Solar Companies Discuss Possible Effects of the Downturn on Their Industry

By Jennifer Kho

Solar shares fell alongside the Dow Jones Industrial Average and other stock indices Wednesday, with SunPower Corp., First Solar, Evergreen Solar Inc., Suntech Power Holdings Co. and Canadian Solar Inc. all falling well over 10 percent.

SunPower (NSDQ: SPWRA) fell 17.7 percent to close at $40.94 per share, First Solar (NSDQ: FSLR) fell 13.69 percent to $123.52 per share, Evergreen (NSDQ: ESLR) fell 14.6 percent to $3.51 per share, Suntech (NYSE: STP) fell 16.6 percent to $20.85 per share and Canadian Solar (NSDQ: CSIQ) fell 17.6 percent to $10.37 per share.

All the financial ups and downs have made the economy a key topic of conversation at the Solar Power International conference in San Diego this week.

As the Dow Jones Industrial Average and other indices plunged last week, rebounded this week and fell again Wednesday, solar companies have been trying to figure out how the credit crunch and the stock market roller coaster will impact the industry.

Some industry insiders say the solar industry is somewhat buffered from the economic storm and could help stabilize it, while others say the difficulty in raising capital could be a problem for companies trying to grow manufacturing and install projects.

California Gov. Schwarzenegger even weighed in on the discussion, on Monday saying a focus on the environment will boost the economy and create green jobs.

"Of course we are now facing tough economic times, but that's why we need to focus on solar and [the environment]," he said. "We should not listen to those who say [that] should take a back seat. That's just plain wrong."

It's still unclear whether companies will have a tougher time closing large rounds of project financing to meet their aggressive expansion plans.

But in what might be one small positive sign, Innovalight, a thin-film solar startup, has closed $5 million in debt financing from Leader Ventures and Silicon Valley Bank, the companies announced Wednesday (see Earth2Tech post).

The company is developing a solvent-based process for suspending silicon nanocrystals in a liquid ink solution and printing them on different substrates (read more about the company here and here).

Meanwhile, earlier this week, concentrating-solar company Soliant Energy said it raised $21 million in venture capital Tuesday and JinkoSolar, a Chinese silicon-wafer manufacturer, said it raised $35 million (see Earth2Tech post).

The size of solar venture-capital deals has skyrocketed, as VCs have closed larger greentech funds, competition for solar deals has increased and solar companies have reached the point where they need capital to build larger factories.

Solar companies raised $1.5 billion in 26 rounds in the third quarter, compared to $1.05 billion in 71 rounds in the whole of last year, according to Greentech Media's Venture Power Report (see Greentech Investments See Record 3Q).

And some VCs are positioning themselves to take up some of the slack from companies that might no longer to able to get debt financing (see VCs to Solar Startups: A Deal You Can't Refuse).

In a newsletter last week, for instance, SJF Ventures said it is "actively seeking companies with several million dollars in sales and exciting new growth opportunities that they cannot pursue via debt financing due to the current capital markets crisis."

Companies such as Nanosolar, AVA Solar and SoloPower each raised more than $100 million in deals that included venture capital in the third quarter.

But Nathaniel Bullard, a senior analyst at New Energy Finance, said there's not enough venture capital available to make up the debt financing needed to do utility-scale projects.

"This [economy] is certainly going to give people pause - anyone who needs to raise debt in a possible dead market, if you're not someone who's got equity lined up or VC funding," he said. "Debt financing is nonnegotiable. If you need it and can't get it, you can't build."

Chris Gronet, CEO of thin-film solar firm Solyndra, said that the financial markets aren't likely to impact his company, even though it plans to expand manufacturing capacity as fast as it can, because it has investors "with the resources and the long-term vision" to get through this time.

"We have to keep in mind that energy is a long-term issue," he said. "We believe the economy needs cleantech to help in the recovery, but the planet needs cleantech in order to survive."

Still, he said, the company is watching to see if the tightening of the credit market will impact solar project financing.

"We're keeping an eye on it," he said. "But so far, so good."

Bob Chew, who was president of SolarWrights before it merged with Solar Works and who will head the residential business for the newly formed, as-yet-unnamed company, says he expects the sluggish economy and credit situation will lead to more solar leasing next year.

As some customers shy away from spending the hard upfront cash to install systems themselves, leasