a long time to prepare for this inevitable development. Yingli and Trina shares were down 1-2 percent, actually outperforming the broader markets that saw a big sell-off after Obama's victory. Suntech shares were down more than 6 percent, but much of that is due to individual company-specific issues that have led Suntech to seek a state bailout. (previous post)

Let's take a quick look at the latest news, which hopefully will be the last we'll hear from the US anti-dumping investigation. Under its newest move in this saga, the ITC has formally adopted 5-year punitive tariffs of up to 250 percent on Chinese-made solar cells, though most actual duties will be much lower. (English article) The Chinese companies found some consolation in the fact that the ITC decided not to make the tariffs retroactive, meaning the new duties will only apply to imported Chinese solar cells starting from now.

This quiet ending to the story will give everyone the chance to finally move on and focus on the more important task of how to reorganize and salvage a badly damaged global solar panel sector. The sector itself is full of potential, but has become bloated due to a huge state-backed investment binge in China that led to the current state of massive oversupply.

The US and Europe have already worked through much of their problems using market forces, which led to a series of bankruptcies and closures over the last year that has left a handful of only the healthiest players still in the market. China is still trying to figure out what to do with its industry, though there are signs that Beijing is finally stepping in to try to coordinate a national approach to the problem.

China's biggest obstacle to a clean-up is the many local interests involved in the sector. Such interests often strongly support big local solar panel manufactures that are important contributors to their economies. Beijing appears to be trying to take a more active role in the needed sector clean-up by using China Development Bank to make emergency rescue loans for about a dozen major players, presumably leaving them to consolidate the industry. The process will be slow and painful, and is likely to last through most of next year. But at least the US investigation is now officially finished, which will allow everyone to focus on other more important tasks ahead.

Bottom line: The finalization of US anti-dumping tariffs against Chinese solar panel makers will allow Beijing to focus on the more important task of cleaning up China's solar industry.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 10:07 AM | Permalink | Comments (0)

Doug Young

After a week of unusual quiet on the stormy solar panel front, the sector is splashing back into the headlines with word that struggling LDK Solar (NYSE: LDK) is moving one step closer to a state-led takeover of the debt laden company. Meantime, China is also taking its own broader moves against recent protectionist actions in the West by lodging an official complaint at the World Trade Organization against what it is calling unfair treatment of its companies in Europe.

Let's take a look at the LDK news first, as it's the most dramatic and immediate compared with the WTO action that looks largely symbolic and unlike to have much impact over the short- to medium-term. LDK has announced the promotion of its president to the additional role of CEO, while the company's founder and previous CEO Peng Xiaofeng will retain his title of company chairman. (company announcement)

Meantime, the company also announced the naming of 5 new directors to its board. The list includes a financial expert who will be tasked with helping to create a restructuring plan for the troubled company, and several members from the state-affiliated consortium that gave LDK a $140 million lifeline last month. (previous post)

Peng's move from the CEO's office to the chairmanship looks strikingly similar to what happened in August at Suntech (NYSE: STP), China's other major solar panel maker that is facing a major cash crunch. That move saw Suntech founder Shi Zhengrong hand over his CEO position to CFO David King, while Shi retained the chairman's position. (previous post)

I commented at the time that the move looked mostly cosmetic and that Shi would continue to control Suntech from his chairman's post. But based on this strikingly similar move at LDK, it appears that these 2 shifts are perhaps face-saving intermediate steps before both Shi and Peng are completely removed from their companies by the state-run entities that are now providing emergency rescue packages.

Chinese media previously reported that Shi is desperately trying to stay on at Suntech, even as government rescuers seek his removal as part of any rescue package. (previous post) Look for both Shi and now Peng to both ultimately be removed from their companies before any rescues are finalized, though Shi may perhaps put up a fight before his departure.

Meantime, let's look quickly at the second news bit, which has China formally lodging a complaint with the WTO accusing Greece and Italy of unfairly supporting their domestic sollar panel makers. (English article) China's claim is based on policies in those 2 countries that offered special incentives for power plants developers who equipped their plants with domestically-manufactured solar panels.

That policy does indeed seem to discriminate against solar panels from other countries, so perhaps this complaint has a chance of success. But I do find it quite ironic that China is accusing others of unfair support for their solar industries, since it offers far more generous support for its own sector in the form of policies like low-interest loans and export tax rebates. But if other countries are going to accuse China of unfairly supporting its solar panel makers, they should also be ready to show they don't engage in similar practices.

Bottom line: LDK's replacement of its CEO is the first step toward removal of its founder from the company as part of a rescue by the state.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 09:02 AM | Permalink | Comments (0)

Jennifer Runyon

It really is all China's fault, say most solar experts, but the Chinese government's motivations aren't necessarily malicious.
 

Fingering China photo via Bigstock

Today is the last day before the International Trade Commission makes its final ruling on the tariffs that will likely be added to solar panels that include cells that were manufactured in China. We'll report on the specifics as soon as we have them but it's a pretty safe bet that there'll be tariffs in the amount of about 24-36 percent added onto most panels that come from China.

In anticipation of the ruling, both the Coalition for American Solar Manufacturing (CASM), which is led by SolarWorld (SRWRF) Americas who started the initial investigation and the Coalition for Affordable Solar Energy (CASE), led by Jigar Shah have issued statements.  In its statement, CASM quoted an article by Matthew Stepp and Clifton Yen in which they state, “China knows it just needs to dial up the subsidies for only a little while longer until American producers give up or go bankrupt.  Once it knocks out foreign producers, Chinese solar manufacturers will dominate global production and can increase their prices.” CASM also points out that more than 24 U.S. solar manufacturers have already given up the business of making solar panels.

In conducting interviews for an article I recently wrote about mergers and acquisitions in the solar industry (to be published in the next issue of Renewable Energy World magazine and online soon), I spoke with several key solar industry players who made it very clear to me China’s actions regarding the funding it has given to solar panel manufacturers are outside of the scope of what most people would consider normal ways of doing business.

Here’s the situation as Arno Harris, CEO of Recurrent Energy, explained it to me.  Harris admits that his company as a developer has benefitted (and still is) from the low prices that have driven so many manufacturers out of business.  While he is very happy about the low module costs, he recognizes that true market dynamics are not at play. “In solar for the past 5 years, we’ve seen a cycle where the investment in capacity seems almost divorced from any conventional notion of meeting demand,” he said.

“Again, that has been a boon to solar overall, it’s enabled us to reach a price point that I don’t think any of us though we’d reach much, much quicker, but it does suggest that there is a building business problem upstream that we’re seeing reflected in the challenges that all of those businesses are facing.”

Harris explained how market dynamics work in a normal business cycle and he used a poly-silicon plant or memory chip manufacturing as an example:

The industry goes through growth phases. Supply will get tight relative to demand, and that stimulates investment in a new poly-silicon plant or a new memory chip processing facility and then the market moves into a slight overcapacity, prices come down a little bit but then it finds equilibrium again and then it grows until, you know, you reach the limits again and then you repeat that cycle.

Harris believes that the Chinese government, in continuing to lend money to solar manufacturing companies, has really skewed the way normal economics work. “I’d say we’re dealing with companies whose access to capital is somewhat separated from capital markets. So the discipline that capital markets would impose on a company in the western world is not being imposed,” he said.

Raj Prabhu, managing partner at Mercom Capital offered similar comments on the situation.  He said that Asian companies’ continuing to add capacity in the midst of an oversupplied market “defies logic.” He said so far he had tracked more than $50 billion in credit that had been given from the Chinese-owned banks to manufacturers.  He explained further:

Basically China Development Bank is saying we will provide [some large amount] of loan and credit, etc. to one of these Chinese manufacturers and then that doesn’t mean that they give them the money but they have some sort of an agreement that they can draw down upon. This cheap and easy credit being available is one of the factors why it [the solar industry] is overbuilt. You know you didn’t see overbuilding anywhere else.

Finally, GTM Research’s Shyam Mehta said he doesn’t see the situation improving anytime soon.  I asked him if he thought the Chinese government would eventually force companies to merge or consolidate and he offered the following:

At this time we haven’t seen any signs that China is going to enforce consolidation directly.  A couple of weeks ago the China Development Bank announced that it was going to renew a pledge of support for 12 Chinese manufactures and six of them were named and six weren’t.   They are borrowing more money, losing more money and continuing to get supported.  That is not sustainable, basically, not for the entire industry is what I think.

Jigar Shah: Unsustainable but Understandable and Not Illegal

The fact that what China is doing unsustainable is undisputed by all, even by staunch solar advocate Jigar Shah, who founded the Coalition for Affordable Solar Energy (CASE) in order to fight against CASM.

Shah told me that many times throughout history governments have made decisions about what industries to support and then have offered that support outside of market dynamics.  “The truth of the matter is that this is exactly what country after country after country does in the solar industry,” he explained. Shah said that Japan overbuilt solar capacity in 1999 and then cut prices, “and it’s exactly what SolarWorld did in 2004 when the German government decided to provide a 50 percent subsidy to anybody who builds a plant in Germany.”

He doesn’t see this as a malicious attempt to dominate the solar manufacturing industry and put other countries out of business. Rather it’s a job creation bet made by governments all over the world who see solar as the next big moneymaker.

“They all think that they’re going to be the last country to really figure this out and they’re going win solar manufacturing for the rest of time,” said Shah.

He maintains that China will soon give up. “I think China is now saying ‘wow, that didn’t work out for us so well,’ said Shah. “And when that happens Korea is going to take over,” he said. 

Shah thinks that four years after Korea takes up the solar manufacturing torch, India will take over then maybe Brazil, he said.  “This is so common and I don’t think there is anything illegal here.”

Can the matter be boiled down to public sector interests over private sector interests? Perhaps. SolarWorld’s President Gordon Brisner said in a statement that his company would be just fine if it weren’t for the unfair trade practices being employed by the Chinese. “We have no doubt – none – about our ability to compete with Chinese producers on fair footing,” said Brinser. “But we have said all along that U.S. solar manufacturers cannot compete with the Chinese government and, as a matter of basic trade law, should not be confronted with doing so.”

But Shah counters that the public sector sometimes has other interests than the private sector. “This is about China building jobs for the millions of people that are joining urban ventures every month to make sure that they prevent riots from occurring in their country. So they do this in iPads, they do this in computer manufacturing,” he said.

Further Shah believes it’s about solving a global crisis.  He said if the Saudi Arabians decided that they wanted to provide the U.S. with oil at prices lower than the price of oil that we can recover out of the Bakkan Shale then “we would take that all day.” 

He concluded:

So this is happening in China (and I don’t think they are trying to put us out of business – we never had a vibrant solar manufacturing industry anyway) but if they are providing us with panels at a very affordable cost and therefore allowing us to decarbonize our grid, I’m just trying to figure out how this is a bad thing for all of us.

Good or bad, today it is expected that the International Trade Commission will rule that the Chinese government has indeed harmed the U.S. solar manufacturing industry. With that ruling the tariffs will go into effect and the next chapter in solar manufacturing will begin. 

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine. She also serves as conference chair of Solar Power-Gen Conference and Exhibition and Renewable Energy World North America Conference and Expo.

This article was originally published on RenewableEnergyWorld.com, and is republished with permission.  The information and views expressed in this article are those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on its Web site and other publications. The title is AltEnergyStocks' editor's summary of the article.

Posted by Guest Contributor at 09:56 AM | Permalink | Comments (0)

Jennifer Runyon

Responding to projections that the solar panel module overcapacity will continue for at least another year, solar equipment maker GT Advanced Technologies today announced a restructuring plan. The company will lay off approximately 25 percent of its workforce and consolidate its existing business units into a single Crystal Growth Systems (CGS) group.

The company said that when fully implemented, the restructuring would save approximately $13 million in annualized expenses. GT expects to record restructuring charges associated with these actions in the amount of approximately $4.2 million in the December quarter. More details and commentary will be offered at the company’s Q3 earnings conference call, set to take place on November 7^th at 8 AM ET.

GT Advanced Technologies CEO Tom Gutierrez, who previously testified in front of Congress in opposition to the anti-dumping and countervailing tariffs, said in a statement that the company’s Asian customers are facing “severe financial difficulties brought on by a number of economic and trade-related challenges.”  

He said that his company is “not immune to these headwinds” and that these actions will help it “prepare for what is likely to be a challenging 2013.”

Gutierrez said he expects to see the solar industry turn around in the long term, "driven in large part by the adoption of new technologies that provide critical cost reductions."

On October 3, Gutierrez testified before the U.S. International Trade Commission (ITC) to explain what he saw as the “misguided nature of government-imposed solar panel ‘dumping’ tariffs.” In his testimony, he warned that the consequences of imposing tariffs on Chinese module manufacturers might be severe.

In addition to the solar market, GT Advanced Technologies' crystal growth equipment and solutions also serve the LED and electronics industries.

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine. She also serves as conference chair of Solar Power-Gen Conference and Exhibition and Renewable Energy World North America Conference and Expo.

This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

Posted by Guest Contributor at 09:22 AM | Permalink | Comments (1)

Doug Young

Dr. Zhengrong Shi Suntech Founder, Chairman and CSO.  Photo credit: Suntech

Solar panel maker LDK (NYSE: LDK) started its long march to a takeover by the state with a major stake sale this week, but the equally cash-starved Suntech (NYSE: STP) looks like it may put up a bigger fight to maintain its independence. What's happening at Suntech comes down to a single word: Pride. The latest twist at Suntech also has broader implications, as the kind of pride we're seeing from founder Shi Zhengrong could foreshadow similar resistance we're likely to see at many of the nation's other solar panel makers.

Shi and many of his peers at the helms of other solar companies were once models for others to follow, as they quickly built profitable companies in a high-growth, high-tech area that Beijing had targeted for rapid development. Despite the rapid reversal of fortune for their industry, many of these chief executives remain fiercely proud individuals and thus are unlikely to agree to many of the tough conditions that Beijing wants in exchange for badly needed rescue funds. Perhaps the biggest and most difficult of those terms will be the loss of control of their firms, which many of these executives treat as their own individual fiefdoms.

Before I go any further, let's review quickly what happened earlier this week with LDK and what's now happening with Suntech, which was once an industry pioneer when it became China's first solar panel maker to list overseas with a New York IPO in 2005. LDK announced earlier this week that it would sell about 17 percent of itself to a consortium whose main members included a state-owned firm for a badly needed cash infusion of $23 million. (previous post) This looks like the first step to an eventual state-led takeover of LDK, which is the weakest of China's major solar firms and is losing tens or even hundreds of millions of dollars each quarter.

Suntech is in similar need of cash, both to fund its operations and also to pay nearly $600 million worth of debt that will come due early next year. But media are reporting that the company's proud founder and Chairman Shi Zhengrong is refusing 2 government proposals that would give him the funds he so desperately needs. (Chinese article)

One of those proposals would see the government buy the bonds coming due next year and provide an additional capital injection. But a key condition of that package would require Shi to provide his own personal assets to guarantee that those bonds would be repaid -- meaning Shi would probably lose the 30 percent of Suntech shares he owns. Those shares once made him one of China's richest men but are now worth a meager $46 million based on the company's latest market capitalization. The second plan would see Suntech de-list and become a state-owned company.

Both of these plans would obviously see Shi lose control of the company he worked so hard to build, and the new government owners would almost certainly force him to leave as part of any rescue package. Shi may believe he can negotiate a rescue under any terms he wants, but ultimately I do think that Beijing will also insist on its own conditions for a rescue, including Shi's departure from the company. The result could be an interesting and entertaining stand-off, which the government will ultimately win but perhaps not before Suntech itself is significantly damaged.

Bottom line: Beijing will insist on nationalization and the exit of Shi Zhengrong in exchange for saving Suntech, resulting in a bitter battle for control of the company that the government will win.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 08:49 AM | Permalink | Comments (0)

Doug Young

The nascent state-led bailout of China's struggling solar industry has taken another step forward with word that LDK Solar (NYSE: LDK) has just sold a big chunk of itself to a partly state-owned consortium for enough cash to perhaps fund its operations for another month or 2. This new rescue package values LDK at just $140 million, which is probably still too high a figure for one of China's weakest solar panel makers in an industry where everyone losing big money due to a huge supply glut.

Let's take a closer look at this latest announcement from LDK, which says it will issue new shares and sell them to an entity called Heng Rui Xin Energy, a consortium that includes a state-run entity as one of its major members. (company announcement) Other media are reporting the sale will give Heng Rui about 16.6 percent of LDK's total shares for a price of about $23 million. (English article)

I'm not a mathematician, but even I know that $23 million is a tiny sum for a company like LDK that is losing hundreds of millions of dollars every quarter, as it scrambles to close to down production lines and lay off employees to conserve cash. The amount is even less than the $32 million emergency government loan received last month by Suntech (NYSE: STP), a relatively stronger player that is facing both a cash shortage and also a major debt repayment that is coming due early next year. (previous post)

Both the Suntech and now the LDK cash infusions are short-term first-aid measures that will help the companies finance their operations for the next month or 2. But clearly a longer term solution is needed to clean up the mess that has become China's once-promising solar panel manufacturing sector. Ironically, such an overhaul could easily leave many companies' publicly traded shares as worthless, meaning emergency investors like Heng Rui Xin may be get back little or no return for their investments.

Media previously hinted that the needed overhaul could be coming soon in a rescue package being assembled by China Development Bank, a state-owned policy lender that would provide financing for about a dozen of the industry's biggest players. Now media have also reported over the weekend that the government is currently crafting a more comprehensive plan to salvage the industry. (English article)

That plan will including a 2-pronged approach, including measures to force consolidation and also to speed up the building of new solar power plants to give the remaining players more business. A crucial piece of the plan will call on State Grid, operator of China's national power grid, to assume most of the costs for connecting new solar power plants to the national grid. Those costs are typically quite high, especially because many solar plants are located in remote areas of China such as interior Qinghai and Xinjiang provinces, which have the most desert-like conditions.

At the end of the day, this comprehensive plan is what the industry really needs before it can move forward, and any new funds like the ones just received by LDK will only be temporary stop-gap measures. Look for a few more similar short-term solutions through the rest of the year as other players seek money to continue funding their operations, and for announcement of a more comprehensive rescue plan perhaps as early as the end of the year.

Bottom line: LDK's new share sale marks the acceleration of a state-led bail-out for China's solar panel makers, with a more comprehensive rescue plan likely as soon as year-end.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 10:00 AM | Permalink | Comments (0)

...and why it will survive.

Paula Mints

The photovoltaic industry is currently in a state of extreme contraction brought about by overbuilding, which was brought about by the belief that the feed-in tariff incentive model would continue expanding from region to region and which was exacerbated by decades of fighting for profits and incentives in a world that largely considered the PV industry either a science experiment or the lifestyle choice of hippies. The current infighting has made enemies of colleagues. Artificially low prices have encouraged governments to believe that enough progress has been made, and that incentives are no longer required.

Since the beginning of photovoltaic industry time participants have had to fight for every incentive dollar.  The term "grid parity" has been used as almost a promissory note towards the end of achieving continued incentives.  That is, a promise was made by the solar industry and all of its participants that the cost/price of installing a PV system would decrease at an aggressive rate to the point that the electricity generated would be at parity with other electricity generating technologies. One of the assumptions used in this regard was that the cost/price of conventional energy would continue to rise. This assumption ignores the volatile pattern of pricing behavior for any good, while also assuming that the cost of manufacturing solar technology would follow a more or less smooth downward slope.

The promise of grid parity also ignores (or, at least looks the other way) the fact that during most of its incentive-driven history, the cost of manufacturing a solar panel and its selling price have been disconnected.  One reason for this disconnect between cost and price is that for most of its history there has not been significant pull (the term to describe when buyers pursue a product). The promise of grid parity and the goals that have been set up in its name also ignores the fact that at every point in the chain all participants must enjoy a margin comfortable enough to conduct R&D, pay employees, expand, develop products and, in short, conduct business in the global market place. The solar industry, in sum, has promised itself into a precarious state where margins are memories and company failure is accepted instead of mourned. 

Figure 1 offers a history of PV industry pricing and demand from 1975 through 2011.  Note that periods of strong demand and significant decreases in average technology prices have coincided with periods in which significant incentives were available. 

 

In 2009, at the height of the feed in tariff era, the average selling price (ASP) for PV modules decreased by 33% over the previous year, from an ASP of $3.25/Wp in 2008 to an ASP of $2.18/Wp.  The price of cells decreased 61% from $3.20/Wp in 2008 to $1.26/Wp in 2009.  Though a one year decrease in prices of >30% for modules and 61% for cells cannot be considered normal progress, and though this price correction was driven almost entirely by aggressive pricing, it was proclaimed a great achievement and absolute proof of progress.  This progress has continued through to the current period, Q4 2012, and is continuing to drive technology manufacturers into bankruptcy.  If this is progress, a healthy period of stagnation would be preferred. 

Grid parity is a concept with many definitions.  Grid parity is also a marketing term and is an unhealthy goal as it pits solar in a battle for energy share with conventional energy, which will continue to enjoy healthy subsidies.  Prices are currently held down by high levels of inventory (which is being resold) and the expectation of low prices springing primarily from rumor.  Figure 2 offers prices from 2011 through Q4 2012. 

Despite it All, Solar Will Survive

The solar industry, and all of its technologies including CSP and CPV, is currently facing challenges and this painful period will continue for some time to come.  The current contraction is complicated by a trade dispute in the U.S. and discussions of a trade dispute in the European Union. A slowing global economy complicates recovery for an industry that needs significant investment on the manufacturing and installation sides of the solar value chain. Decreasing incentives are further straining margins and the new incentive paradigm, PPA and tender bidding, does not support the true value of solar.  Business models, including the US lease model, need maturing.

It is a good thing that a) innovation thrives in times of hardship and b) the solar industry has significant experience with hardship.  Over its ~40 year history, industry participants have continued to innovate — through technology development, system design and balance of systems improvements — all the while fighting governments for continued incentives and a complacent energy buying public.  Moving forward, technology innovation will continue. Right now it is crucial to develop business models that allow for healthy margins and provide value to customers. Along with business model development an educational effort must be undertaken by the industry. Energy buyers need to learn the details about the subsidies that conventional energy continues to enjoy so that they can make clear choices based on facts. Forget LCOE for a while and focus on data — facts — about the true, unsubsidized cost of conventional energy and yes, nuclear.

True facts about costs are important and so is a solid effort to change the conversation from cheap to quality.  Solar does not have to be the cheapest electricity choice. It needs to be recognized as a high quality, reliable, long lived energy technology.  Once a solar electric system is installed the fuel (sun) is free. 

Distributed generation (DG) solar — power at the point of need — involves individuals and communities in their energy future, offering all stakeholders energy independence. As storage technologies mature and become more economical the value that energy independence offers will be clear.

Paula Mints is principal analyst, PV Services Program, and a director in the energy practice at Navigant Consulting.
This article was originally published on RenewableEnergyWorld.com, and is republished with permission.

Posted by Guest Contributor at 03:23 PM | Permalink | Comments (0)

Tom Konrad CFA

The last day for a solar developer to submit an application for the Treasury’s 1603 grant program was September 30th, and only for grandfathered solar projects which broke ground before the end of 2011.

Solar panel prices have continued to drop this year, but solar project development remains a capital-intensive business.  The 1603 program allowed solar developers to monetize the solar investment tax credit (ITC) much more quickly than they could otherwise, and this essentially reduced their cost of capital.  As the rush of projects begun before the end of 2011 are completed, developers are looking for new ways to finance their next projects, especially since traditional forms of financing have been harder to come by since the financial crisis.

Jan Schalkwijk, CFA, a portfolio manager with a focus on sustainable investments at JPS Global Investments based in San Diego, CA  says, “Any solution that further improves financing of solar projects should be of interest to investors; especially if returns come in the form of dividends, from financial structures that are collateralized.”

The Solar REIT

Currently, the only way a small investor can invest in solar is by buying stock in solar manufacturers.  I have long argued that solar manufacturers are unattractive as an asset class because of the fiercely competitive nature of the solar industry.  The massive decline of solar stocks over the last several years has convinced most investors of the danger of investing in solar manufacturers, even when solar installations are skyrocketing.  Since inception in April of 2008, the Guggenheim Solar ETF (NYSE:TAN) has fallen 93%, while solar installations have risen six-fold with rapidly falling costs.

While those rapidly falling costs destroy solar manufacturer margins, they improve the opportunities for profitable solar farms.  Yet stock market investors find themselves shut out of this opportunity.  The two layers of taxation for public companies make common stocks a less than ideal investment medium for solar farms, unlike the private equity investments and LLCs used by large investors.

What sort of structures might be attractive?  Master Limited Partnerships, or MLPs come immediately to mind, since they combine the tax structure of a limited partnership with the liquidity of public exchanges.  MLPs allow the investor to avoid the two layers of taxation by passing their tax liabilities (and benefits) through to their limited partners (shareholders), which leads to a level of tax complexity most small investors are unaccustomed to.

In addition, MLPs are limited by law to specific businesses, mostly fossil energy extraction and transport.  While extending MLPs to solar and other renewable energy has a certain appeal on the basis of fairness, such an extension would require an act of Congress.

Sen. Chris Coons introduced the Master Limited Partnership Parity Act on June 7th

Senator Chris Coons (D) of Delaware introduced The Master Limited Partnership Parity Act to allow MLPs to invest in renewable energy on June 7th, and Representative Ted Poe (R) of Texas introduced identical legislation in the House September 19th.  Unfortunately, the chances of these bills becoming law seems low.  Govtrak.us puts their chances at only 4%.

A second appealing structure is the Real Estate Investment Trust (REIT).  Like MLPs, REITs avoid the double taxation of traditional corporate structures, and are limited to investing in certain asset classes, which in the case of REITs means real property.  REITs pass through their income, rather than their tax liability to investors: REIT dividends are treated as ordinary income to the investor.

As Jim Hansen, a financial consultant at Ravenna Capital Management in Lake Forest Park, Washington and publisher of the Master Resource Report notes, “for retail investors the REIT would be the simplest and could be used in IRA’s which MLP in many cases cannot”  because a certain portion of MLP income may be taxable, even if the MLP is held in an IRA.  Indeed, Congress first enacted the REIT model in the 1960s to enable small investors to “secure advantages normally available only to those with large resources.”

Garvin Jabusch, Cofounder and CIO of Green Alpha Advisors in Boulder, CO and manager of the Sierra Club Green Alpha Portfolio also thinks REITs would be a good structure for solar investments.

“Making PV [photovoltaic solar] a REIT eligible asset class will give investors access to what is currently the best value in solar, the annuity of electric power sales agreements.  Currently investors can mainly invest in panel manufacturers (and to some degree BOS [balance of system] providers such as converter manufacturers), which is not these days the most profitable way to play solar. Buying a piece or pieces of solar PV projects on the other hand is profitable right now but is currently the province of private equity investors. Utility scale solar on a project basis is very attractive because, unlike a coal or other fossil-fuels based plants, once the solar plant is running it produces electricity which can then be sold essentially indefinitely without risk of the price of its fuel increasing (or indeed ever costing anything at all), with very low risk of plant failure (and if it does fail, it’s likely only offline for a short time, no risk of explosion), and relatively low overhead in terms of maintenance.

 Legal Considerations

“The IRS could declare that solar assets were REIT-safe with a stroke of the pen.”

Joshua Sturtevant has done extensive research on the legal requirements to allow REITs to focus on solar investments.

The other potential advantage of REITs as an solar investment structure is that it would not require an act of Congress for PV to become a REIT-qualified investment class.  Joshua L. Sturtevant, an Associate with solar aggregator, financier, and developer Distributed Sun of Washington, DC, has done extensive research on the changes which would allow REITs which would generate all or most of their income from solar generation.

He found that “the IRS could declare that solar assets were REIT-safe with a stroke of the pen.  Because of the broad authority it has been granted to regulate REITs, it could bring solar assets into the fold simply by issuing a ruling to that effect. … [I]t wouldn’t require legislation or huge changes to the tax code.”  Getting a favorable IRS ruling might not be easy, but it would almost certainly be easier than getting legislation through Congress.

Sturtevant says that an IRS ruling might take the form of a “private letter ruling”  or through a “revenue ruling.”  The IRS grants a private letter ruling in response to a taxpayer asking for clarification on an aspect of the tax code applies to them.   A private letter ruling does not have broad applicability, in that it is only binding on the requesting taxpayer and the IRS.  However, private letter rulings “often end up having some trickle-down influence on business decisions as they are generally accessible to tax lawyers and accountants.”

A revenue ruling is  ”often issued at the prompting of a government official. To the extent that an issue might be a close call, it is better for the request for clarification to come from within the government as there is a better chance of obtaining a favorable (from the perspective of the requestor) outcome.”

The Wheels of Government Turn Behind the Scenes

No one was able to tell me anything definite, but there are rumors that a request for an IRS revenue ruling is imminent.  In June, the National Renewable Energy Laboratory (NREL) issued a report, ”The Technical Qualifications for Treating Photovoltaic Assets as Real Property by Real Estate Investment Trusts (REITs).”  The report concluded that PV meets many of the important criteria to be considered “real property” and hence a proper asset class for investment by REITs.

The fact that NREL issued this report suggests that someone in the government is working to prepare the way for a favorable revenue ruling.  David Feldman, an NREL analyst and co-author of the report, said ”We’re not trying to make the decision — the Internal Revenue Service will do that.  We’re giving them the technical information they need to make the decisions.”  But somebody asked them to write the report.

Sturtevant says, “My pulse of the situation suggests that there are parties who are moving to place a request to the IRS by election time. If such a request were successful, it could be less than two quarters before a company claiming REIT status is developing solar.”

Jabusch has also heard rumors predicting everything “from year end this year to Q2 2013.”

UPDATE: The Renewable Energy Trust Capital, Inc., a San Francisco, CA based mission-driven company founded in 2011 to “facilitate the transition to a clean and sustainable economy” apparently already has ruling request “on file with the IRS.”  I’m seeking an interview with RET to determine if this is a request for a private-letter ruling (most likely since this is not a government entity) and when the request was filed.  10/12: I’ve published an article about Renewable Energy Trust’s request based on my interview here.

Will the IRS Rule in Favor of Solar REITs?

If there has already been a request to the IRS for a revenue ruling on PV as real property, the the odds are good that the ruling will be favorable for those of us who would like to see Solar REITs.  According to Sturtevant, enough political will would be sufficient to guarantee a favorable ruling.  The political will is likely to depend on the outcome of the election on November 6th.

Giving solar a similarly advantageous  investment structure to the MLPs enjoyed by investors in fossil fuels should be a “politically neutral concept,” as Sturtevant puts it.  Obama has long been in favor of leveling the playing field between alternative energy and fossil fuels, while allowing Solar REITs is seemingly in line with Romney’s expressed belief that alternative energy should sink or swim on its own merits: Investors would evaluate each deal on its investment merits, as both Hansen and Schalkwijk implied above.  On the other hand, Romney has repeatedly called green jobs “fake” or “illusory” while championing the fossil industries, and has plans to sharply cut funding for clean energy: He may have already concluded that PV has no “merits,” and hence might see little point in giving it similar privileges to the extractive industries he promises to promote in the name of energy independence.

The First Solar REITs

Even if there is a favorable ruling, it may take a while for the first REITs dedicated to solar to emerge.  The first movers are most likely to be traditional REITs that are already thinking about renewable energy investments.

A few REITs have dabbled with solar already as a revenue enhancement.  IRS rules allow them to generate up to 25% of their income from sources other than real property, and this allows some scope for solar on REIT-owned buildings, for instance.  Some solar developers are even specifically targeting the traditional REIT market.  However, few REITs are likely to use this option to obtain more than a few percent of their income from solar because “ the IRS tends to be very wary of anything that doesn’t smell right in the context of REITs” and “ leads to wariness and conservatism by many REIT managers,” according to Sturtevant.  REIT managers generally feel that a little extra revenue is not worth risking greater IRS scrutiny.

ProLogis Global Headquarters, Denver, Colorado (Photo credit: Wikipedia)

The conservatism of REIT managers has most likely already proven a barrier to some potential solar installations on REIT property, and a positive revenue ruling would have the added advantage of giving a green light for existing REITs to install solar on their property.

ProLogis, Inc. (NYSE:PLD) is one of the few REITs not waiting for a ruling.  ProLogis had installed 75 MW of solar on its buildings by the end of 2011, and claims to be “just getting started.”  According to  my calculations (using aggressive assumptions of a 20% capacity factor and $0.10 per kWh electricity price), even 75 MW of PV would generate only $13 million in annual revenue, or 0.85% of ProLogis’s 2011 total revenue.

Another REIT which might be expected to take advantage of a positive revenue ruling in a big way is Power REIT (NYSE:PW).  Power REIT invests in the embedded real estate of transportation infrastructure and renewable energy installations.  PW currently owns only railroad real estate, but its CEO, David Lesser plans to acquire real estate underlying renewable energy generation (most likely a wind or solar farm) in the near future.

Talking ‘Bout a Revolution

ProLogis and Power REIT will undoubtedly continue investing in renewable energy in any case.  Lesser says, “We believe that that there is an attractive investment role for Power REIT to play in the renewable energy space with or without a clarification of PV being included as a real estate asset for REIT purposes.”

But for both investors and solar developers, the IRS could completely revolutionize the solar investment landscape by classifying PV as real property.  That revolution could be upon us before year-end.

Disclosure: Long PW

This article was first published on the author's Forbes.com blog, Green Stocks on October 9th.

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 09:16 AM | Permalink | Comments (0)

Doug Young

Solar Lifeline image via Bigstock

A new Chinese media report shows that after more than a year of talk, Beijing is finally turning its aggressive talk on solar energy into action by more than doubling its approval of new solar power plants this year. The main question now is: Will any of its struggling solar panel makers survive long enough to enjoy the expected boom in business when some of these new plants start to get built. Of course industry watchers will know the answer is probably "yes", as Beijing and local governments get set to hand out generous rescue packages to support these companies through a massive supply glut that has sent prices plunging and left everyone reporting big losses. (previous post)Let's take a look at the latest news, which comes in a Chinese media report saying the National Development and Reform Commission (NDRC), China's powerful state planner, has approved 60 new solar power projects so far this year with a total installed capacity of 1.17 gigawatts. (English article) Presumably that number is through September, meaning the final figure could come out to around 80 new projects with 1.55 gigawatts of new capacity by the end of the year if the NDRC keeps approving new projects at the same rate.

That would mark more than a doubling from last year, when the NDRC approved 36 projects with installed capacity of just 0.34 gigawatts. So based on these figures, it's clear that the number of projects itself is not only growing fast, but the size of each of these projects is growing even faster. If all these projects are built, it would mean that China will add nearly 2 gigawatts worth of solar power capacity to its national grid over the last 2 years. While that's not bad, the figure seems likely to accelerate even more next year since China previously set a goal of installing 15 gigawatts worth of solar power producing capacity by 2015, a target that looks difficult to achieve based on these latest figures. (previous post)

We're already starting to see some of the results of this aggressive building binge, with mid-sized player JA Solar (Nasdaq: JASO) announcing in late September it had received orders from 2 customers for panels capable of producing 160 megawatts of power at planned new facilities in the interior provinces of Qinghai and Xinjiang. (previous post)

Of course, this is the same JA Solar that also announced earlier this week that it has been notified by the Nasdaq that its shares could soon be de-listed after trading below the minimum $1 threshold for more than 30 consecutive trading days. (company announcement) Its shares now trade at $0.71, meaning they are unlikely to cross above the necessary $1 mark anytime soon.  The $1 requirement alone isn' t usually enough to cause delisting, since a company can always do a reverse split to increase its share price.  However, JA Solar has so many other financial issues and its market values have shrunk so dramatically that it may choose to delist to get a fresh start.  Larger peer Suntech (NYSE: STP) may also de-list for the same reasons, underscoring how far these former high-flying companies have fallen in the current downturn.

Beijing is reportedly in the process of assembling a rescue package that it will extend to about a dozen of the nation's largest producers, which will presumably require them to shutter a big portion of their capacity and also merge with some smaller rivals. If and when that happens, perhaps the coming consolidation, combined with what looks like a big new wave of construction, could finally help to move this struggling industry back into the profit column.

Bottom line: New data indicates Beijing is ramping up construction of new solar power plants, which together with a government-led retrenchment could help to return the industry to health.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.

Posted by Doug Young at 09:08 AM | Permalink | Comments (0)

Doug Young

The fight for survival among the world's embattled solar panel makers is starting to look more like a battle of the dead, with word that bankrupt US player Solyndra is suing 3 of its biggest Chinese rivals over allegations of running an illegal cartel. Some of you might be saying: "Wait a minute, doesn't Solyndra have better things to do than to be filing lawsuits against rivals who are also flirting with bankruptcy?" If that's the question, then the answer appears to be "no". Perhaps the failed Solyndra is still seeking some final respect, and also perhaps some money through a quick settlement of this lawsuit to repay a long list of creditors that includes the US government.

Solar energy historians will recall that Solyndra's bankruptcy filing in August 2011 was the event that sparked a US anti-dumping probe against Chinese solar panel makers over allegations of unfair state-support through policies like low-interest loans and export rebates. That investigation resulted in the announcement of large punitive tariffs against Chinese solar panel makers just last week, with the actual tariffs set to take effect by the end of the year.

In this latest wrinkle to the story, Solyndra has filed its lawsuit in California against a number of Chinese solar firms, including sector leaders Suntech (NYSE: STP), Trina (NYSE: TSL) and Yingli (NYSE: YGE). The lawsuit claims the Chinese firms schemed with each other to flood the US market by selling panels there at prices that were below costs. If that was there intention, then the Chinese firms certainly succeeded spectacularly, so much so that the entire market is now going through its worst-ever crisis as prices have plunged to unsustainably low levels due to a massive supply glut.

Yingli and Trina both issued statements over the weekend denying the allegations and saying they would defend themselves vigorously in the case. (Yingli statement; Trina statement) Personally speaking I think the claims in this lawsuit do seem hard to believe, as Chinese solar cell makers are an extremely competitive group don't seem organized or willing enough to work together for the kind of collusion that the lawsuit describes.

That doesn't mean that the bigger claims of unfair state support aren't true, as I also do believe that all of the Chinese firms get big backing from both Beijing as well as their local governments. That support will most likely continue in the months ahead, with word that China Development Bank, a Beijing-based policy lender, is busy working on a rescue package for about a dozen of the industry's top players. (previous post)

What's more likely with the Solyndra case is that the US company is in the process of liquidating its assets to pay off creditors, and perhaps hopes it can get a quick settlement from the Chinese companies to earn just a little more money to make those repayments. Readers may recall that one of those creditors just happens to be the US government, which guaranteed a $535 million loan for Solyndra.

But to return to my original metaphor about a battle of the dead, this new lawsuit does seem like an ominous development for a group of companies already fighting for survival amid a downturn that is showing few signs of easing. Suntech, once considered an industry pioneer and sector leader, recently received an emergency $32 million government loan just to keep its operations going for the next few months; and I'm sure that Trina and Yingli are probably facing similar cash crunches.

I could easily see other US and European solar panel makers like First Solar (Nasdaq: FSLR) and Solar World (Frankfurt: SWV, OTC:SRWRF) filing similar lawsuits, and the cash-starved Chinese companies could even start to attack each other if they thought such tactics could improve their own chances for survival. If and when that happens, look for the inevitable consolidation among global solar panel makers to turn quite ugly, pitting a group of zombies against one another as each battles to be the last one still walking.

Bottom line: A lawsuit by Solyndra against Chinese solar panel makers could be the start of a wave of litigation within the sector as players battle for survival.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 09:03 AM | Permalink | Comments (0)

Vince Font

Just days after announcing the launch of major expansions in New York state, the San Mateo-based solar company SolarCity has filed for an IPO in excess of $200 million. Having already received more than $1.5 billion in funding from a variety of high profile companies including Google, PG&E, and U.S. Bancorp, SolarCity is betting on the success of its business model to appeal to stock investors eager to snatch up a slice of the potentially lucrative solar pie.

The company’s business model is simple and effective, and has led SolarCity to rapidly become one of the most successful solar power providers in the country. Rather than requiring customers to pay the high costs associated with the purchase and installation of solar PV panels for their homes, SolarCity offers the option for residential customers to instead lease the electricity-generating technology for an affordable monthly fee. Since its launch in 2006, it has serviced over 33,000 buildings in 14 states, and as of June 30, it claimed to have 31,600 solar system customers. This number is expected to grow exponentially as the company continues its expansion efforts.

A statement issued by Robert M. Hallman, New York’s Secretary for Energy and Environment, cited the NY-Sun Initiative as the principal driving force behind SolarCity’s decision to expand in New York State. “We are dramatically increasing solar energy installations all across New York,” Hallman said. “[The] announcement by SolarCity shows that NY-Sun is not only good energy and environmental policy, it is also good for business and the economy of the State.”

The NY-Sun Initiative, which was announced in August by Governor Andrew M. Cuomo, will see the state investing $800 million in the next three years in rebates and grants to consumers and businesses that install PV solar systems on their homes and businesses. With these added incentives expected to generate increased interest in solar alternatives, SolarCity appears poised to take perfect advantage of the opportunity. In July, SolarCity opened an expanded operations center in Albany. With its announcement in early October for the opening of two new facilities in Westchester County and Long Island, SolarCity is effectively doubling down on the opportunity to corner the market on affordable solar power while simultaneously bringing jobs to the local economy. 

Ed Steins, the Northeast Regional Vice President for SolarCity, said the company’s New York expansion accomplishes the task of killing two birds with one stone. “This expansion brings new jobs and cleaner power to New York,” Steins said. “Installers, electricians, construction managers and field sales are good local jobs that can’t be outsourced.”

Meanwhile, SolarCity’s intent to go public could result in wide-scale expansion and a hiring spree that might serve to dwarf the number of jobs created in New York state since its arrival there in 2011. The IPO offer is being underwritten by Goldman Sachs, Credit Suisse Securities and BofA Merrill Lynch. Plans are for the company to adopt the ticker symbol SCTY and list its stock on the Nasdaq Global Market.

Vince Font is a professional freelance writer specializing in the fields of renewable energy, high tech, travel, and entertainment. Read his blog at www.vincefont.com or follow him on Twitter @vincefont. This article was originally published on RenewableEnergyWorld.com and was republished with permission.

Posted by Guest Contributor at 09:10 AM | Permalink | Comments (0)

Doug Young

Struggling solar cell maker Suntech (NYSE: STP) has just issued a euphemistically upbeat plan on how it intends to "solidify market leadership," as it tries to return to health amid a prolonged industry downturn that has seen prices plunge more than 70 percent over the last 2 years. But investors are clearly focused on the last part of the plan, specifically discussing how the company intends to deal with nearly $600 million in convertible bonds that will come due in March next year. The process of renegotiating that debt is likely to be a long one, and is hardly guaranteed success without major support from Beijing and other government entities.

Before we look at the latest news, let's take a broader look at Suntech and its debt. Unlike some of its peers that arrived later to the solar cell-making industry, Suntech once prided itself on its ability to fund its rapid expansion with money from financial markets as it sold investors on its vision of a future powered by solar energy. By comparison, weaker rivals like LDK (NYSE: LDK) funded much of their growth from state-backed sources, such as state-run banks that were usually more motivated by political factors such as pressure from local governments than from real commercial factors.

Now Suntech may be starting to regret its former hubris, as many of the private-sector investors who bought its $575 million in convertible bonds that will mature next March are hardly likely to be sympathetic when the company asks them to forgive a big portion of that debt. Suntech doesn't provide much detail about what's happening with the debt situation in its latest announcement, except to say that it has hired investment bank UBS to "to evaluate alternatives to address its convertible notes due March 2013." (company announcement)

Observers are saying the process of renegotiating that debt is likely to be long and arduous, with no guarantee of success without some strong government support. In that regard, perhaps the signs are good since local governments are already starting to indicate they are prepared to provide the funding that solar companies within their jurisdictions need to avoid outright closure.

Suntech itself received an emergency $32 million loan from the city of Wuxi where it is based just a couple of weeks ago to keep operating. (previous post) Similarly, LDK also announced around the same time that some of its biggest creditors had agreed to delay their debt collection by a year, and I'm certain that most of those creditors were state-owned and clearly taking their orders from worried government officials. (previous post) At the national level, Chinese media have also reported that the central government is planning to assist in the rescue by providing emergency funding to around a dozen of the biggest players through the China Development Bank.

So, what exactly is likely to happen to the $575 million in debt that Suntech owes to international investors? My prediction is that investors, aware that Beijing doesn't want to see Suntech fail, will take a relatively hard position on the debt repayment, perhaps demanding as much as 40 cents for each dollar of their investment. At the end of the day, they will probably have to settle for quite a bit less, perhaps 20-30 cents, and most of the funds for that repayment will have to come from a Beijing rescue package. Still, that kind of package, combined with big production and cost cuts at Suntech, could help the company survive for yet another year, perhaps even pushing its US-listed shares back above the critical $1 mark to help it avoid a de-listing.

Bottom line: Suntech will require a government rescue to help it avoid defaulting on $575 million in debt coming due in March, with investors likely to recoup 20-30 percent of their investment.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 10:08 AM | Permalink | Comments (0)

Doug Young

New reports of a government-sponsored rescue package being assembled for for fast-sinking Suntech (NYSE: STP) and other major solar firms highlight everything that's wrong with China's struggling solar sector, most notably exposing the ridiculous levels of state report it receives. At this point the Chinese seem to no longer care about denying the allegations of unfair government support made by their western peers, and instead are focused on simple survival as the industry remains caught in its worst ever downturn created by a massive supply glut. The western allegations have only made the situation worse for the Chinese, as both the US and the European Union have launched probes that are likely to result in punitive tariffs for Chinese-made solar cells imported into those markets.

Suntech, once considered the industry leader and one of its strongest players, is quickly becoming a poster child for everything that's wrong with the industry, pushing the company to the brink of bankruptcy. The company announced during the summer that it was the victim of a massive fraud, which itself was the result of Suntech's own misleading business practices that made its sales look stronger than they really were. (previous post)

Suntech only discovered the fraud as it was scrambling to raise cash to repay more than 1 billion yuan in debt due by the end of this year, and more than $500 million more in bond repayments that will come due in early 2013. As pressure built from the company's looming cash crunch, its stock that once traded as high as $80 plunged below the critical $1 mark, prompting the New York Stock Exchange to warn of a potential de-listing.

Now Chinese media are reporting that the government of the city of Wuxi, where Suntech is based, has made an emergency $32 million loan to allow the company to keep operating. (English article) The report further states that the local government has taken additional measures like granting subsidies and other loans to Suntech and other solar cell makers in the area so that they can stay in business. Other Chinese media reported earlier last week that China Development Bank, a policy lending arm of Beijing, was also preparing to grant more emergency financing to Suntech and 11 other major solar panel makers to ensure their survival.

First of all, I would like to say that this kind of government support for failing key industries certainly isn't limited to China. The US and European governments all engaged in bailouts for major banks and auto makers like General Motors (NYSE: GM) at the height of the global financial crisis in 2008, and it's fairly certain that most of those companies wouldn't have survived without the outside support. But these solar companies, while important to their local economies, don't even come close in size or importance to big global names like Citigroup (NYSE: C) and GM. Furthermore, the current solar crisis is the direct result of a much more market-oriented problem, namely oversupply, and closure and consolidation are urgently needed if the industry is ever going to return to health.

Adding to the problem, these new bailouts may help the Chinese companies to survive for another year or maybe 2, but they will also help to openly show that the western allegations of unfair government support are true, meaning punitive tariffs from the US and Europe won't go away anytime soon. If China is smart, it will use this "emergency funding" opportunity to force consolidation among its oversupplied solar sector, requiring healthy companies to merge and unhealthy ones to sharply reduce their output or close completely. Otherwise, the crisis will continue for at least another year or 2, potentially sending a chill over an industry that will be key to the world's future energy security.

Bottom line: China's rescue plan for its bloated solar sector will only prolong the current oversupply crisis for another year or 2, dealing a broader setback to the global industry.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 09:00 AM | Permalink | Comments (0)

Doug Young

Despite China's best efforts to avoid it, a much needed day of reckoning seems to be drawing nearer for the bloated global solar panel industry, which should include a major shake-up for Chinese firms that supply over half the world's output. The latest signs of a looming judgment day are coming in news that US firm MiaSole has just agreed to be purchased by a Chinese buyer, and from Chinese giant LDK Solar (NYSE: LDK), which disclosed it has received a brief reprieve from its lenders for repayment of its rapidly souring debt.

Of course, the big wild card in this non-stop stream of solar news is Beijing and the local governments that strongly support the big field of Chinese solar panel makers, which are important contributors to regional economies even as they post massive losses. Over the weekend, Chinese media reported that many local governments are already coming to the rescue of rapidly failing solar panel makers in their jurisdictions, and that the Beijing-based policy lender China Development Bank was preparing a massive bailout package for a dozen of the nation's biggest manufacturers, including former industry leader Suntech (NYSE: STP). (previous post)

Let's have a look at the latest news, which contains all the major elements of a financial soap opera that has unfolded over the last following a massive overbuilding of solar panel factories in China that created a huge global supply glut. In the first of the news bits, MiaSole, once an investor darling that promised to revolutionize the industry with its cutting-edge technology, has been sold to privately held Chinese firm Hanergy Holding Group, according to a foreign media report citing unnamed sources.

What's most interesting about MiaSole is the huge hopes once held for the company by private investors, including such big names as Silicon Valley venture firm Kleiner Perkins Caulfield & Byers. According to the reports, those investors pumped some $500 million into Miasole since 2006, and will now get back a scant $30 million, which is reportedly the price that Hanergy will pay for the company.

Investors were particularly bullish on MiaSole, which received new funding as recently as March of this year, because of its technology in an area called thin film, which is more flexible and less bulky than traditional solar panels. Now, one analyst estimates that investors in this former high-flyer will get back as little as 6 U.S. cents on the dollar that they put into the company.

Meantime back in China, LDK, the weakest of China's major solar panel makers, appears to be in a race with Suntech to see who will become the first big Chinese player to lose its independence, most likely after being purchased by a big state-owned company. LDK has just announced that its lenders have temporarily agreed not to start seizing the company's assets -- including more than half of LDK's stock -- as a result of a recent series of credit defaults. (company announcement)

LDK obviously wants people to focus on the positive news that it has received a 1 year reprieve through September 2013 from its lenders, which are mostly big state-owned banks that take their orders from Beijing and other government organs. But from my perspective, the bigger news is that LDK is finally publicly admitting to "various prior defaults" on its loan and other credit repayments, which I suspect now amount to hundreds of millions of dollars in overdue payments.

Wall Street investors also seem to be focusing on this negative element of the story, with LDK shares dipping 2 percent to a new all-time low of $1.04 after the announcement came out. I would predict the stock will probably dip below the critical $1 mark within the next week or 2, triggering a de-listing notification as the company joins Suntech and JA Solar (Nasdaq: JASO) in the sub-$1 range. But at this point, de-listing is probably the least of the big concerns for LDK, Suntech and their peers, which are probably more focused on simple survival.

Bottom line: The fire sale of a former US solar technology high-flyer and loan defaults by LDK point to a looming day of reckoning for China's solar panel makers, with a big sale likely by the end of the year.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 04:05 PM | Permalink | Comments (1)

Charles W. Thurston

Members of the Coalition for Affordable Solar Energy (CASE) railed against the impending "trade war," arguing that the steep price drop in imported Chinese photovoltaic modules was good for "98 percent" of U.S. solar industry jobs. "We are growing U.S. solar jobs and this trade case will undermine all the advances we have made in the U.S. solar industry," said one CASE member.

Holding a press conference Thursday morning in Washington after testimony was heard Wednesday by the U.S. International Trade Commission (ITC) about the alleged dumping of Chinese modules in the United States, CASE member Kevin Lapidus, senior vice president for legal and government affairs at SunEdison, a division of MEMC Electronic Materials (WFR), said, "This case is not good for U.S. policy. SolarWorld (SRWRF), a German company, is using the U.S. legal system to compensate for its own business mistakes. It has triggered a global trade war that has mushroomed beyond the United States." 

Hoyle Kim, general counsel for GT Advanced Technologies (GTAT), went further in his rejection of the dumping charges as bad for the U.S. solar industry: "I strongly feel that this anti-dumping case is a horrible incidence in the legal process intended to protect American competitiveness. Trade barriers will not improve the solar industry and the tariff exercise is counter-productive. The timing of the situation is a pity because of the tremendous technological progress (that has been seen in this country) in increased efficiency and reduced costs."

Francine Sullivan, the vice president and legal counsel or REC Silicon (RNWEF), observed, "If the Commerce Department does uphold tariffs, it will increase the cost of solar in the United States. Protectionism is bad for the U.S. solar industry." She added that, "If solar growth is left on its own, the Chinese module capacity -- and more -- will be required; solar is a global market."

George Hershman, vice president of San Francisco-based Swinerton Renewable Energy, a utility-oriented developer, echoed the group sentiment, saying, "There are a number of solar projects on hold now, as this issue gets resolved. Uncertainty and time drive up costs, so we are fighting a race against lower cost solar."

Lapidus noted that while the European solar industry -- which also is considering Chinese dumping charges -- may be slowing, growth is rampant in several other parts of the world. "Many new countries are coming on line as solar markets, like Japan and Saudi Arabia, and regions like Southeast Asia and South America also are very good markets for solar."

The ITC will determine in early November whether U.S. manufacturers have been harmed by Chinese imports. If the ITC does determine injury has occurred, preliminary tariffs imposed by the U.S. Commerce Department in May, ranging from 30 percent to 250 percent, would continue. Commerce is expected to issue a final ruling by October 10. The dumping complaint was initiated by SolarWorld, and has been joined by several other U.S. manufacturers.

In retaliation, China in May filed a complaint against U.S. subsidies that affected over $7 billion worth of Chinese products.

Charles W. Thurston is a journalist who specializes in renewable energy, from finance to technological processes. He has been active in the industry for over 25 years, living and working in locations ranging from Brazil to Papua New Guinea.
This article was originally published on RenewableEnergyWorld.com and was republished with permission.

Posted by Guest Contributor at 10:22 AM | Permalink | Comments (0)

By Joseph McCabe, PE

Timeline for Abound Solar

The sad news on July 2nd 2012 was that 125 employees were being laid off at the Abound Solar factories in Colorado. Abound listed assets at $100 million and liabilities of $500 million in the bankruptcy filing. The final auction of the equipment assets was performed this past week.

I feel fortunate to have visited Dr. W.S. Sampath's Cadmium Telluride (CdTe) photovoltaic (PV) manufacturing laboratory at Colorado State University in February 2005.  At that time the laboratory was depositing CdTe PV materials onto 16” X 16” glass panels. That soon became AVA Solar Incorporated in Fort Collins, January 2007;  they announced their first round of funding on February 8, 2007. AVA then became Abound Solar in March 2009, and announced they were building a new factory in Indiana in July of 2010. Between September 2009 to January 2012 Abound’s modules increased in performance from 50 watts to 80 watts on their standard 2’ x 4’ panels. (Video: Hallway of framed accomplishments at Abound). This was an exciting technology, at an exciting time when huge amounts of investments were being made in PV manufacturing technologies.

The People

Keith Nichols, Director of Facilities Engineering at Abound exemplified the mentality of Abound's early days when he told me, "We were going to change the world".  Veterans from all over the PV industry are intimately familiar with the feeling.

Some of the former Abound Solar people were at the auction, purchasing testing equipment and reinventing themselves as new northern Colorado companies marketing PV reliability services. A small number of other former employees with intimate knowledge of the sold equipment will be hired by the companies who purchased the salvaged gear for pennies on the dollar. Colorado may become known as one of the best knowledge bases for PV system performance services in part because of the experience developed at Abound Solar.

The Gear and Auction

With the Abound facility open for inspection, it was interesting to see one blackboard showing the day to day plans for the manufacturing floor. The chance to implement these were never realized.

Abound Solar factory plans that were never implemented.

In hindsight, perhaps Abound should have teamed with a glass factory.  This would have helped the process and reduced glass breakage. The complicated CdTe line was not a turnkey system, it was pieced together from various company machines and glass handling automation. And it was in-line so any bottlenecks would slow or shut down a production line. This inevitably creates integration challenges as processes were improved, and requires extensions in time to solve unforeseen issues. Time was not an option in today’s PV industry with rapidly dropping module prices.

A video of the various equipment pieced together for the full thin film manufacturing shows ATS Automation (TSX:ATA), Cardinal (S-Corp), Von Ardenne, and other glass handling equipment making up the very long manufacturing process.  A closer video look at Abound second CdTe line shows previously unavailable information, due to confidentiality, but now is a publicly available understanding of the Abound CdTe tools and  process.

The companies who lost financially due to this bankruptcy are those that teamed with Abound including ATS, Cardinal, Von Ardenne, companies making racking, inverters and installation companies betting on Abound’s future sales. Anyone owning an Abound PV system are now owning the warranty risk, as well as any recycling of the CdTe promised by Abound for the end of the system life. The CdTe technology requires proper collection and recycling through programs like those offered by PV Recycling.

Cardinal was at the auction, trying to buy back their own materials, for which a Cardinal representative said they had not yet been paid. 8,000 pieces of Cardinal tempered glass was sold on the web for $2,500.

One example of the discounts available at this auction was a piece of Von Ardenne sputter equipment that originally cost $5M and sold at the auction for $300k. Representatives from Singapore bought what appeared to be one complete CdTe PV manufacturing line from the auction. The results from the auction should become publicly available at which time they will be posted in the comments section of this article at altenergystocks.com.

Where was General Electric (NYSE:GE)?

Back in April 2011, I wrote an article titled “The Cadmium Telluride Solar Factory Race" describing the horse race of thin film CdTe companies competing in the PV space. At that time, it was First Solar (NASD:FSLR)  to win, Abound to place and General Electric to show (first, second and third place in horse racing terms). Abound and GE Solar were basically a photo finish for last place. On July 3rd of this year I helped break the news that GE Solar was laying off employees in Colorado.

GE seemed missing from the public Abound auction. Why didn’t they buy-out Abound at bankruptcy?  The gear would be very similar as what GE Solar/Primestar uses, and the intellectual property would be available to GE Solar. Instead the Abound equipment was sold piece by piece at auction this past week. To me this says "GE is not serious about manufacturing CdTe" or they would have been at the table purchasing specific process or support equipment. It is possible that they were hidden on the web during the auction, but they were not evident at the onsite auction. Perhaps GE doesn’t think that Abound's intellectual property or manufacturing equipment was good enough to produce profitable CdTe PV in the current price environment.  

Lessons Learned

Investors can learn from this Abound Solar experience.  When analyzing future investments be looking for signs that people are being too optimistic about the company, the technology, the competition, and the market opportunities. Many US PV module manufacturer bankruptcies are claiming low international prices as major reasons for their downfall. PV module prices have historically reduced in prices based on the well known logarithmic experience curve (see SunShot Grand Challenge: The SunShot Swerve by Ed Gunther; a September 2012 Bloomberg version is also available). In the past two years, PV module prices have reduced in price per watt more than expected; possibly because the increased experience was more than expected. "We were going to change the world" became “The solar industry has changed the world even faster than most solar companies could handle." The bankruptcies of Abound Solar, Evergreen Solar, United Solar, Solyndra and others are part of this world-wide-learning-curve that will continue to reduce PV modules prices.

The book “Thinking, Fast and Slow ” by the Nobel Prize winning economist Daniel Kahneman describes how emotionally-charged-investment-decision-making is fraught with challenges.  “We were going to change the world" was in hindsight too passionate. In only a few years, solar has changed the energy industry with low cost PV panels now replacing conventional sources of energy. Using experience curves, the lower priced PV modules were predictable, but not to the extend the current module prices of $0.60-$0.70 per watt discussed at the recent Solar Power International conference held in Orlando. The good news is that at these prices, there will be more and more opportunities for low cost PV system installations, more experience in the PV technology, with the positive feedback loop continuing to reduce system prices. The market becomes bigger and bigger with every drop in module and system level pricing. We are changing the world, and Abound Solar has been a part of that change.

Front of Abound Solar October, 2012 (click image for link to empty parking lot video).

This Abound Solar experience has helped the PV industry by investigating new technologies with specific advantageous over conventional technologies. The lesson of Abound is not that it’s impossible to change the world.  Changing the world is possible... but the new world is not always what we expected.

Disclosure: No positions.
Photos and Videos by author.

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 new business models for the solar industry. McCabe has a Masters Degree in Nuclear and Energy Engineering and a Masters Degree of Business Administration.

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 10:00 AM | Permalink | Comments (0)

by Debra Fiakas CFA

Solar power producers have many challenges.  One is the direct current to alternating current dilemma.  Solar panels create power that flows one way in a direct current (DC).  We use electricity in our homes and businesses in alternating current (AC) that flows both directions, forward and backward.  So solar cell producers must use solar inverters that convert the electricity from the direct current in the solar panel into alternating current.

This is where Advanced Energy Industries, Inc. (AEIS:  Nasdaq) comes in. AEIS makes power inverters for the solar power industry.  The inverters transform the power in the solar arrays into a reliable electrical power.  Sales to solar distributors and engineering firms involved in building solar power plants represented 43.5% of total revenue in the first half of 2012, a significant increase from a 36.4% share in 2011 and 23% in 2010.

The rest of Advanced Energy’s sales are to the semiconductor industry.  The AEIC power conversion products can be used in a thin-film deposition fabricator to control the raw electrical power that comes in from a utility. Put simply, the power flow can be customized and made more predictable for the highly sensitive deposition process.

Sales to the chip makers slipped in 2011 and again in the first half of 2012.  Fortunately, there appears to be momentum in the solar power industry that has power producers knocking on Advanced Energy’s door.  Analysts following Advanced Energy have projected 15% annual growth in sales and earnings over the next five years.

If those analysts are right in their collective wisdom, investors could be justified in paying as much as 15 times earnings for AEIS  -  Price Earnings to Growth Rate is 1.00.  Giving the professionals a full vote of confidence, we can use their average projected earnings estimate for fiscal year 2013  -  $1.12 per share.  That yields a target price of $16.80 per share and implies a current value of $14.60.  That is not much higher than the current share price of $13.78 (9-18-12).    Surprisingly, the mean target price among that group of analysts is a bit lower at $13.70.

After all this math, it is hard to get enthusiastic about Advanced Energy from a valuation standpoint.  The stock chart is even more dissuasive.  AEIS is trading very near its 52-week high.  The 50-day average price is dropping day by day and appears poised to fall below the average price over 200 days.  It seems prudent to wait for better days to take a long position in AEIS.  

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. 

Posted by Debra Fiakas at 11:31 AM | Permalink | Comments (0)

Doug Young

There are quite a few developments on the solar energy front today, led by the release of new financial results from LDK Solar (NYSE: LDK), the weakest of China's major solar panel makers, that show a company in the midst of a meltdown. Meantime, Beijing has officially protested a US law that allows Washington to levy punitive tariffs against overseas industries that receive unfair state support, such as China's solar sector. Both the US and Europe believe China supports its solar sector with unfair subsidies and have taken various punitive actions; and now India is also launching its own similar investigation, dealing yet another blow to the struggling sector.

Let's start with the LDK results, which show a company teetering on the brink of collapse as it deals with the worst-ever downturn for the young solar panel sector. Not surprisingly, LDK has filed its second-quarter results just 2 weeks before the US-mandated deadline of the end of September, as it attempts to avoid greater attention to its poor performance. Also not surprisingly, the results were quite ugly, with revenue falling by half from the previous year as LDK's loss ballooned to a massive $254 million.

The company's shares fell by a relatively modest 3 percent after the news came out, reflecting the reality that investors have heard so much bad news already that this latest downbeat report is really nothing special. One of my sources tells me LDK has actually hired investment bank Morgan Stanley (NYSE: MS) to try and sell the company to one of China's big state-owned enterprises.

I wouldn't be surprised if this was true, as LDK is clearly in big trouble and would never be able to attract any private sector buyers. Regardless of the situation, we can probably expect to see some spectacular fireworks from LDK by the end of the year, as the company either collapses or gets bought by an unlucky state-run company under pressure from Beijing or the provincial government of Jiangxi, where LDK is based.

Moving on to the bigger news, China has announced it is lodging an official protest with the World Trade Organization (WTO) over a US law that allows Washington to take punitive actions against overseas industries that receive unfair support from their local governments. China's protest isn't aimed at a specific industry, and indeed the US has used the law to levy punitive tariffs against several Chinese products over the last year. But clearly solar panels are one of the main targets of this new WTO protest by Beijing, after the US earlier this year said it will levy big punitive tariffs on Chinese solar panels that now account for more than half of the world's supply.

While the US has already determined that Chinese solar panel makers receive unfair state support, the European Union also announced last month it is launching a similar probe.  And now it seems that India will launch its own probe over the matter, dealing yet another setback to the embattled sector.  I'll repeat my advice to Beijing once again by saying that rather than repeatedly protesting the accusations by foreign governments, China needs to finally admit that perhaps some of the complaints are legitimate and then find ways to address the concerns.

Bottom line: LDK's latest earnings report shows a company on the brink of meltdown, while Beijing's latest trade complaint shows it is still in denial about its unfair subsidies to the country's solar sector.

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China .

Posted by Doug Young at 08:26 AM | Permalink | Comments (0)

Ed Gunther [Orlando, Florida USA]

SMA Sunny Boy 240 microinverter delayed again until 1Q13.

From Solar Light Flashes: SPI12 Edition

As I tweeted at the start of the Solar Power International 2012 (SPI12) exhibition, SMA America, LLC, a unit of SMA Solar Technology AG (ETR:S92), delayed the introduction of the Sunny Boy 240-US microinverter system until the first quarter of 2013 (1Q13) despite the webpage continuing to claim “Coming 2012!”

The Sunny Boy 240 is in the midst of US field trials that SMA said are going well. While SMA said the Sunny Boy 240 microinverter system is in the final stages of the launch process, unofficially I heard product changes were required for UL compliance.

From Solar Light Flashes: SPI12 Edition

Photovoltaic (PV) modules with microinverters were displayed at the SMA stand and illustrated the cabling arrangement with the Y cable DC module input to the left, center AC daisy chain input, and AC daisy chain output to the right when viewed from the back of the module. The last Sunny Boy 240 AC daisy chain output connects to the Sunny Multigate-US providing the electrical interface for the daisy chain to the main service panel.

From Solar Light Flashes: SPI12 Edition

Perhaps revealing a limitation, SMA has reduced the maximum number of Sunny Boy 240 microinverters connected to each Sunny Multigate from the expected 15 to 16 units at SPI11 to a daisy chain of up to twelve (12) resulting in a 2880 Watt maximum AC power rating per Multigate. SMA envisions the majority of installations with up to two (2) Multigates and displayed a clear cover wall panel with the Multigates, fuse terminal blocks, and a disconnect switch.

SMA did not demonstrate the module level monitoring software or configuration process at the stand. SMA said: “The monitoring software and tools are not yet public. They have been tested and shown but not to a broad public audience.” A dashboard monitoring screenshot was included in the Sunny Boy 240 printed brochure handed out at SPI12.

SMA was promoting a hybrid approach using microinverters just where partial shading or complex roofs require them and string inverters for the majority of PV modules. The stated goal of the SMA hybrid approach was to optimize cost, performance, and Operations and Maintenance (O&M) in order to maximize return on investment. One installer I chatted with thought the hybrid concept was a nonstarter in most residential installations. Larger commercial rooftop installations might benefit from the hybrid microinverter and string inverter combination.

SMA will manufacture the Sunny Boy 240 microinverter at the SMA America Production, LLC, facility in Denver, Colorado USA, and SMA America will also launch the microinverter product line.

The Fastest Time To Install A Residential Solar Photovoltaic System at RecordSetter.com was achieved by Sierra Pacific Home and Comfort installing a twelve (12) module 2.82 kiloWatt (kW) solar photovoltaic SunSnap System from Sharp Corporation (TYO:6753, OTC:SHCAY). The SunSnap AC modules integrate discrete microinverters and Zep Compatible frames to simplify scalable solar installations. According to SMA, the one hour, fifteen minutes, and 48.17 seconds pending record installation used the Sunny Boy 240 microinverter system.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 09:57 AM | Permalink | Comments (0)

Ed Gunther [Orlando, Florida USA]

From Solar Light Flashes: SPI12 Edition

Sunny Boy TL-US Inverter

SMA Solar Technology AG (ETR:S92) will begin limited shipments of the transformerless Sunny Boy 3000/4000/5000TL-US-22 inverter series for 3 to 5 kiloWatt rated AC power PV systems in 4Q12. The TL-US series has added a unique Emergency Power Supply feature providing daytime power to a dedicated power socket in the event of a grid power outage. The power socket is isolated from the grid during the outage and supplies up to 12 Amps so long as the PV system is generating. Grid tied inverters without battery storage support are supposed to shutdown during grid power outages to prevent islanding. SMA developed the feature in accordance with solar inverter specifications required to enter the Japanese market after the Fukushima Daiichi nuclear disaster.

From Solar Light Flashes: SPI12 Edition

The TL-US series integrate DC AFCI (Arc-Fault Circuit Interrupter) protection meeting the requirements of National Electrical Code – NEC 2011 690.11. I was told the TL-US has a revised CEC efficiency of 97% since the preliminary product datasheet was released.

Well, multiple sources have confirmed the SunPower Corporation (NASDAQ:SPWR) Oasis 1.5 MW AC Stations I saw at the 250 MW California Valley Solar Ranch (CVSR) project were sourced from SMA America and manufactured at the Denver manufacturing facility much like those for another vertically integrated utility-scale PV power solutions provider.

From SunPower’s California Valley Solar Ranch (CVSR)

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 08:55 AM | Permalink | Comments (0)

Paula Mints

Bumpy Road photo via BigStock

To encourage the continuation of necessary incentives as well as utility participation, the PV industry has promised a consistent (and significant) reduction in module prices along with "grid" parity with conventional energy sources. The PV industry has also promised to do this without subsidies — and it may have to keep its promises.

Conventional energy producers have not promised low energy prices without subsidies and are expected to continue to enjoy — without much negative press — indirect and direct subsidies for many years to come. This is the unfortunate irony that all industry participants face: they must participate enthusiastically in a process that leads to low margins, losses, failures and therefore a lack of the very R&D funds necessary to continue innovating.

No one ever said that getting out of bed in the morning was fair, and few worthwhile causes are ever achieved without a fight. But, sadly, a growing list of companies have not been able to compete in a climate of artificial pricing for PV technology along with expectations that prices will fall. That in many cases these expectations come from the very companies that could not compete in the current climate is also ironic.

Manufacturers and demand-side players alike have all participated in the rush-to-the-bottom pricing strategy. As if low margins and company failures were not enough, in March the U.S. imposed preliminary duties on cells and modules imported from China. In May more significant duties were imposed with the final ruling expected in October. Aside from the infighting this action engendered among already beleaguered PV industry participants, it appears that the importers of the technology will be responsible, at least temporarily, for paying the duties outright, or, in the best case, putting up a bond with collateral. In sum, an unexpected outcome of the trade dispute is the financial pressure brought to bear on U.S. system integrators and installers. These small business people are the backbone of the U.S. solar industry.

A tale of two quarters

To highlight the highly competitive environment in which PV manufacturers currently operate, Q4 2011 and Q1 2012 revenue and shipment results were observed for seven manufacturers — First Solar (FSLR), Suntech (STP), SunPower (SPWR), Trina (TSL), Yingli (YGE), JA Solar (JASO) and REC Solar (RNWEF) — providing a representative sample of the pressures currently faced by manufacturers. During this period only Yingli Solar showed an increase in quarterly revenues from Q4 2011 to Q1 2012.

Shipments for the seven manufacturers for the two quarters were flat, at 2.7 GWp in Q4 2011, and 2.6 GWp in Q1 2012, with revenues decreasing by 16 per cent from $3.2 billion in Q4 2011 to $2.7 billion in Q1 2012. In good news for grid parity, but desperately bad news for six of the seven manufacturers observed, continued low average selling prices indicate that 2012 will be a difficult year for solar manufacturers. Cell manufacturer JA Solar's average price in Q4 2011 was $0.78/Wp, falling 10% to $0.70/Wp in Q1 2012. Average prices for the other six manufacturers, considered together, was $1.29/Wp in Q4 2011, falling by 16% to $1.09/Wp in Q1 2012. Removing SunPower's premier product, the five remaining manufacturers had an average price of $1.17/Wp in Q4 2011, falling by 15 per cent to $1.00/Wp in Q1 2012. 

Only Yingli and SunPower showed an increase in shipments for Q4 2011 to Q1 2012.

Where is it going and what is it costing?

At the end of 2012, when the gigawatts are counted, it is likely to be a strong year for shipments and installations and a poor year for profitability. There is a strong likelihood of further failures and consolidations. At the end of the year there will likely be fewer manufacturers and slightly higher prices leading to a flat overall average price in 2012 over 2011.

Average prices from 2001 through a 2012 estimate reflect averages for all buyer categories to the first point of sale in the market. Currently, manufacturers are selling inventory at extremely low prices, as noted earlier. Demand-side inventory is also being resold. In the U.S., some demand participants may need to sell inventory to meet the obligations of the Commerce Department. Inventory is almost always sold at a lower rate than the original price point. For 2012, as indicated by current quarterly pricing, high inventory and expectations for lower prices along with lower incentive rates are holding prices down, and prices will go down further before they tick up. In market conditions where demand-side participants sell inventory, while manufacturers continue selling new product, manufacturers are essentially competing with themselves. This is not a healthy market situation.

The always promising U.S. market for solar installations may suffer in 2012 as installers and system integrators struggle with the previously mentioned cash flow problems. China has announced a plan to install ~5 GWp and, given that the country's manufacturers had 16 GWp of manufacturing capacity in 2011 (46 per cent of the global total), along with continuing losses for most of its manufacturers, installing some of the excess capacity domestically makes sense. There have already been failures among the lower tier manufacturers in China, and it is highly likely that moving forward there will be consolidation among the remaining manufacturers, even first tier participants.

Germany installed 2.3 GWp from January through April and, despite new complexity in its incentive program and more frequent decreases in its tariff, it is on track to install 6-7 GWp in 2012, likely signalling the end to its FiT program. Regarding its FiT, the pioneering efforts of Germany moved the PV industry significantly forward in terms of understanding how to efficiently deploy the technology. That the original FiTs were too generous and have proved unmanageable is not the point. Now the industry needs to catch up with its learning curve and mature some of its hard won knowledge.

High debt levels in Spain (formerly a strong market) and Italy (a strong through wavering market) continue to shake confidence. Though the pro-bailout party won the recent Greek election by a small margin, this does not ensure that austerity measures will succeed in that country. In the U.S., the effects of a slow and bumpy recovery may result in a version of austerity — and election year politics and innovative government spending programs are generally not mutually compatible.

Technology tussle

Continued low pricing for crystalline technologies is stressing the competitiveness of thin films, particularly amorphous silicon (a-Si) and tandem junction amorphous. Closures of a-Si manufacturing pioneers such as Uni-Solar have raised questions in the minds of investors and other observers. Cadmium telluride (CdTe) manufacturer First Solar has shuttered plans to increase capacity and announced plans to focus on stable markets without incentives. Other CdTe manufacturers such as Calyxo, Abound and PrimeStar are apparently struggling to remain competitive in the current hostile market environment.

Investors remain interested in CIGS/CIS technology, with Manz acquiring Wurth Solar, and Nanosolar continuing to garner investment. U.S.-based Stion has licensed its CIGS technology to TSMC, which expects to profitably manufacture the technology at the same capacity level as Japan's Solar Frontier. Good intentions aside, execution will remain difficult while crystalline prices remain low. CIGS players are not immune to failure, with German manufacturer Solecture filing for bankruptcy in May 2012, while an empty parking lot and large company sign and logo remind those driving on Fremont, California's 880 freeway, that Solyndra made a noise beyond its market footprint when it failed in 2011. Manufacturers of CIGS technology that can withstand a two to three year correction may emerge stronger, but it will take a significant effort to survive.

Though it would seem that market-dominating crystalline technology manufacturers have the easy road, low technology prices and slim margins will force consolidation and may bring failure for manufacturers in all regions, including China. Surviving companies will need to make hard choices, and lower margins going forward are likely to become a necessary, though unwelcome, reality.

Securing a market

PV manufacturers are on track to ship ~26 GWp in 2012, most of it at a loss. As the industry is at the beginning of a potentially long correction, longer if global economies slip back into recession, a return to strong margins is unlikely in the near term. Indeed, moving forward the industry may have to adjust to a low margin reality given its promises of grid parity and low pricing.

For much of solar's terrestrial history technology manufacturers have suffered low to negative margins. The most profitable period for PV manufacturers began in 2004, after the German FiT began to stimulate strong demand and this incentive model spread throughout Europe and beyond. During this period, which included a shortage in polysilicon, prices for all technologies increased significantly. Constrained supplies of crystalline technology coincided with an unprepared thin-film sector.

Demand-side participants, system integrators and installers struggled to find affordable technology - or any technology at all. High prices for crystalline encouraged investors to look towards thin films as the future of PV, despite lower efficiencies for thin-film technologies. Equipment manufacturers such as Oerlikon and Applied Materials (AMAT) envisioned a changing industry that included a global landscape dotted with amorphous/micromorph manufacturing facilities. Lost amongst the noise and enthusiasm for low-efficiency and, assumed, low-cost technologies was the fact that increasing efficiency while lowering manufacturing costs remains the crucial twin goal of all manufacturers. These goals are not interchangeable.

Viewing supply and demand in the classic sense, they must be equal: that is, if someone sold it, someone else bought it.

The PV industry has an opportunity now to change the story that it tells its potential customers and supporters. Instead of selling solar as cheap and ever cheaper along with the moving target and nebulously defined goal of grid parity, the high quality of solar electricity should be the primary attribute that marketing professionals use when developing their strategies.

As an energy generating technology, solar electricity is clean, reliable and long lived (with a lifespan of more than 25 years). The fuel is free. Once the means of production — the system — is installed, maintenance is low. All energy generating technologies require maintenance — so solar does not have to be maintenance free in order to be a high-value energy choice.

There are many competing energy substitutes and, as conventional energy will likely continue to enjoy subsidies for many years, it will not be easy for renewables to displace fossil fuels as the primary energy source globally. However, as with all technology revolutions - such as, for example, the railroads, machinery replacing hand work, the telegraph, the telephone, penicillin and personal computers — older technologies are displaced by newer ones, often at a higher cost. It is as a result of this long, painful displacement that lives improve.

The PV industry and its population of technology and business experts has struggled, survived and briefly thrived for almost 40 years. During these years it has continued learning and improving through both good times and bad. The current period of correction, though painful, is simply a brief period on the way to a successful future.

The remaining months of 2012 will be most likely typified by continued low margins as well as macroeconomic risks that should not be ignored. Overselling in Germany this year — which is almost a certainty — may well lead to the end of that country's feed-in tariff, or at least to a cap. Solar professionals will have to learn to work in a low-incentive environment, and this will take time.

The time is now. Seize it. 

Paula Mints is principal analyst, PV Services Program, and a director in the energy practice at Navigant Consulting.

Posted by Guest Contributor at 09:00 AM | Permalink | Comments (0)

Ucilia Wang


The pending sale of bankrupted Q-Cells, once the largest solar cell maker in the world, to Korea-based Hanwha Group is the latest reminder that playing geopolitics in the world of solar will only get harder.

The creditors of the German company agreed to the sale with a vote on Wednesday, though the sale still requires regulatory approval before it’s finalized. Hanwha will gain a sterling silicon solar cell maker by buying Q-Cells, which was the reigning cell maker back in 2008, before it ceded the spot thanks to the financial market crash and the rise of well-financed Chinese solar cell makers.

Though silicon solar technology was the core of its technology portfolio, Q-Cells, when it was in better financial health, experimented with different thin film processes and gambled with the idea of using refined, metallurgical-grade silicon as a substitute for the more expensive and purer silicon to make cells. It also entered into the solar power plant development business. The company filed for bankruptcy in April this year.

Despite its financial trouble, Q-Cells remains a symbol of good Germany solar engineering. And now it’s set to look to a Korean conglomerate for directions about its future. Several Korean conglomerates have scooped up or at least taken a stake in many solar companies in recent years. Hanwha took over China-based Solarfun Power and renamed it Hanwha SolarOne (HSOL). It invested in several American startups, a solar energy system developer tenKsolar, installer OneRoof Energy and silicon wafer makers 1366 Technologies and Crystal Solar. Hanwha bought Solar Monkey to enter the power plant development business — the company formally announced its entry earlier this summer. It also invested in energy storage developer Silent Power.

Hanwha’s aggressive push into the solar market is taking place at a time when tension is rising between Chinese solar manufacturers and some of their rivals in the U.S. and Europe.  SolarWorld (SRWRF), a German solar cell and panel maker, led a trade complaint in the U.S. and Europe against Chinese silicon solar cell makers over the past years. The complaint alleges that Chinese companies have received unfair subsidies from Chinese government and flooded the market with cells that are below fair market value. The trade case reflects the intensifying competition among solar manufacturers in a market that has been plagued by a gross oversupply of solar panels. Many companies in the U.S., Europe and Asia already have filed for bankruptcy or shrunk their operations in the past year and a half.

U.S. authorities already are imposing preliminary tariffs on imported Chinese cells after finding merits to SolarWorld’s case. They are scheduled to make a final decision on the tariffs before the year ends. German Chancellor Angela Merkel, meanwhile, is seeking to play the mediator in the European case.

Which side should a company like Hanwha take in this battle against Chinese companies? Hanwha SolarOne’s executives told me during a meeting at Intersolar in San Francisco in July that the company wasn’t “immune to the challenges of the marketplace” in terms of manufacturing, but they saw good opportunities to invest in different solar sectors at the same time. To avoid the preliminary tariffs on China-made solar cells, the company is using solar cells from Taiwan to make panels for the U.S. market (other Chinese companies are doing the same).

Although the solar manufacturing sector is suffering, the project development and installation business is thriving, particularly in countries with government mandates and incentives, such as the U.S., India, China and Japan. The growth has come in part because of the rapidly declining solar panel prices and efforts to reduce in other areas, such as securing permits and simplify installation methods. For solar energy proponents, all the competition and resulting price reduction of solar equipment is a good thing. They see a trade complaint as an attempt to stall the move toward a greater goal: to make solar electricity as cheaply as power from fossil fuels.

The sentiment that Chinese companies haven’t played fair isn’t coming only from SolarWorld and those who have joined SolarWorld’s trade complaints. But executives at many non-Chinese manufacturing companies will only be diplomatic when they are on the record to discuss the trade dispute. And they do so because they know that drawing a line between China and the rest of the world isn’t a good idea when there is a growing interdependence among companies of various nationalities to grow their business in the global market. Hanwha’s acquisition of Q-Cells is a good reminder of that.

Ucilia Wang is a California-based freelance journalist who writes about renewable energy. She previously was the associate editor at Greentech Media and a staff writer covering the semiconductor industry at Red Herring. In addition to Renewable Energy World, she writes for Earth2tech/GigaOm, Forbes, Technology Review (MIT) and PV Magazine. You can reach her at uciliawang@gmail.com. Follow her on Twitter: @UciliaWang

Posted by Guest Contributor at 08:12 AM | Permalink | Comments (0)

Steve Leone

Trade War. photo via Bigstock

A SolarWorld coalition of European-based manufacturers officially filed a trade complaint in Brussels late Wednesday, eliciting a strong response from leading Chinese manufacturers and setting the stage for a process that could further shake up the global solar industry.

SolarWorld’s (SRWRF) Germany-based operation was certainly emboldened by the thus-far successful initiative launched by its American subsidiary in the United States, where modules with Chinese cells from leading manufacturers are being hit with preliminary tariffs totaling about 35 percent. Now, SolarWorld turns its attention to the far larger European market, which has gone through a remarkable growth period with installations dominated by Chinese products. In 2011, about 74 percent of the world’s new installed capacity came in Europe. Meanwhile, some of the European companies that a few years ago dominated the solar industry have filed for insolvency while citing their inability to keep up with Chinese competitors.

While the scope of the request made to the European Commission remains unclear, SolarWorld has cemented its place as the company that continues to drive the effort to push back against Chinese products. The company for months has been building a coalition of companies willing to file a complaint. The complaint was officially launched by EU ProSun, a group of more than 20 European solar manufacturers. None of the companies was named in a release issued by the newly formed group, but it did indicate that its president will be Milan Nitzschke, a vice president for SolarWorld AG. According to Bloomberg, Nitzschke said the group includes companies from Italy, Spain and Germany, and that it includes German manufacturer Sovello.

“Chinese companies have captured over 80 percent of the EU market for solar products from virtually zero only a few years ago,” he said in a press release. “EU manufacturers have the world’s best solar technologies but are beaten in their home market due to illegal dumping of Chinese solar products below their cost of production.”

A short time after SolarWorld filed its American complaint, a group of American companies and large Chinese manufacturers launched the Coalition for Affordable Solar Energy (CASE), arguing that the low-cost panels are helping the industry achieve its goal of widespread adoption. A similar divide is likely to follow the EU case, especially as many European nations see their goals of a renewable-powered grid coming to life. The European-based Alliance for Affordable Solar Energy (AFASE) so far has 70 members including material suppliers, equipment manufacturers, project developers, installers and maintenance companies.

Findings in the EU are generally less punitive than in the United States, according to a Brussels-based trade attorney, and the commissioners who ultimately make a ruling can take into account external factors such as the impact on the overall economy and the effect on the environment. The U.S. Department of Commerce does not consider those factors when issuing a ruling.

According to published reports following a media briefing in China on Thursday, Yingli (YGE) Solar's chief strategy officer Wang Yiyu said “the investigation would also trigger a whole-scale trade war between China and the EU, which would cause huge losses to both parties.” He was joined at the briefing by SunTech (STP), Trina (TSL) and Canadian Solar (CSIQ). According to the companies, almost 60 percent of its exports went to the European market in 2011, and a trade ruling on behalf of SolarWorld would have a devastating effect on Chinese manufacturers.

A trade investigation in Europe could hasten China’s move to expand into emerging markets. Chief among those is the emerging Chinese domestic market, would could install 6 gigawatts (GW) this year alone with a target of 21 GW by 2015. There’s already talk that those numbers could push upwards as the nation starts its march to become the world’s leading installation market. China is also making efforts to tap into the expanding Japanese and Indian markets while beginning to invest in peripheral Asian nations. China is also moving toward markets like Chile, where the installations are few but the potential is immense.

The European market, meanwhile, has been surprisingly resilient — mostly because of those plummeting PV prices. However, Europe as a whole is on a path to a major scale back in its PV policies as struggling nations look to cut government spending in the face of an EU debt crisis.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 08:50 AM | Permalink | Comments (0)

by Joseph McCabe, PE

I've been attending the Intersolar conference in San Francisco for ten years since it was just Semicon, and noticed many of the most interesting trends don’t show up in the headlines.   This year, I noticed that the exhibit halls were packed with metal (racking) peddlers, far more than in previous years.

Solar headlines concentrate on the modules, even though there seems to be less and less differentiation in the module market, with everyone competing for a lower and lower average selling price (ASP). As a friend and PV industry expert told me, "Everyone is trying to position themselves with a better product comparing how their $0.78 per watt is better than the competitions $0.81 a watt". This is a sign of the true commoditization of modules.

Module commoditization leaves companies looking elsewhere to differentiate themselves; this year many companies are bringing new racking. systems to the solar market  There is still room to play, and to be better at marketing structural solutions. Lighter weights, higher wind loading, lower maintenance, and easier installations are just a few of the ways metal peddlers are positioning themselves. Lower balance of systems costs (BOS) are being targeted by the Department of Energy (DOE) as worthy of research and development funding within their Sunshot initiative. Low cost structures should be something that can remain made-in-the-US and not outsourced to overseas manufacturing.

The PV industry has become industrialized, with much more racking and mounting hardware than in the past. You can see who is staking a structural BOS claim in the industry.  Racking, trackers, roof attachments, stand offs and more vendors selling systems that look like PowerGuard. PowerGuard was a product from PowerLight, now the T5 by SunPower (SPWR), that targets flat commercial roofs with a self ballasted aerodynamic structure. The patents for PowerGuard must have expired, or the lawsuit between SunPower and SunLink must have revealed weaknesses in the original PowerLight IP such that others felt it time to get into this market. SunPower is a vertically integrated company that will not be drastically affected by this new competition in the market for commercial roof structural solutions. Is this the begining of healthy profits, then a fierce competition cycle similar to which PV module manufacturers have been experiencing?

SnapNrack is a PowerGuard like product being displayed at Intersolar for the first time. Watch not only for SnapNrack’s innovations, but also their market share; these guys are the AEE wholesale distribution people who know the ins and outs of the PV industry. SnapNrack sells through Lowes, and a host of other electrical companies. Imagine the sales force from the electrical industry now able to sell SnapNrack structures. That is a nice bump in profit to the electrician trade for the same job. Similar new products at Intersolar were KB Racking’s Aerorack, and Panel Claw.



Many other PV structural attachment companies were at at Intersolar. Quickmount, now at over 60 employees, sells an excellent stand-off for sloped roofs. S5 sells brackets for holding PV on standing seam roofing. A number of major PV module manufacturers have licensed the Zep Solar products. Unirac, Unistrut, Renusol  and S:Flex sell metal systems designed for the PV industry. Dozens of other companies are selling some kind of module attachment, ground screws or tracking system. These structural only companies may have difficulties competing in the mature vertically integrated PV industry, or competing with the well established distributors who have extensive industry experience.

While not metal, Solopower was showing off their flat commercial roof system called Solosaddle. There were many other rotationally molded plastic PV structure products at the show which had better assure UV protection; solar installations can be brutal on materials.



Norse Hydro (NHY.OL) had a large booth, but wasn’t showing specific products. They sell aluminum, and a lot of it. Having already established themselves with concentrating solar power companies, they were at Intersolar getting attention of the project and module manufacturers needing extruded aluminum. Even the Aluminum Extruders Council had a booth at Intersolar.

My first day in San Francisco I ran into California Governor Jerry Brown who said that California is aiming for 50 percent grid tied renewables, particularly solar. This is typical political speak, but sets up the tone for the expanding interest in these PV technologies. As an example from the California utilities, the Sacramento Municipal Utility District (SMUD) reportedly is expecting to install between 500 and 800 MW of new PV in the next five years. This on top of their existing 80 MW. With this kind of market pull, many innovations will be reducing the cost to install PV, including the ones mentioned here.

Disclosure: No positions.

Photos by author.

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 11:00 AM | Permalink | Comments (0)

Tom Konrad CFA

Solar Eclipse at Sunrise photo via Bigstock

Solar module prices have fallen 50% in the last six months.  This is great news for solar consumers, but has meant deep pain for solar manufacturers.  Just last week, GE Energy (NYSE:GE) laid off workers and  put expansion plans at their Colorado factory on hold for at least 18 months while they try to improve the Cadmium Telluride (CdTe) thin film solar technology they plan to produce there.  That move followed the bankruptcy of another thin film producer in Colorado, Abound Solar, by just a week.  And the list goes on.

With pressure on solar manufactures’ margins likely to continue at least through 2013, now is too early to jump in to solar stocks looking for a revival.   But there may be a way to play the turn around.  The falling prices are forcing all manufacturers to put more effort into improving their manufacturing technology and module efficiency in order to get back ahead of the rapidly declining cost curve.  That’s exactly why GE has delayed their plant construction, and rapid technology improvement is part of the plan for virtually every solar manufacturer hoping to survive the industry shakeout.

While it’s too early to buy solar stocks, it may be time to buy into the business of helping solar firms improve their technology.

A month ago, First Solar (NASD:FSLR) announced the first licensing agreement with Intermolecular, Inc. (NASD:IMI) by a solar company.   That agreement allows First Solar to use Inermolecular’s High Productivity Combinatorial (HPC) platform to advance its manufacturing technology and the efficiency of its solar cells.  As I wrote at the time, solar technology leader First Solar’s move served as a large vote of confidence in the HPC platform.

Today, Intermolecular announced an ongoing project with King Abdullah University of Science and Technology (KAUST) in Saudi Arabia for the enhancement of copper-indium-gallium-diselenide (CIGS) thin film solar  manufacturing technology.  While work with an academic institution will serve as less of a vote of confidence for stock market investors, the fact that IMI is working to improve both CdTe and CIGS shows the flexibility of Intermolecular’s technology.  I would not be surprised if more licensing agreements with both CdTe and CIGS manufacturers follow soon.

If more such deals are announced, IMI’s investors may have found a truly rare opportunity: a profitable way to invest in solar stocks while the prices of the industry’s products are plummeting.

Of course, plummeting solar prices open up a much easier way to profitably invest in solar: install a system on your roof.

Disclosure: None

This article was first published on the author's Forbes.com blog, Green Stocks.

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 09:38 AM | Permalink | Comments (0)

Tom Konrad CFA

A new report from GTM research, “PV Technology, Production and Cost Outlook: 2012-2016” predicts continued contraction in PV manufacturing.  While recent price declines have driven record-breaking installations, it has also driven most manufacturers’ margins into the red.  You can’t make up for negative margins on volume.

For a stock market investor, the best approach to a cut-throat industry is to stay away until competition and lower prices remove or absorb the excess capacity, and to buy the remaining players just before the industry’s prospects revive.

As you can see from the chart above, the current price leaders are First Solar (NASD:FSLR), Renesola (NYSE:SOL), Trina Solar (NASD:TSL), Yingli Green Energy (NYSE:YGE), and Jinko Solar (NYSE:JKS).  First Solar, Trina, and Yingli have an advantage over the other two because their products are “Tier 1″ bankable, meaning projects using their modules are easier (and cheaper) to finance.

The most important thing for an investor trying to get in on the solar bottom to know is not the most efficient manufacturers today, but the most efficient when the market begins to revive, and when solar manufacturers will return to profitability.  The report puts the year the leading solar manufacturers will return to positive margins at 2014.  If they are right, the best time to buy these stocks will probably come in late 2013 or during 2014.

Based on the chart above, GTM expects Trina to retain positive gross margin for the whole period, while Renesola, JA Solar (NASD:JASO), Sharp (OTC:SHCAY), and Gintech (Tiawan:3514) will regain positive margins in 2014.  If Trina maintains positive margins, First Solar and perhaps Yingli will probably keep positive margins as well.

Hence First Solar, Trina, and Yingli are likely to be the safest ways to play a turnaround, while Renesola looks like the stock most likely to give outsized returns in 2013 and 2014.

With margin pressure continuing in 2012, and GTM forcasting 21 Gigawatts of existing capacity to be retired by 2015, now is probably still too early to get back into solar stocks.  When playing a turn around, getting in too early can make you as broke as Evergreen Solar.

Images from PV Technology, Production and Cost Outlook: 2012-2016, GTM Research
Disclosure: No positions.

This article was first published on the author's Forbes.com blog, Green Stocks.

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 10:06 AM | Permalink | Comments (0)

Steve Leone

Delays and cancellations photo via Bigstock

Now, energy giant General Electric (GE) said it is putting plans for its Aurora, Colo., plant on hold for 18 months in reaction to the continued drop in crystalline silicon solar panels. When the company announced its plans to jump into American thin-film manufacturing nine months ago, it did so in grand fashion. Company officials unveiled a plan for a 400-megawatt (MW) facility that would churn out cadmium telluride (CdTe) panels, the same thin-film technology deployed by Abound. It was an American manufacturing success story born out of Primestar, which GE purchased in 2011.

GE wasn’t preparing for a soft launch. It was pushing ahead hard and fast with the goal of becoming a U.S.-based solar manufacturing leader. To that end, it laid out a plan to introduce a module at 14 percent efficiency or higher and that the product would hit the commercial market by 2013. Now, company officials say they will delay the new plant so they can work on beefing up the efficiency. That was the same approach announced by Abound, when it said this winter that it would temporarily shut down its Colorado lines to work on efficiency. Four months later the company announced it would file for bankruptcy. 

So now, U.S. manufacturing has lost two of its biggest prizes — one a startup and the other an industry leader. In addition to the 400 MW the GE plant was to produce, it would also have created about 350 new jobs. The 640-MW plant that Abound received a Department of Energy loan guarantee to build in Tipton, Ind., represents another 1,000 jobs.

GE, to be sure, is a stable, diversified company. It also remains a player and investor in many renewable technologies. It’s proven to be a company willing to take a chance on technologies that it feels can win a significant segment of the market. Many will surely see the announcement as a lack of confidence in thin film going forward.

The company exuded confidence nine months ago, just as the industry was bracing for trade action against Chinese crystalline silicon panels that were driving down costs and profit margins for American manufacturers. 

“With so much capacity out there, the only companies that can compete are the ones with the right technology and the right cost structure,” said Matt Guyette, GE’s strategy leader for renewables, during a conference call last October. “There’s a lot of companies out there with the wrong cost structure. We see it with their quarterly reports and some of the bankruptcies in the past few months.

“We’ve been watching the space for over 10 years, and we’ve been investing in technologies, and the reason we have not built this plant before is that the technology was not at a point where we were confident that we could compete. We’re there now. We’re confident and we’re scaling up.” 

While the company is saying that it will forge ahead, the delay illustrates once again how rapidly the solar industry is changing.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 12:31 PM | Permalink | Comments (0)

Ed Gunther

Has a permanent swerve or shift downward of the PV (Photovoltaic) Learning Curve been caused by PV industry overcapacity, normalized polysilicon prices, and the aggressive SunShot goals?

From SunShot Grand Challenge: The SunShot Swerve

On the second day of the SunShot Grand Challenge Summit and Technology Forum, SunPower Corporation (NASDAQ:SPWR) President Emeritus Dr. Richard Swanson presented “The SunShot Swerve” providing his perspectives on where the PV industry is today and how SunShot has influenced the industry’s direction.

After explaining the book that motivated the title, Dr. Swanson said:

What I have come to believe is we have a modern version of that in the SunShot program where so much intellect has come together that we will actually change the future in a positive way.

In a transformational rethink of solar strategy, the SunShot Initiative set aggressive goals for module and systems costs and elevated the importance of reducing soft costs and the grid integration of non-dispatchable solar resources to the same level as solar technology cost reductions and innovation.

Revisiting the PV Learning Curve
The SunShot goal of $1.00 per Watt ($/W) installed utility scale PV systems and $0.50 per Watt modules was greeted with skepticism by the PV industry and looked impossible relative to the historical PV Learning Curve established over some 35 years predicting a twenty percent (20%) reduction in module manufacturing cost with every doubling of global cumulative installations. The PV Learning Curve was once again validated when polysilicon shortages pushed modules prices higher in 2005 but returned to the trend line in 2009.

From SunShot Grand Challenge: The SunShot Swerve

Recent PV industry developments have challenged the mechanical evolution of the learning curve. In 2011, module prices dipped below the learning curve at $1.25/W followed by IHS iSuppli’s prediction of crystalline silicon solar module prices hitting $1 per Watt by the first quarter of 2012. The PV industry asked: “Where could they have gotten that aggressive a goal? Nothing like that could ever possibly happen.” I too was skeptical of the later prediction at the time.

In fact, silicon module prices have dipped below $1/W in 2012 as a result of fierce competition in a period of significant manufacturing overcapacity and the return of polysilicon pricing to historical levels.

Furthermore, Yingli Green Energy Hold. Co. Ltd. (NYSE:YGE) and Trina Solar Limited (NYSE:TSL) have announced plans to achieve manufacturing costs of $0.70/W or less by the end of 2012. And bids for installing large scale PV plants are now in the $1.20 to $1.70 per Watt range.

Dr. Swanson said:

The learning curve has taken a jog very likely. There are many reasons for this, but I firmly believe that one of the reasons is the slap in the face that these audacious goals that came out of the SunShot program gave our community.

“The Swerve” is the only explanation for the shift of the PV Learning Curve along a path aligned with the SunShot goals.

From SunShot Grand Challenge: The SunShot Swerve

The aggressive SunShot goals spurred innovation beyond the SunShot funded companies, and an NREL crystalline silicon (c-Si) roadmap in preparation has manufacturing costs of $0.60/W for modules “baked in”.

Dr. Swanson credits SunShot with accelerating SunPower’s roadmap to $1/W monocrystalline silicon back contact modules by one year to 4Q 2013.

Arranging the c-Si value chain from polysilicon to systems according to cost, the module and installed system portion now account for 59% of the cost: 21% for the module and 38% for the system. Of course, SunPower’s consistent strategy leveraging cell efficiency to reduce module and system costs dovetails with the observation.

After reviewing SunPower’s latest module with greater than 21% total area efficiency based on Gen 3 solar cells, Dr. Swanson said: “It will not be very long in the future before 20% will become the standard silicon solar cell.”

Looking at Future Trends in c-Si, Dr. Swanson highlighted kerfless wafers as standing out on the revolutionary side and mentioned SunPower’s investment in the Epi (epitaxial) based kerfless wafer company named Solexel.

By smashing the $1/W module price metric, c-Si has become a front running solar technology in the SunShot race with established scale advantages, a moving target of increasing efficiencies, and a proven technology for manufacturing investments and field installations.

Other perspectives
A week later at TechConnect World 2012 in Santa Clara, California USA, additional viewpoints were expressed on the PV Learning Curve.

E. I. Du Pont De Nemours And Co (NYSE:DD) Global Market & Product Planning Manager, Photovoltaic Encapsulants, Dr. Penny L. Perry said:

On a log scale module reductions have been virtually linear through the growth of the solar industry until 4Q 2011 when it dropped off well below the line.

Dr. Perry observed there was probably not a lot of room left for cost reductions in the material portion of modules. Efficiency improvements, increasing module reliability and durability, and reducing system cost, not just module costs, are the three keys to reducing the overall PV system LCOE (Levelized Cost of Energy). Extending module lifetimes beyond 25 years to 30 or 40 years while maintaining 90% power output was mentioned as a possible, achievable target to further reduce LCOE.

Applied Materials, Inc. (NASDAQ:AMAT) Energy and Environmental Solutions, Chief Marketing Officer & Managing Director, Business Development, Kevin Chen said:

What is interesting is that as we track recent quotations in the market, we are seeing that the price per watt is tracking below all of these trend lines. So the question is can the market sustain this?

Will we come out of this curve because of the oversupply situation or will we continue it, and the answer remains to be seen.

Mr. Chen’s takeaway was “the traditional trajectory of cost reduction is being accelerated” and increasing cell efficiency should be the focus for further reducing the cost per Watt.

However, critics argue the SunShot goals are harmful to the PV industry and the current pricing is unsustainable. These arguments will be confirmed if module pricing returns to the PV Learning Curve as the market shakeout and consolidation resolves itself over the coming quarters and years.

Meanwhile per “High efficiency grabs the headlines, but cost reduction remains the priority” by Finlay Colville in a Guest Blog at PV-Tech.org, the heralded improvements in silicon cell efficiency through advanced cell design will have to wait until “the leading candidates for non-silicon cost reduction have been exhausted” perhaps as late as 2014!

At the Applied Materials 2012 Investor & Analyst Meeting Webcast, the Breakout Session video, The Solar Roadmap: Continuing Cost Reduction, presented by Applied Solar President Charlie Gay, Ph.D., is quite informative regarding developments in crystalline silicon solar technology from an AMAT perspective and references one of Dr. Swanson’s Swerve slides. Per the AMAT “Benchmark Cell Evolutionary Sequence” slide, SunPower’s next step is evolutionary thinner wafers or a discontinuous move to kerfless wafer technology.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 09:37 AM | Permalink | Comments (0)

Steve Leone

Margin squeeze photo via Bigstock

China's LDK Solar(LDK), a producer of polysilicon, wafers, cells and modules, has reported a steep quarterly loss that underscores the dramatic industry-wide shift that has occurred in the past year.

In a weaker-than-expected fiscal first quarter statement posted Tuesday, LDK reported a net loss of $185.2 million, or a loss of $1.46 per diluted American depository share (ADS). During the same period a year ago, the company posted a net income of $135.4 million, or a $0.95 gain per diluted ADS. Net sales for the first quarter were $200.1 million, far below the $766.3 million generated during the same period last year.

In the first quarter of 2012, LDK shipped more than 164 megawatts (MW) of wafers and nearly 154 MW of cells and modules. The company also produced more than 1,900 metric tons (MT) of polysilicon and more than 51 MW of cells during the period.

The company also lowered its outlook for both the current quarter and fiscal 2012. According to its statement, LDK estimates its second quarter to shape up like this: Revenue between $220 million and $270 million; wafer shipments between 140 and 180 MW; polysilicon production between 520 and 570 MT and cell production between 80 and 100 MW. The company projects its fiscal 2012 revenue to be between $1.5 billion and $2 billion, a sharp drop from its April projection of between $2 billion and $2.7 billion.

“Industry-wide overcapacity continued and drove price declines across the entire solar supply chain, which significantly reduced our revenue and negatively impacted our margins,” said LDK Solar Chairman and CEO Xiaofeng Peng in a press release. “While we expect to see continued challenging conditions in the solar industry in the near-term, we anticipate that some markets such as China will begin to see improved demand as the year progresses. We firmly believe that lower PV system costs will drive adoption of solar power and long-term market growth.”

LDK’s recent struggles are not unique in an industry that has seen continued installation growth fueled by oversupply and a plummeting drop in prices.

According to a industry-wide report released by IHS Research on Tuesday, average gross profits for PV module makers fell to nine cents per watt during the first quarter of 2012. A year ago, that industry average stood at a healthy 39 cents while in early 2009, that margin hovered around $1.75 per watt. And the nine cent margin may not represent the bottom. The researcher group predicts that slimming margin will fall to just seven cents per watt by the end of the year, putting even greater strain on suppliers.

The reason for this increasingly unsustainable margin pressure is the disconnect between the cost to produce PV module and the price at which they’re selling. According to IHS, gross profits industry-wide in the first quarter of 2012 fell below $500 million for the first time since 2008 — a 75 percent drop since the same period last year. As recently as the fourth quarter of 2010, industry profits were around $3 billion. And while average crystalline PV module prices fell 67 cents per watt last year, average costs per watt didn’t keep up, falling instead by 42 cents.

“Profit margins have been the victim as suppliers have been forced to engage in a fierce price war and have reduced prices faster than they have been able to reduce their costs,” wrote IMS Senior Market Analyst Sam Wilkinson. “High inventory levels, weak demand and reduced government support for PV have all contributed to a rapid downward spiral for PV module prices.” 

But Wilkinson said margins should stabilize around 9 percent by the second half of the year, mostly behind declines in polysilicon prices, which because of long-term contracts have not fallen at the same rate as module prices.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 09:22 AM | Permalink | Comments (0)

Tom Konrad CFA

Two years ago, it seemed like First Solar (NASD:FSLR) could do no wrong.  The company could manufacture it’s thin film Cd-Te photovoltaic (PV) cells at a fraction of the price of traditional crystalline silicon (c-Si) cells.  First Solar was the first company to break the $1/W barrier for manufacturing cost.

That was then.  Now, a supply glut caused by overbuilding and reduced subsidies has dramatically slashed the price of c-Si cells.  Bloomberg New Energy Finance (BNEF) forecasts that demand will not catch up with supply until 2014, even in their most optimistic scenario.  In May, the spot price for a Chinese c-Si module was only $0.85 per watt, quite close to the $0.75 per watt manufacturing cost claimed by First Solar.  Since Cd-Te cells are less efficient than c-Si cells (currently 14.4% of First Solar cells, compared to the high teens to low 20% range for typical c-Si cells), First Solar’s modules need to be larger to produce the same power rating, which leads to higher costs at the module and solar installation level.  This leaves very little room for profit, from a company that once seemed to be an endless money-printing machine.

Like many other Solar companies, First Solar has diversified into project development, and set its sights on places where the high price of power means that its solar modules can be profitable without uncertain subsidies.  The idea is to compete with diesel, rather than with other solar industry players.

Yet markets with high electricity costs have those high costs for good reasons.  These reasons can include bureaucratic red tape, poor infrastructure, corruption, and a poorly educated local workforce.  Such markets  take considerable time and effort to develop the infrastructure for the rapid deployment of PV, meaning that, even there, solar manufacturers are jostling for a limited (if rapidly growing) market.

Betting on Intermolecular

With demand unable to grow fast enough to absorb all available supply, all solar manufacturers must also work to improve the cost effectiveness of their modules.  For First Solar, part of that effort is embodied in a new licensing agreement with Intermolecular, Inc. (NASD:IMI).  First Solar will license Intermolecular’s High Productivity Combinatorial (HPC) platform to advance its manufacturing technology and the efficiency of its CdTe solar cells.  According to the press release, the program will focus on “new opportunities in certain critical materials and processes that may significantly influence the conversion efficiency of CdTe technology.”  The work will be performed jointly at Intermolecular’s San Jose, Calif., facility and in First Solar’s research and development labs.

The licensing agreement was announced after First Solar had the opportunity to evaluate the HPC platform in a trial collaboration.  My instinct is that this is much bigger news for the $277 million market cap IMI than it is for the $1.1 Billion First Solar.

First Solar always works to improve efficiency, and has been proven to be quite capable of doing so in the past.  The fact that FSLR so the big news is that they have chosen to outsource part of this process to IMI is a resounding endorsement of the company’s technology.  It will also bring IMI to the attention of a large number of clean energy investors who had never before heard of it.

The First Solar agreement will also make other solar manufacturers look at Intermolecular’s technology more seriously, which will be important to IMI’s long term growth.  Craig Hunter, Intermolecular’s senior vice president of Global Sales & Marketing, was quoted as saying, “Leveraging our HPC platform to accelerate the PV  roadmap is central to our mission.”

This article was first published on the author's Forbes.com blog, Green Stocks.

DISCLOSURE: None.

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 11:58 AM | Permalink | Comments (0)

Tom Konrad CFA

Inverter for a solar array. (Photo credit: Wikipedia)

Solar inverter stocks are looking cheap, but until the weaker players are forced out, they are likely to get cheaper.

The major publicly traded solar inverter companies are Power-One (NASD:PWER), Satcon (NASD:SATC), SMA Solar (OTC:SMTGF), Siemens (NYSE:SI), Advanced Energy Industries (NASD:AEIS), Schneider Electric (OTC:SBGSF) and upstart Enphase Energy (NASD:ENPH).  Over the  last year the industry has faced eroding margins and an increasingly competitive environment.  This parallels the problems of solar manufacturers: the industry has too much capacity for a market that is not growing as fast as many expected.

Power-One and SMA currently look quite cheap in terms of Price to Earnings ratios (5.9 and 4.9, respectively), so I asked my panel of green money managers for their thoughts on the industry.  Is the industry near bottom?

I received responses from Rafael Coven, Managing Director at the Cleantech Group, and manager of the Cleantech index (^CTIUS) which underlies the Powershares Cleantech ETF (NYSE:PZD), and from Garvin Jabush, the Cofounder and CIO of Green Alpha Advisors and manager of the Sierra Club Green Alpha Portfolio.   Here are their thoughts:

Coven on the Competitive Landscape

Solar Inverter industry economics have deteriorated with the decline in overall solar market and diminishing  government budgets for solar incentives.   Given the difficult demand picture and insufficient product differentiation the market is becoming commoditized and increasingly price-driven.

Jabusch on How it Will Be Resolved

[T]he problem, as with panels and wafers, is narrowing margins.  The solution, as with panels and wafers, will be to make up for that with increasing scale….  [We] believe the scale of renewables will continue to expand, although timing their turnaround is proving challenging.

Which Companies Will Survive

Both agree that diversification and a strong balance sheet will be key to company survival.

Coven:

Just as in Solar PV, the shakeout will weed out the weaker (undercapitalized) players (thankfully there  are far fewer players than in solar PV).   There are better emerging inverter technologies, but I’m don’t know their time to commercial launch, nor how good the product pipelines of the current solar inverter players are vis-à-vis coming entrants.   I doubt that the undercapitalized inverter players will have the resources either survive new low-cost entrants from Asia nor be able to buy or license some of the better emerging technologies.  Companies such as Siemens or Schneider can afford to buy whatever looks like the winning technology.   In this business, having diversification is critical.

Jabush:

[T]he respective sector leaders with the strongest financial and market positions will weather the downturn the best, and we feel like Power-One is one of these.

Two Buyers and Three Probable Survivors

As Coven says, Siemens and Schneider are diversified giants, and so will not feel pressure as much as more focused industry players. Power-One and SMA are also well capitalized with negligible debt and current profits.  Power-One is more diversified than SMA, with a large electronics business selling power supply products to computer and storage industries.  I expect all four will survive the shake-out.  Solar is only a sideline for Advanced Energy Industries, so it, too should be able to weather the decreasing margins in the industry.

Probable Loser

Satcon looks unlikely to survive the shake-out.  The company is losing money, has shrinking sales, and a horrible operating margin of -46%.  Even rapid growth would not help the company’s economics, unless it were accompanied by increased pricing, which seems unlikely.  I expect Satcon to declare bankruptcy, with its rivals buying any valuable pieces from Satcon’s creditors after.

Wildcard

Like Satcon, Enphase has a weak balance sheet and is losing money rapidly.  Unlike Satcon, Enphase has one of the “emerging technologies” Coven spoke about, selling microinverters which are integrated with the individual panels.  Microinverters have the advantage that they simplify installation by removing the need to work with direct current, and they are also better at optimizing system output.  Because of this, Enphase is growing rapidly, while Satcon is shrinking.

Given Enphase’s weak balance sheet, the stock is likely to continue to decline despite the strong revenue growth.  Either Enphase will be acquired by a stronger player, or existing shareholders will suffer significant dilution as the company is forced to return to the markets for additional operating capital.

China Takeover

An acquirer might not just be one of the stronger industry players Coven pointed to.  Jabusch speculates that one of the stronger diversified Chinese solar companies might look to acquire a newly cheap power conversion player.  He thinks it “makes sense for a larger solar firm to want to add power control devices such as inverters, storage and distribution to their verticals,” while emphasizing that this is only speculation.  ”But,” he says, “ the pieces fit, so it can’t be ruled out.”

Conclusion

Given the consensus that the shake-out is far from over, it is too early to buy into the solar inverter industry.  Even likely industry survivors will continue to see deteriorating margins until the weaker players exit.  Possible buy-out targets may receive a price bump on buy-out news, but any acquirer (even one from China) will probably wait for weakening industry economics to allow them to pick up their target our of bankruptcy, or at least a better price than is available today.

Disclosure: No positions.

This article was first published on the author's Forbes.com blog, Green Stocks.

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 03:01 PM | Permalink | Comments (0)

Jennifer Runyon

In part one of this article, we talked with a-Si equipment manufacturer, Oerlikon Solar, which was recently purchased by Tokyo Electric.  Here in part two, we talk with two heavy-hitters in the thin-film solar industry to hear their thoughts about the future of thin-film PV and the future of their technologies. 

First Solar (FSLR)– Maker of Cadmium Telluride (CdTe) Thin-film; Developer of Utility-Scale Projects

First Solar (FSLR) has robust plans for the future, according to David Erhart, Marketing Communications Manager at the company.

Erhart explained that it is First Solar’s “thin-film technology that takes a simple piece of glass and turns it into a complete solar module in less than two and a half hours in a continuous automated process,” that has fueled the company’s success so far.

To date, the company has more than 5 gigawatts of modules installed worldwide and was the 1^st company to break $1 per watt cost barrier, he said.  It is currently manufacturers its panels at a cost of less than $.75 per watt and the company won’t stop there, according to Erhart.  A recently announced restructuring of First Solar should bring the company’s average manufacturing to $0.70-$0.72 per watt in 2012, below prior expectations of $0.74 per watt. In 2013 the company estimates average module manufacturing costs will range from $0.60 to $0.64 per watt.

Erhart said that First Solar is the current world-record holder for CdTe PV cell efficiency at 17.3 percent and PV module efficiency at 14.4 percent, numbers that have been verified by the National Renewable Energy Lab.  The company plans to take those efficiencies to scale.  “We expect to take cadmium telluride thin-film solar technology to levels that it has never been before,” he said.

In addition to module manufacturing, First Solar has become the world’s largest builder and operator of utility-scale power plants. It boasts the “largest pipeline in the industry with more than 2.7 GW of solar PV plants under construction or in development with PPA,” Erhart said.

He pointed to three U.S. projects — the 290-MW Aqua Caliente, the 550-MW Topaz Solar Farm and 550-MW Desert Sunlight projects — as examples of some of the power plants that First Solar is developing, which also happen to be among the largest PV power plants under development in the world.

First Solar has now set its sights on the developing world, in line with many other solar power players.

While acknowledging that markets can shift on a dime, Erhart said “regardless of where the existing markets go, we want to invest in what we call long-term sustainable markets.”  That makes a lot of sense when considering how the on-again, off-again subsidies that are in place in Europe have really dominated market development.

“We don’t want to wake up every day dependent on these subsidies,” said Erhart, explaining why the company is interested in more stable markets such as “markets that have a need for electricity, that have high irradiance, and have high costs of electricity,” he said.

First Solar CFO, Mark Widmar, echoed the company’s expansion plans in a conference call to investors. “Over the next couple of year, we also intend to make progress in sustainable markets,” he said.  More details will be available during the company’s first quarter earnings call, scheduled for early May, after this article goes to press.

First Solar modules use “98 percent less semi-conductor material than the semi-conductor materials required for traditional crystalline silicon manufacturing processes,” said Erhart. That has meant that the company has had a significant cost advantage over the years, although GTM Research’s MJ Shaio points out that the cost-advantage window is closing.

“Scores of thin-film silicon manufacturers, drawn by the pied piper of propped poly prices, suddenly saw utilization rates collapse and their low efficiency, very low cost product turn into a very low efficiency, average cost product, evaporating any competitive advantage they might once have had,” he said in his thin-film report.

In terms of competition, Erhart sees the “usual suspects” as First Solar’s main rivals in the space. These are the crystalline solar PV module makers below:

However, he explains that it is not always just other solar companies that First Solar is in competition with: “When you are going into these emerging markets to help them with their dire energy needs, you are not necessarily competing with other solar panel manufacturers, you are competing with other forms of renewable energy,” he said. “In Saudi Arabia, for example, we are competing primarily with diesel, which they would rather sell as gasoline or petrochemicals than burn for their own domestic electricity.”

And as a builder of power plants, the company also can go head to head with “very large construction firms that have been building power plants for a long period of time,” he said.

While those firms have a lot of experience, First Solar has a lot to be proud of as well, according to Erhart.  He said that the company has the lowest balance of systems (BOS) costs in the industry; an award winning safety record; and the fastest installation velocity in the industry.

First Solar CFO Widmar echoed Erhart’s enthusiasm about the company’s future. “Our captive pipeline shows that many of the world’s most sophisticated renewable energy investors continue to invest in projects using our technology, which is being deployed in some of the largest sites in the world, under the toughest desert conditions,” he said.

Other existing CdTe thin-film firms have not had quite the success that First Solar has had so far.  Abound Solar recently announced plans to layoff 180 employees while it builds its next-generation higher-efficiency module.

GE (GE), which acquired PrimeStar Solar last year, said it would be building a 400-MW CdTe factory in Aurora Colorado.  The facility is under construction right now and GE has said that it expects panels to come off the assembly line this year.

Solar Frontier, CIS Thin-Film Developer

With the exception of GE’s more recent entrance into the thin-film market, Solar Frontier is the only major thin-film player that has a huge parent company. Showa Shell Sekiyu K.K. owns Solar Frontier and having such a wealthy parent company means there is little doubt that Solar Frontier will be able to make strides in the solar power industry.

“So far, it’s a good year for us,” said Greg Ashley, the company’s Chief Operating Officer for the Americas.  “Even though global prices have stayed low, they pretty much stabilized over the past few months,” he continued.

Solar Frontier manufactures copper indium selenium (CIS) solar panels and has a 1-GW factory in Japan and several smaller facilities in other areas of the world.

Ashely said that CIS has a few advantages over CdTe and a-Si panels.  “Our measured performance ratio is still higher than CadTel,” he said. “I think the fact that we’ve stayed with a very strong framed module, whereas most of the other thin-film folks have gone to frameless, or stayed with frameless gives us some installation/design flexibility that they don’t have,” he explained.

“And our modules are slightly larger so the combination of the frame and the larger size, we typically have lower BOS and are easier to handle,” said Ashley.

Ashley said the company has its eyes set on Japan.  “Demand for us in Japan is exploding [as the country is] getting ready for the new feed-in tariff,” he said.

Japan’s feed-in tariff is supposed to go online July 1 as the country sets to aggressively pursue renewable energy as a result of losing much of its nuclear power capacity.  “So we are positioned pretty well,” said Ashley.

Like the other executives we spoke to, Ashley echoed the market shifts taking place.  He said that for Solar Frontier, the U.S. holds great potential.  “The sun belt is probably going to be, in the long run, the biggest market. Everyone expects it to be,” he said. In addition, he said the company is doing business in the Caribbean, and that it is “pursuing business in Hawaii and we are also pursuing business in Latin America.”

But Japan is where it really plans to grow: “Japan is probably a bigger, faster, easier growth market for us…but in the long run, it’s all the sun belt countries, the developing countries,” he said.

With Shell as a parent company, Solar Frontier doesn’t have a lot of trouble penetrating new markets.  Shell has a long history in the global energy markets said Ashley.  “We’ve got a very strong presence in a very large historical network of relationships both with the private and public sector,” he said.

He said the company is “treated with respect” and “granted some preferential access to the right types of opportunities with the right types of companies, with the right types of partners” in the emerging markets across the globe.  For example, “we have EPC partners with some of the larger players in India…same thing in Thailand and Malaysia and other parts of the world,” he said.

To date, however, Solar Frontier is working on smaller projects than its rival First Solar.  Ashley said that for now, even its utility projects are in the one to two-megawatt range. Except of course for the 130-MW Catalina solar project, which is located in Kern Coutnry, Calif. and being developed my enXco.  Solar Frontier shipped 30 MW of panels to the Catalina project in the last quarter of 2011 and expects the project to be completed by mid-2013.

Like Oerlikon’s O’Brien and First Solar’s Erhart, Ashley believes that PV module manufacturing pricing will remain in the one dollar per watt range but “in this race to get to installed cost of one dollar per watt, I think we are very far off from that,” he added.

Ashley said that the solar industry’s biggest problem right now is the excess inventory that has built up, a problem that he thinks could be resolved by the country that manufactured a lot of it: China. 

“Actually the market in China itself will have a big influence,” he said. Ashley thinks China will begin soon to stimulate its own internal demand and that will reduce the impact that oversupply is having on the market.

In addition to Solar Frontier, other CIGS players include MiaSole, Avancis, Global Solar, Nanosolar, Sotecture and Solibro, which is owned by Q-Cells.  Q-Cells filed for bankruptcy in early April, leaving the fate of Solibro up in the air.

But Solar Frontier’s Ashley remains incredibly optimistic about thin-film.  He said he believes that “thin-film is competitive with crystalline even at the lowest prices” and “not just our technology.”

“There’s going to be more thin-film manufacturers and it’s good that there are and it’s good that the existing ones continue to grow and thrive,” he said. “I’m very hopeful for all my competitors, as well as my own company.”

Thin-Film Outlook

GTM Research forecasts that global thin-film production and total market value will dip below $3 billion in 2012, it’s latest report projects an up-tick in thin film demand in 2015/16, where the total market, according to GTM will recover to $7.6 billion. 

GTM believes that industry’s rebound will be predicated on the continued, though muted, success of First Solar and the execution of efficiency, yield and scale roadmaps from other thin film manufactures.

In particular, GTM predicts strong growth in the copper-indium-gallium-diselenide (CIGS) technology segment, forecasting production at 4 GW in 2016. Even though in 2011, Solar Frontier is the dominant supplier with roughly 400 MW of CIGS PV shipments GTM said that companies like MiaSolé and TSMC could emerge in the next few years as top thin-film suppliers with cost of manufacturing approaching $0.50 per watt. Venture investments in CIGS surpassed $305 million in the past two quarters, albeit at depressed valuations. Coupled with increased interest from global industrial conglomerates on the sidelines, GTM Research predicts major acquisitions in the near future.

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine.

Posted by Guest Contributor at 09:07 AM | Permalink | Comments (0)

Jennifer Runyon

As the solar PV market goes through its trials and tribulations, thin-film manufacturers could be poised to take on more market share.

In the solar electricity market, capitulation, consolidation and contraction are the buzzwords of the day. Today, all solar PV manufacturers face an over-supplied and underfunded PV market. The oversupply and drop in subsidy markets across Europe and the U.S. has forced crystalline silicon manufacturers to sell their PV panels below manufacturing costs or risk losing all market-share. As the weeks tick by, major manufacturers, one after another, are going under or announcing major scaling back of their operations. Thin film solar panel manufacturers have not been able to stay out of the fray, with many of them struggling to keep up with the falling panel cost and oversupply of panels on the market.

MJ Shiao, who authored a comprehensive 322-page report entitled, “THIN FILM 2012–2016: Technologies, Markets and Strategies for Survival” said that the industry may be dying, but it isn’t dead yet.  He pointed out “venture capital investment into thin film in Q4 2011 and Q1 2012 combined to reach nearly $300 million.”

Shiao also pointed to big announcements from the key players in the industry that indicate even as the industry struggles, it has big plans for the future.

Thin-Film Advantages over Crystalline PV

Crystalline PV has the cost advantage right now with slightly more efficient panels selling for below one dollar per watt. But thin-film works better in low light conditions and in hot environments, which means that in certain sun drenched areas of the world, thin-film turns out to have a lower levelized cost of energy (LCOE). The LCOE is the final cost to produce a kilowatt-hour of solar power and deliver it to the grid. So while a crystalline silicon PV panel may have a higher efficiency, meaning that it can convert more sunlight to power when the sun is shining, that same crystalline panel will produce energy for a shorter amount of time during the course of any given day.  And that same panel will experience greater degradation of power in hot environments than the thin-film panel, according to all of the thin-film experts interviewed for this article.

Couple the fact that thin-film has a lower LCOE in hot environments with the fact that the solar market is shifting towards more remote, unsubsidized markets that already experience high electricity prices and it becomes clear that thin-film has a chance at taking on more market share in the future.

Key Players in the Industry

Thin-film solar panels are created through three different manufacturing techniques that use different core components: amorphous silicon (a-Si), cadmium telluride (CdTe) or copper indium gallium diselenide (CIGS) and copper indium sulfur/selenide (CIS).

We checked in with makers of all three manufacturing types of thin-films to hear their thoughts about the future of thin-film PV and the future of their technologies.  All three have very big expansion plans.  See the image below for a list of the top suppliers by production:

 

Oerlikon Solar (OERL.SW)– Makers of Manufacturing Equipment for a-Si Panels

The only small silver lining to the very low solar power panel costs, according to Chris O’Brien, Head of Market Development at Oerlikon Solar (OERL.SW), recently acquired by Tokyo Electron (TEL), is that low module prices are driving increased demand for solar power in general. 

He points to markets in the Middle East, Africa and India as areas where there is a growing interest in solar PV.  Whereas PV projects in those regions used to be in the sub-megawatt range, he said they are now coming in in the multi-megawatt range.  This is a trend that many in the industry expect to continue.

O’Brien also said that pricing will remain low and only those manufactures that can innovate enough to bring down costs will be able to compete.

 “All in solar bids in California are coming in in the range of nine cents per kilowatt-hour.  I think what that reflects is not just the current low prices but an expectation that the price will continue to go down. In that case the RAM [renewable auction mechanism] was for deliveries in 2016.”

Oerlikon, which manufacturers the equipment to build amorphous silicon (a-Si) thin film module manufacturing plants, has seen a drop in equipment upgrades in 2012.  “Most estimates are that the investment this year will be down by more than 50 percent compared to last year,” O’Brien said.

O’Brien explained that in 2010 and 2011 manufacturers expanded aggressively, at what have turned out to be unsustainable rates. He called it a manufacturing equipment bubble. “A number of aspiring manufacturers wanted to copy the success of the 2009 emerging market leaders in China, like Suntech, Trina, Yingli,” he said.  Those tier 1 manufacturers successfully expanded to 2 GW of manufacturing capacity in 2009 and others wanted that success, he said.  What resulted was a glut of panels on the market.  Today, many of those manufacturers who aggressively expanded are now left sorely in debt, stuck with equipment that might not be sellable in the near future. 

“I expect there might be some buyer’s remorse,” said O’Brien.

Oerlikon is waiting for the next manufacturing equipment investment cycle to begin and O’Brien expects that to happen by the end of 2012. “I think the market is catching up to the investment that was made in 2010, 2011,” he said.

“What will be different for the next investment cycle,” he said, “is that the cost requirement will be much lower.” Obrien said he expects that manufacturers will need to diversify in order to stay afloat, which might mean that some crystalline silicon manufacturers will differentiate their lines. 

“I don’t expect that PV module prices will increase,” he said. “So during the next investment cycle, the cost requirement will be much lower.”

He continued: “The next investment cycle will be shaped by what technologies can provide a sustainable business model at PV module prices that are at or below today’s prices.”

O’Brien said that Oerlikon can deliver a 140-MW manufacturing line that will produce 10.8 percent efficient panels at $0.50 per watt as long as it is running at full capacity. He looks forward to working with Tokyo Electron (TEL) to further improve the line.  In early March Oerlikon announced that it was being sold to TEL, a leading semiconductor equipment supplier from Japan.

a-Si thin-film manufacturers producing panels with Oerlikon equipment include Astronergy, Auria, Baoding Tianwei, Bosch Solar Energy, Gadir Solar, HelioSphera, Inventux Technologies AG, Schott Solar, Pramac and Sun Well Solar. In addition to these players, Sharp Solar (SHCAY) has an a-Si thin-film line.

A chart showing all the players in the thin-film solar equipment manufacturing business is above. It comes courtesy of GTM Research’s “THIN FILM 2012–2016: Technologies, Markets and Strategies for Survival.”

In Part 2, we’ll talk with First Solar (FSLR) and Solar Frontier and take a look at the overall industry outlook for thin-film solar technology.

Jennifer Runyon is managing editor of RenewableEnergyWorld.com and Renewable Energy World North America magazine.

Posted by Guest Contributor at 09:15 AM | Permalink | Comments (0)

Marc Kenneth Howe

Chinese photovoltaics leader LDK Solar (LDK) is headed for bankruptcy according to industry observers within China, due to its immense debt burden and a global downturn in the solar energy market.

China’s Nanfang Zhoumo reported on May 26 that bankruptcy rumors have plagued LDK in recent months, causing investors to seek to divest themselves of shares in the company and regional clients to suspend orders for the company’s products.

One of LDK’s leading investors, Guokai Jinrong, is believed to have sought buyers for its stake in the company since the start of 2012, with management heavily regretting its decision to invest in LDK in 2011, just prior to the solar energy market entering a slump after riding an unprecedented wave of growth.

LDK’s 2011 Q4 financial report, which at the end of April was delayed for several days, indicates that the company is mired in debt of U.S. $6 billion, and that annual interest payments alone amount to between $200 million and $300 million. Total Q4 losses were $589 million, marking the company’s third successive losing quarter.

This is a dramatic turnaround for LDK, which until recently was a leader in the Chinese solar energy sector, and whose 37 year-old chairman Peng Xiaofeng was once feted as an industry wunderkind. 

Peng was one of the youngest and wealthiest figures in China’s flourishing solar power sector, and LDK was for a brief period the world’s largest producer of photovoltaic multi-crystalline silicon. LDK was also the first company from Jiangxi province to be listed on a U.S. stock exchange, and the province’s second largest source of tax revenue.

The company’s ambitious high-debt growth model made LDK highly vulnerable to market vicissitudes, however, and the recent industry downturn may have done irreparable damage to the company’s prospects.

Despite the company’s woes, Peng has put on a confident front for both the media and investors, taking the stage earlier this month at a banquet for business partners and customers held in a five-star hotel in Shanghai’s financial district. In an interview with Nanfang Zhoumo, Peng dismissed the concerns of analysts by saying that “they have never seen a great company,” and compared LDK’s troubles to those encountered by Apple’s Steve Jobs a decade ago.

Peng has now pinned LDK’s hopes on the release of a new product — the M2 high-efficiency multi-crystalline silicon wafer, and has informed key lenders that customers are willing to pay a premium of over 10 percent for the new product. Although other industry figures, such as Hu Huifeng, senior deputy general manager of Taiwan’s Neo Solar Power, have come out in support of this claim, analysts believe that the company cannot overcome its current predicament with the release of a single new product, and that given the poor state of the market LDK will be unable to service even the interest payments on its debt.

The flamboyant Peng is certainly no stranger to controversy or crisis. His decision to invest in a 15,000 ton silicon factory was criticized heavily by LDK insiders as well as external observers. Departing senior personnel have complained about management problems within LDK, with many decrying Peng’s headstrong style, lack of prudence, and cavalier attitude toward the opinions of others. The company also faced financial difficulties at the end of 2009, when LDK’s Q3 asset-liability ratio hit 85.15 percent, and its total bank loans reached $1.403 billion. Those problems pale in comparison to the company’s current $6 billion debt burden, however.

Rumors reported by Nanfang Zhoumo also allege that LDK Solar has already filed for bankruptcy protection with the Jiangxi province government, but that the application was refused due to the size of the company and its importance for the provincial economy.

Marc Kenneth Howe is a contributor to Renewable Energy World.

Posted by Guest Contributor at 12:04 PM | Permalink | Comments (0)

Steve Leone

Solar technology photo via BigStock

For every revolutionary advance in solar, there are countless evolutionary dead-ends — technologies that were well worth exploring, but ones that ultimately failed to live up to the mantra of "cut costs or die."

These are the Solyndras of the world. Their science may have raised the bar, but ultimately they were judged by the market, which measures the bar on cost alone. From that perspective, it’s more like a limbo line — “How low can you go?”

For an industry struggling to get to price stability because of factors unrelated to technology, it can be a difficult exercise to envision which advancements will get to move on and which will be referred to only in the past tense.

In a new report titled “Searching for Game Changers in Photovoltaics Materials Innovations,” Lux Research details the emerging technologies that will thrive and those that will eventually sputter out. Along the way, the report gives us a couple new acronyms to squirrel away as we consider the ROI on our R&D.

The basis for much of the research is the volume of development funding we’re seeing right now, and the forecast that the industry will return to double digit margins by 2014. Conceivably, once those margins return, many of the innovations in the background today will be ready to step into the market. The formula to get there is based on solid economics — the technologies that succeed will offer both a low cost per watt and the ability to scale using existing PV infrastructure.

The report also offers a fair warning to those who assume that the U.S. will continue its role as innovators while China takes on the function of manufacturing. Many of the technologies that currently dominate PV were developed in American laboratories and academic institutions. But China is making significant investments within its own universities and government research institutes. The end result, says Lux, is that the innovation gap will soon close.

The Technology Winners

Epitaxial-Si: The report calls this technology the last nail in the amorphous silicon (a-Si) coffin. Uni-Solar has gone bankrupt and Oerlikon has sold its a-Si thin film business. The problem with a-Si has been the lower efficiencies achieved when compared with other thin film technologies like CdTe and CIGS. Epitaxial Si (epi-Si), which is thin monocrystalline silicon, has the potential for higher efficiencies, and it could replace a-Si infrastructure.

CZTS: Copper zinc tin sulfide cell technology has been receiving interest over the past few years because of its ability to replace CIGS with with cheaper materials. Indium and gallium, both used in CIGS, are rare earth minerals, which mean they’re expensive and subject to shortages. Some big names are looking into this technology, such as IBM and Dupont. Another exploring CZTS is Solar Frontier, which has made big inroads recently with its CIS operation. Lux expects CZTS, which still faces issues of thermal instability, to reach commercial scale and competitive thin-film prices within the next five years.

The Technology Losers

Kerfless Wafering: There’s been lots of buzz lately about ion implantation and how the tools needed for this technology can save lots of money compared to the current wafering technology. But the tools themselves are big-ticket items. According to Twin Creeks, each 350-square-foot tool would put out the quivalent of 6 MW of cells per year. That output is certain to go up with new generations, but according to Lux, the capex with ion implantation is still too high. Additionally, throughput for wafering is lower than the traditional wire-saw techniques and the exfoliated wafers that come from these tools require an additional step. SiGen and Twin Creeks have yet to report cell efficiencies. Solexel, which recently received $25 million to build a pilot plant, says it has reached 12.6 percent effient monocrystalline cells. That, says Lux, is too low for c-Si cells at any stage of development.

Quantom Dots: Quantom dots and nanowire cell technologies have drawn investment from academic researchers because both require less material than current thin-film technologies. But both quantum dots and nanowire structures result in larger surface areas, which are hard to passivate. And the cell efficiencies recorded thus far are well below what you’d need for commercialization. Without an unexpected breakthrough, neither technology will be commercialized any time soon, says Lux.

Steve Leone is an Associate Editor at RenewableEnergyWorld.com.  He has been a journalist for more than 15 years and has worked for news organizations in Rhode Island, Maine, New Hampshire, Virginia and California.

Posted by Guest Contributor at 04:36 PM | Permalink | Comments (0)

Ed Gunther

Trina Solar scores 94 to lead the 2012 SVTC photovoltaic (PV) solar sustainability survey.

Making the SEIA Solar Commitment.

The Silicon Valley Toxics Coalition (SVTC) released the 2012 SOLAR SCORECARD [.pdf subset] just in time for the SNEC 6th (2012) International Solar Industry and Photovoltaic Exhibition & Conference in Shanghai, China. Trina Solar Limited (NYSE:TSL) achieved the best result followed by SunPower Corporation (NASDAQ:SPWR) at 93, and CASM (Coalition for American Solar Manufacturing) protagonist SolarWorld AG (OTC:SRWRF) with 91.

In SVTC’s own words:

The Scorecard reveals how companies perform on SVTC’s sustainability and social justice benchmarks to ensure that the PV manufacturers protect workers, communities, and the environment.

SVTC has posted both a score summary and the entire survey as completed by each of the fourteen (14) firms that responded. The Solar Scorecard is said to represent 51% of global PV market share although the data source was not cited. SVTC Executive Director Sheila Davis told me the survey was sent to approximately 120 companies worldwide via postal mail and each was contacted subsequently to insure receipt and awareness.

Using the Top 10 module manufacturers of 2011 according to IMS Research as a framework, the Top 3 module manufacturers Suntech (NYSE:STP, with a score of 86), First Solar (NASD:FSLR, with a score of 74), and Yingli (NYSE:YGE, with a score of 88) responded to the SVTC survey, whereas the remaining five (5) Top 10 PV module manufacturers elected to not respond: Canadian Solar (NASD:CSIQ, with a score of 2), Sharp (OTC:SHCAY with a score of 9), Hanwha SolarOne (NASD:HSOL, with a score of 2), JinkoSolar (NYSE:JKS, with a score of 0), and LDK Solar (NYSE:LDK, with a score of 0). SVTC scored these non-responders using information posted on each respective website. Granted, PV companies are still learning about the Solar Scorecard and may not grasp its significance. Please note SolarWorld was not a Top 10 PV module manufacturer in 2011 per IMS Research.

Among the companies not responding with a score of zero (0), JinkoSolar Holding Co., Ltd. (NYSE:JKS) faced a Frankenstein like villagers protest last year because their Zhejiang, China, factory “discharges waste into the river and spews dense smoke out of a dozen chimneys.” Per “China quells village solar pollution protests” by David Stanway for Reuters, riot police broke up the protest after three days using “heavy-handed tactics”. It seems JinkoSolar did not learn much from resolving the incident.

In one of the key Solar Scorecard findings:

92% companies responding to the survey said they would publicly support extended producer responsibility, up from 57% in 2010.

Module take back programs are more than just for recycling twenty plus (20+) year old end of life modules but also about taking care of manufacturing defects and field returns because of breakage. Furthermore, producer responsibility extends beyond modules to the business exits and bankruptcies of PV manufacturers. “Solyndra Not Dealing With Toxic Waste At Milpitas Facility” again sets a worst case example and might force new manufacturing entrants to post a bond or otherwise prefund factory cleanup in the case of a company failure or shutdown. However, such contingencies are too late for the PV industry consolidation phase already underway.

In the United States, the Solar Energy Industries Association (SEIA) has yet to organize a national PV module take back and recycling program despite making the issue a priority in the 2009 press release, “U.S. SOLAR INDUSTRY TAKING THE LEAD IN PROMOTING SUSTAINABLE BUSINESS PRACTICES”. However, “SEIA Releases Solar Industry Commitment to Environmental and Social Responsibility” renewed and expanded the efforts at PV America West this year with a voluntary Solar Commitment program.

The SEIA should go further to encourage or by full member manufacturer consensus require participation in independent sustainability surveys like the Solar Scorecard. Likewise, a similar independent review would reinforce and reward sustainable sourcing and best practices in the downstream development, finance, installation, and Operations and Maintenance portions of the PV value chain.

SVTC has also created The Life Cycle of Photovoltaics (PV) visual website to follow each stage of a solar panel’s product life along with associated risks from the raw material supply chain through end of life for the Crystalline Silicon and Cadmium Telluride material sets with Amorphous Silicon and Copper Indium Gallium Selenide (CIGS) coming soon.

Kudos to SoloPower (61) for responding to the 2012 Solar Scorecard while San Jose crossroad CIGS start-up Nanosolar was once again a no show.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 12:40 PM | Permalink | Comments (0)

Tom Konrad CFA

Assurant, Inc. (NYSE:AIZ) is announcing  insurance for solar development projects today.   Are you bored yet?

Insurance always puts me to sleep, but the solar industry has left a lot more investors crying into their pillows than nodding off into gentle slumber.  That’s what happens when a sector, on average, falls 73% in a year, as the Guggenhiem Solar ETF (NYSE:TAN) has.  And many investors in individual solar stocks are weeping harder, from even larger percentage losses.

But that does not mean that the solar industry does not have a bright future, and one such bright sign is (try not to yawn) insurance for developers.  Solar is becoming a “normal” industry.

To date, developers of mid-size (100kW to 3 MW) solar projects often have difficulty finding financing for them because the projects are too small for financiers to spend much time doing due diligence, and there are a number of risks that they don’t have much experience with, such as the risk that panels from different manufacturers may break or not perform as well as expected, and the manufacturers may not have the financial strength (especially in the current climate of solar industry consolidation.)

Now Assurant has teamed with a number of leading solar industry players to offer Assurant Solar Project Insurance to address these risks at all stages of project development.

Boring?  Sure.  But a little ennui is just what the doctor ordered for the recently much-too-exciting solar industry.

Disclosure: None

This article was first published on the author's Green Stocks blog on Forbes.

Posted by Tom Konrad at 09:38 AM | Permalink | Comments (0)

by Clean Energy Intel

In the past month since we recommended taking profits on our Tier One Chinese Solar trade, the sector has been hit heavily – largely driven by margin erosion and a generally less than encouraging earnings season. The key question from here is whether or not we are once again at prices which offer a buying opportunity. The answer is probably not quite yet.


Source: Barchart

The chart above shows the percentage change in three Chinese tier one solar stocks plus the solar ETF TAN in the period since our last buy recommendation on Nov 28th of last year (see the original article here). In what continued to be a very volatile period for solar our basket rallied heavily and by the time of our recommendation to take profits on Feb 10th Suntech Power (STP) was up +82.5%, Trina (TSL) +67.4% and Yingli (YGE) +54.9% (see our original take profit recommendation here).

That happened to be the high of the year for those three stocks and they have fallen significantly since. Indeed, at the time of writing, STP has fallen -27% from its February highs, whilst TSL is down -32% and YGE has declined by -37%.

So is it now time to buy once again? The very volatile price action in the market reflects a genuine and very intense debate with regard to the extent to which 2011′s very damaging supply imbalance has been eroded. Moreover, this level of volatility is likely to be with us for a while as the industry continues to undergo an intense period of creative destruction as it consolidates and transitions to a more stable environment.

So where are we in this transition process? To feel comfortable that we have a solid buy opportunity once again we need to see progress on five main factors:

•     The clear emergence of visible new demand, particularly in China and the US, to replace the demand the industry is losing in Europe.
•     A halt in capacity expansion plans amongst tier one solar players and clear evidence of significant capacity shedding amongst tier two and three players.
•     A resultant stabilization of average selling prices (ASPs) across the supply chain.
•     Further progress amongst module makers in blending in lower polysilicon costs. Clearly, the preponderance of long-term contracts in the industry has meant that actual poly costs to module manufacturers have lagged behind the significant fall in spot polysilicon prices.
•     Similarly, further progress in lowering non-silicon costs in order to secure gross margin stabilization.

Somewhat obviously, significant progress on all of these factors will gradually bring more balance into the industry and will probably be enough to see both gross margins stabilize in the low teens and profitability return for those tier one low cost players who survive the current transition. With Grid Parity ahead in many countries by 2015 you then have a solid environment for the winners in this intense process of industry consolidation.
 
So how much progress has been made on each of these issues? First of all, in terms of demand, the numbers now stack up fairly well. Full year 2011 demand was probably around 26 GWs globally. This year demand in Germany is likely to fall significantly from a 7 GW handle to around 3.5 GW. However, demand in the US should pick up from 2 GW last year to 3 GW this year. Meanwhile, demand out of China looks likely to expand rapidly to around the 5 GW mark. Japan and India should also be growth areas. Overall, despite the sharp drop in demand out of Germany, there is good reason to see a small net increase in demand in global terms. So far, so good.
 
In terms of global capacity, one of the reasons that last November we recommended getting long Chinese tier one solar was that we were beginning to see major players finally cutting back on plans to increase capacity – for example see here. This was encouraging. More recently, Suntech Power has confirmed the company’s intention to hold its global capacity at 2011 levels – 2.4 GW for modules and 1.6 GW for wafers. Much has also been made of the decision by Korea’s main players to withdraw from their plans to push aggressively into the module market.
 
However, somewhat disappointingly, other major module suppliers in China have recently re-affirmed plans to expand capacity despite the over supply in the industry as a whole. For example, during Yingli’s recent earnings call, the company confirmed that it will add 750 MW of module capacity to reach 2.45 GW this year. Similarly, Trina has stated the company’s intention to add 500 MW of capacity to reach 2.4 GW.
 
This of course means that reaching something close to supply-demand balance in the industry will require much more outright destruction of capacity amongst tier two and three players. Supply in this area is much more difficult to get a handle on. However, what market intelligence we do have suggests that adjustment is certainly underway. For example, Suntech Power CEO Zhengrong Shi made the following point in the Q&A section of his company’s latest earnings call:
 
‘Well, what we have been told and through some survey in China for Tier-2 and Tier-3 manufacturers, more than 50% have reduced their production volume; and if we look at the bidding process in the recent China market, you will also see the number of participants actually has been reduced at this time’.
 
Meanwhile, in the Q&A section of Trina’s recent conference call, company Chief Commercial Officer Mark Kingsley stated their understanding that ‘in China in general, there have been more than 50 companies that stopped making solar and we expect that to continue’.
 
Nevertheless, this will clearly be a slow process of attrition, with the government in China showing no inclination towards forcing the pace of consolidation amongst solar players. The result in the short-term is likely to be that many of the struggling tier two and three players will continue to dump modules on the market at uneconomic prices in order to raise cash, thereby putting further downward pressure on average selling prices (ASPs) and industry margins.
 
This brings us to our third factor – after falling heavily in 2011, ASPs are likely to fall further this year. Final module selling prices for the major Chinese players probably averaged just over $1.10 in Q4 of last year. Trina, for example, sees their ASP falling further into the high 80 cents area for 2012 as a whole. And a continuation of the over supply situation in the industry could push that number down into the low 80s by the end of the year. Margin stabilization is therefore going to require considerable progress on getting costs down.
 
Turning to polysilicon costs first, most producers should benefit over the year as contracts continue to be renegotiated and the blended poly costs actually faced by module producers fall closer to spot levels. Trina has suggested, for example, that their current blended poly cost is around ‘a $45 per kilo range’ – or a contribution of about 30 cents per watt to module costs. Alternatively, an industry average of 5.5 grams of polysilicon per watt would imply a cost of 25 cents per watt.
 
As blended poly costs fall further over the course of the year, converging on spot levels by year end, optimistically poly costs per watt could conceivably fall to 15-20 cents – a not insignificant improvement.
 
Meanwhile, non-silicon costs continue to fall as module manufacturers continue to squeeze out production efficiencies. STP has indicated, for example, that their non-silicon production costs fell by 7% in Q4 to some 74 cents per watt. Both Yingli and Trina reached non-silicon costs of 64 cents per watt. Trina and Yingli expect to get that number down to 60 cents and 56-58 cents respectively by the end of this year. STP conservatively estimates 65 cents per watt by year end. However, this also reflects a higher efficiency mix of module output.
 
What is clear from these numbers is that the Chinese tier one players have a roadmap which could conceivably keep costs sustainably below ASPs, thereby stabilizing margins. For example, total costs in the low 70s per watt and ASPs in the low 80s would provide gross margins in the low teens.
 
Canadian Solar (CSIQ), is already talking about total costs including polysilicon moving towards the 55 to 60 cent range per watt. However, that would require a further fall in poly costs to around $20 per kilo – an event which may well pull prices down across the supply chain, leaving gross margins for module producers little better than in the low teens anyway.
 
Nevertheless, the above certainly represents a roadmap which could well offer a post-consolidation positive story for the low cost producers who will be the winners from the current difficult process. On this basis we have little doubt that there will be a time and a price at which to buy the Chinese tier one players once again.
 
However, in the meantime the current quarter looks likely to see a continued supply-demand imbalance and further downward pressure on both prices and margins. STP has for example provided guidance looking for both a seasonally weak Q1 in terms of shipments and further margin contraction into the 3 to 6% range. That implies further considerable losses.
 
In conclusion, the price action probably looks like it will have to make further progress on the downside before all of this is priced in. In the meantime, it continues to look like a time to keep your powder dry and invest another day.
 

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 07:19 PM | Permalink | Comments (0)

Tom Konrad CFA

Clean Edge's Clean Energy Trends 2012 contains some disturbing predictions for solar stock investors.

Clean Energy Trends 2012, the annual report from Clean Edge by Ron Pernick, Clint Wilder, and Trevor Winnie, was released today. On the surface, it seems like good news for the solar sector.  Although headlines in 2011 featured much bad press for Solar PV, the industry has not been "withering on the vine."

Here are some key points in the report:

•   Combined global revenue for PV increased from $71.2 billion in 2010 to $91.6 billion in 2011, a 29% increase.
• Installations in 2011 leaped 69% to 26 GW from 15.6 GW in 2010.  The higher growth in installations compared to revenue are a consequence of rapid price declines in crystalline modules.
• Clean Edge predicts continued rapid growth in installations, with global revenues of $131 Billion in 2021.
  
• At a total installed system price of $1.28 per watt (compared to $3.47 per watt in 2011), they expect more than 102 GW of PV installations in 2021.

Reading Between the Lines

Sounds like good news to you?  Then you're probably a consumer of solar electricity, not a company involved in the solar sector.

From 2007 to 2011, solar industry revenues grew at a compound annual rate of 46% (from $20 Billion in 2007 to $92 Billion in 2011.  Solar installations grew even faster, at a compound annual rate of 75% (from 2.8 GW to 26.4 GW.)  Despite the more than nine-fold growth in volumes, and the nearly five-fold growth in revenues between 2007 and 2011, the solar stocks were pummeled. 

The two industry ETFs, TAN and KWT are a good proxy for solar stocks over the period.  Both were launched in 2008, and they've fallen 89% (TAN) and 71% (KWT) since then.

Why the horrible stock performance?  You can't make up for lousy margins with volume.  The following chart shows how industry Revenues, GW installed, and prices have changed each year since 2007, along with Clean Edge's annualized expected change over the next decade.  Also shown are the performance of the solar ETFs from July of one year to July of the next.  For 2007-8, I used two prominent solar stocks, First Solar (FSLR) and Sunpower (SPWR) as proxies for the industry instead.

As you can see, the solar installations have grown robustly (by at least 50%) every year since 2007, but the only year this translated into good stock performance was 2007-8.  The most notable difference between that year and the last three was that solar prices fell only 3%, while installations grew 50%.  According to Ron Pernick, one of the authors of the report, the small decline in solar prices "was due to the fact that the global silicon shortage was still having a significant impact on pricing."

The industry had been rapidly growing volumes at nearly stable prices.  This sent profits at many solar companies skyrocketing.  The reason First Solar did so much better than Sunpower was that First Solar's panels do not use silicon, so the company was able to keep much of the rising revenues for itself, while Sunpower's reliance on expensive silicon meant that most of the rapidly rising revenues from the panels it sold had to be passed on to its silicon suppliers, like MEMC Electronic Materials (WFR). 

Incidentally, one of the very first articles I wrote about investing in clean energy was about the solar silicon industry in July 2006.  At the time I wrote, "I expect all polysilicon manufacturers to be very profitable through 2007, with prices beginning to subside (and perhaps crash) in 2008-9."  WFR went public a couple months later in September 2006, rose 140% to hit its all time high in December of 2008, and lost 85% from that high by the end of 2009.  Today WFR is down 96% from its high.

As a less self-congratulatory aside, the great solar stock performance in 2007 led to a reliable contrarian indicator for the solar sector in 2008: the launch of two sector funds, the solar ETFs mentioned above.

After the financial crisis, demand weakened, and solar companies had to drop prices in order to keep demand growing rapidly.  Demand did grow a blistering compound annual rate of 84% over the next three years, but at the price of rapidly eroding margins at solar companies, causing stock prices to also fall even more rapidly (at a 35% annual rate.)

The Future

Going forward, Clean Edge expects solar prices to continue to decline fairly rapidly over the next decade, at an average annualized pace of 9.5%.  Meanwhile, they expect solar installation growth will be only a fraction of the current pace at 14%, and that solar industry revenue growth will slow to crawl at only 3.6% per year.  In fact, they predict that the revenue growth over the entire next decade will be less than the annual growth rate over the last ten years (at 42% and 43%.) 

I personally think the Clean Energy Trends growth estimates are low... 42% growth over the next two to four years (as opposed to a decade) makes more sense to me.  But that does not change my rather pessimistic conclusion: The stalled revenue growth and continued erosion of solar prices will almost certainly continue to undermine the profitability of the solar sector for years to come. 

Solar stocks may look cheap now, but as every dedicated bargain-hunter knows, it's a lot easier to find something cheap than to find a great value.  Solar stocks may be attractive for traders, but long term investors will continue to do well by staying away.

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 09:01 AM | Permalink | Comments (0)

2011 Report Card plus my 2012 trends and predictions.

by Edgar Gunther

Contrary to my stated goal, the Photovoltaics: 8 Trends to Watch in 2011 review and 2012 photovoltaic (PV) trends and predictions post has once again extended well into February. As usual, I won’t be grading on a curve.

Photovoltaic Market Demand Growth
Last year, I said:

In 2011, I predict at least 35% global PV installation demand growth despite Feed-in Tariff (FiT) headwinds in Germany, Italy, France, the UK, Ontario, and the Czech Republic.

Grade: Pass

To be honest, I’ve been pessimistic since midyear 2011 and was even more so when there was limited demand elasticity impact from declining module prices on 3Q11 (third quarter of 2011) PV installations. Perhaps it was my turn for PV business “Doom and Gloom, an Overreaction”.

Let’s credit IHS iSuppli (21.2 GW, GigaWatt), IMS Research (22-24 GW), and Solarbuzz (23.6 GW) for sticking with their 2011 PV forecasts albeit with upward revisions although installations pushed out into the fourth quarter. Both IMS Research and iSuppli now believe global 2011 PV installations exceeded 26 GW.

In the second part of the prediction, I said:

I don’t see the US more than doubling again in 2011 so PV installations will be below 2 GW.

Grade: Pass

While the final numbers are not yet in, Greentech Media Research has projected about 1.7 to 1.8 GW of US PV installations in 2011 based on the U.S. Solar Market Insight Report collaboration with the Solar Energy Industries Association (SEIA).

In 2012, I predict at least 25% global PV installation demand growth. I am tempted by the under since the early year Feed-in Tariff (FiT) headwinds seem stronger than ever with serious talk of a 1 GW cap in Germany and PV installations in Italy expected to decline sharply from 2011. Has the German PV market peaked with the estimated 7.5 GW of installations in 2011?

Per “Solar CEOs See Boom in China Will Ease Glut in 2012: Energy” by Alex Morales and Jacqueline Simmons for Bloomberg, Trina Solar Limited (NYSE:TSL) CEO Jifan Gao expects 5 GW to be installed in China and “global demand of 30 gigawatts to 35 gigawatts” in 2012.

For the US, I’ll prognosticate at least 75% PV installation demand growth buoyed by modules purchased under the expiring 1603 Treasury Grant safe harbor, utility scale solar projects, and residential growth.

1603 Treasury Grant and Tax Equity
As far as I can tell, the Payroll tax cut extension deal on the table does not include the extension of the 1603 Treasury Grant Program (TGP). Outside of the budget, this may be the last opportunity to revive the program until after the US 2012 Presidential Election.

The scramble for tax equity already began last year when “Solar Industry Momentum at Risk” by Arno Harris at the Clean Energy Future Blog marked the point when new solar project development for 2012 and beyond was impacted by the 1603 TGP expiring yearend 2011.

US solar trade claim against China
“Solar Trade War: It Just Doesn’t Matter” by Eric Wesoff at Greentech Media argues the impact of tariffs, punitive or otherwise, on Chinese solar manufacturers will be limited because of a shift to regionalized manufacturing of “trade-compliant” cells and modules.

For political reasons, I’ll go further to argue the imposed tariffs will not be punitive but amount to a slap on the wrist. Indications are China will respond with equivalent retaliation against polysilicon imports from the United States. The message is abundantly clear from a headline just today at DigiTimes: “Four China polysilicon firms demand government start anti-dumping and anti-subsidy investigation against US firms, according to China media”.

I think the Harmonized Tariff System of the United States (HTSUS) schedule for the complaint subheadings will impose duties in a range from 2.5% to 10% on cells and modules manufactured in China and imported to the US. The duties will be tiered; cells will have a lower tariff than modules to encourage NAFTA (North American Free Trade Agreement) based module assembly.

Why these duties? Back in 2009, Trina Solar received an unfavorable ruling classifying solar modules as DC generators because of the bypass diodes and was required to pay a 2.5% duty. While the tariff ruling was reported by the New York Times in “Solar Panel Tariff May Further Strain U.S.-China Trade”, the revocation on technical grounds [DOC] a year later was not publicized. The Solar Energy Industries Association (SEIA) lobbied for the reversal. I believe the incident provides a useful benchmark for reasonable tariffs on Chinese solar cell and module imports to the US that will be reflexively imposed on US polysilicon imports to China in response.

I don’t know why, but CASM versus CASE reminds me of Spy vs. Spy.

Polysilicon and solar grade silicon outlook
Regarding polysilicon, I said:

I’ll hazard to guess polysilicon spot prices will remain below $100 per kg in 2011 if solar companies plan to make profitable PV modules for declining FiT end markets. Long term polysilicon supply contracts are the only way to be competitive in the PV industry if you are not vertically integrated.

Grade: Fail

Well, my price prediction wasn’t bold, but my second statement has been disproven by contract cancellations and prepayment forfeitures in favor of polysilicon and wafer supply from the spot market.

The Photovoltaic Polysilicon Conundrum did resolve itself in the 4Q11 (fourth quarter of 2011) with polysilicon spot prices crashing below $35 per kg (kilogram) to $24 per kg with some reports from China as low as $21 per kg.

On the 2012 polysilicon outlook, Mr. Johannes Bernreuter, head of Bernreuter Research, said:

Even if only the four or five largest polysilicon manufacturers in China survive, the global production volume in 2012 could still be around 300,000 MT. So, there is continuing pressure to lower utilization rates or shut down production since 250,000 MT of supply should be sufficient even in an optimistic scenario. If the photovoltaics market should actually rise to 35 GW this year – the upper end of Trina’s forecast – I would expect the total polysilicon demand (including the consumption of the semiconductor industry) at approx. 280,000 MT.

I expect polysilicon spot prices will remain below $38 per kg in 2012 and may briefly dip below $20 per kg at some point later in the year as the largest polysilicon supply versus demand correction since the Internet bubble plays out.

Thin Film Photovoltaics
For thin film PV, I said:

In 2011, I eschew the CdTe (Cadmium Telluride) followers and assert MiaSolé and Solar Frontier are the thin film contenders to watch for signs of Second Solar emergence. I view Stion as a 2012 story.

Grade: Pass

According to GTM Research in “Who is the World Leader in CIGS Solar Shipments?” by Eric Wesoff, Solar Frontier emerged as the leading challenger to First Solar producing 577 MW (MegaWatts) of CIS (Copper Indium Selenium) thin film PV modules in 2011. Solar Frontier also marked 2011 with numerous installations and inked a 150 MW deal with enXco, Inc. to begin 2012. MiaSolé ranked third on the list with 60 MW of thin film PV module production although they are now seeking a partner.

At PHOTON’s 4th Thin Film Conference, Stion said the first 100 MW line is ramping to scale with commercial shipments starting in 1Q12.

Beyond the Solar Frontier, I’ll be watching Stion and strategic partner TSMC Solar Limited, a subsidiary of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), along with MiaSolé and the Solibro division of Q-Cells SE (FRA:QCE, QCLSF.PK) for a third thin film contender.

CSP (Concentrating Solar Power)
On the CSP front, I said:

In 2011, I predict another major southwestern US CSP project will fail because of legal or financing challenges or both.

Grade: Pass

Two days later, “Tessera / Stirling Sell Their Other Major Dish Project to a PV Developer” was the one of a number of CSP projects failing or switching to PV.

A review of the California Energy Commission list of Large Solar Energy Projects reveals glaring errors in the CPUC (California Public Utilities Commission) Status of RPS Projects (RPS_Project_Status_Table_2012_Feb_Final) spreadsheet. For example, the entry for the eSolar, Inc.Gaskell SunTower Concentrating Solar Power (CSP) project is listed as “Approved in Development” and “On Schedule”. Unable to recall the project being financed, I asked eSolar about the status, and eSolar was kind enough to respond:

eSolar sold the Gaskell land assets and is not aware of any development plans.

HCPV (High Concentration PhotoVoltaics)
In 2011, I said:

Instead of swinging for a CPV forecast strikeout, I’ll predict 2011 will be a record year for CPV start-up company failures as their funding runs out and investors lose patience with building better mousetraps while PV industry leaders like SunPower Corporation (NASDAQ:SPWR) and maybe Trina Solar Limited (NYSE:TSL) decide to enter the medium and low Concentration PV market segments.

Grade: Fail

I don’t think Soliant suspending operations and being acquired by EMCORE Corporation (NASDAQ:EMKR) quite counts as a record year for failures. SunPower did launch the Concentrated Photovoltaic (CPV) C7 Tracker at SPI 2011.

“Solar Junction Wins $19.2M for CPV” by Eric Wesoff at Greentech Media said:

In 2011, two of the leaders in CPV, Amonix and SolFocus, commissioned 15 megawatts and 5 megawatts, respectively.

Amonix, Inc. completed the largest North American HCPV installation at 5 MW (MegaWatt) in Hatch, New Mexico USA, after an earlier 2 MW installation at the University of Arizona’s Solar Zone in Tucson, Arizona USA.

Amonix is supplying CPV systems for a 30 MWac (MegaWatt alternating current) project developed by Cogentrix Energy for Public Service Company of Colorado (PSCo), a subsidiary of Xcel Energy Inc. (NYSE:XEL) in Alamosa, Colorado USA. The project is supposed to be completed by 2Q12.

After the tragic loss of CEO Brian Robertson, Amonix faces a challenging 2012 PV market and the politically charged cleantech stimulus debate with headlines like “Some 200 laid off at North Las Vegas Amonix solar plant” by Aida Ahmed for the Las Vegas Sun. I know Amonix was developing the next generation 8700 system and saw the 8700 MegaModules installed on a test array at the Las Vegas manufacturing facility during a factory tour in November 2011. I had taken up Mr. Robertson’s open invitation to visit the facility when I knew my journeys would take me through Las Vegas. So I accept the retooling explanation and believe Amonix has already manufactured all the CPV systems for the Alamosa project.

2011 proved to be a banner year for Soitec SA (EPA:SOI) efforts in HCPV. Soitec has approved PPAs for 155 MW of CPV for San Diego Gas & Electric (SDG&E), a subsidiary of Sempra Energy (NYSE:SRE), and a 150 MW Tenaska CPV project PPA for SDG&E was also approved by the CPUC. Soitec crowned the year celebrating the purchase of its North American manufacturing facility in San Diego, California USA.

Venture capital investments continued to flow to CPV companies. GreenVolts and Semprius investors included ABB Technology Ventures and Siemens Venture Capital respectively, while Morgan Solar raised funds in part from Enbridge Inc. (NYSE:ENB).

By the way, the GreenVolts Byron project is listed in the CPUC Status of RPS Projects as “Approved in Development” and “Delayed”. As far as I know, the project has been completed.

I predict at least 100 MWp (MegaWatt-peak) of HCPV will be installed in 2012.

Oil

On Texas Tea of the petroleum variety, I said:

I do think an oil price spike is possible, but I predict oil will stay below $135 per barrel through 2011 barring a force majeure event.

Grade: Pass

2011 per barrel oil prices ranged from $85.66 to 113.08 per barrel across domestic and imported supply according to U.S. Energy Information Administration (EIA) data. The Roland Berger Strategy Consultants analysis indicates oil prices will fall between $97 and $120 per barrel based on the most reliable forecasts from oil exporters Mexico, Saudi Arabia, and Russia.

Once again I’ll predict oil will stay below $135 per barrel through 2012 barring a force majeure event including tensions with Iran over the country’s nuclear program. I don’t believe rumblings of oil prices dipping to $85 per barrel or even $70 per barrel unless the global economy tanks into recession.

PV Industry Shakeout

With increasing PV industry scale, supply, and price competition in 2011, I expect the number of failing PV start-ups and established manufacturers to accelerate. I predict Solyndra will manage to survive 2011.

Grade: Fail

A number of PV and solar firms failed, filed for bankruptcy, or were taken under in 2011. If Solyndra had just managed to hang on for another four months, my prediction would have come true. I wrote a number of posts on Solyndra before the implosion researching product and systems costs and asking Is the Future of Solyndra Flat?

Forget Solyndra, I think Solar Millennium filing for bankruptcy restructuring is the biggest solar shakeout story of 2011 and will be an ongoing saga.

As the PV industry shakeout intensifies in 2012, even more companies across the value chain will fail than in 2011. I predict at least one of the CIS/CIGS start-up companies listed in the PV Blog Poll will fail in 2012.

PV IPOs (Initial Public Offerings)
I said:

Rather than doubling down Las Vegas style, I’ll switch gears to product manufacturers and pick MiaSolé to IPO in 2011 (please see “MiaSolé Raising $100M and Preparing for 2011 Solar IPO”) and assume any legal issues will be resolved (“MiaSolé Fingered in Patent Suit”).

Grade: Fail

The IPO drought continued in 2011. While MiaSolé made steady progress improving module efficiency, the company switched CEOs late last year and began 2012 by announcing a 10% workforce reduction.

I don’t believe a western PV module manufacturer will IPO in 2012. Outright acquisitions or majority stake strategic investors are far more likely possibilities.

My 2012 “Out There” Prediction
I didn’t go “Out There” in 2011 so there is no grade.

In a multiyear “Out There”, I predict the General Electric Company (NYSE:GE) will either divest it’s majority investment in thin film PV manufacturer PrimeStar Solar or move production offshore by yearend 2014 when they come to their offshoring, portfolio theory, photovoltaic senses.

Please vote in the sidebar PV Poll: Which CIS/CIGS start-up companies will fail next (may choose up to 3)?

Sorry for the over promotion of this experiment in crowdsourcing. I’d like the RSS and email readers to vote.

DISCLOSURE: No position in any of the stocks mentioned.

Edgar Gunther is a photovoltaic enthusiast who researches and pens the GUNTHER Portfolio under the Photovoltaic Blogger moniker. The GUNTHER Portfolio is an eclectic collection of niche Blog posts about solar photovoltaic technologies, companies, industry developments, and occasional energy politics sprinkled with insight, analysis, and irreverent commentary.

Posted by Guest Contributor at 06:57 PM | Permalink | Comments (0)

L. Myron Clark

A two-day surge on Feb. 8-9 took at least thirteen solar energy stocks more than twice their recent lows.  These names represent about half the publicly traded companies in the industry (on an unweighted basis). 

The "two-bagger" stocks follow somewhat different patterns, as indicated in the two graphs below.  Several of them hit their 52-week lows in late September or early October 2011, close to the bottom in the broad market.  Those lows ranged from 80% (YGE) to 86% (JKS) below the respective 52-week highs.  The companies include: Jinkosolar Holding Co (JKS), LDK Solar Co (LDK), Suntech Power Holdings Co (STP), Trina Solar Ltd (TSL), and Yingli Green Energy Holding Co (YGE).



Note: prices through Feb 9th; shaded area in chart is for comparison to SPX

Others in this group bottomed in November or December, when portfolio purging hit the out-of-favor solar sector. Their lows were even more extreme, ranging from 88% (CSIQ) to 91% (HSOL) below the respective 52-week highs.  The companies include: Canadian Solar Inc (CSIQ), Daqo New Energy Corp (DQ), Hanwha Solarone Co Ltd (HSOL), and Renesola Ltd (SOL).



Note: prices through Feb 9th; shaded area in chart is for comparison to TAN, the Guggenheim Solar ETF, as an industry benchmark

If you squint, you can find even bigger bounces off the lows among stocks categorized as "Deficient" for failing to meet NASDAQ Continued Listing Requirements.  (You could call this the Icarus category, except that hardly any company in the industry can evade that label after the plummet of 2011.)  These include: Ascent Solar Technologies Inc (ASTI), Daystar Technologies Inc (DSTI), Energy Conversion Devices Inc (ENER), and Westinghouse Solar Inc (WEST)
     A backhanded honorable mention goes to Evergreen Solar Inc (ESLRQ) , which is operating under bankruptcy.  The stock is up about 700% from its low: that is, from 1 cent to 8 cents.

The recent outperformance of many smaller stocks, after they had gone down longer and farther, indicates that investors in this sector have switched abruptly to a "risk-on" mode.  While it's a bit unseemly for speculative fervor to follow so closely on the heels of mordant despair, the shift in sentiment is not as dangerous as wild-eyed buying would be at the top of the market.  However, an unsettling tug-of-war appears to be shaping up between momentum-fueled optimism and fundamental-based skepticism.  This portends a lengthy spell of volatility until the solar industry undergoes further consolidation and pricing firms. 
    In my previous posting following the January spike in solar stocks, I predicted a partial repeat of the pullback that followed the sector's bounce off the bottom in October 2011.  That was fairly accurate for about two weeks, in contrast to the 2-month decline through late 2011.  Another iteration seems like a reasonable guess.  Short-covering rallies tend to have sharp reversals, so Part 2 of this analysis will examine short positions in these stocks.

DISCLOSURE:  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 10:51 AM | Permalink | Comments (0)

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 Jeff Siegel 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 |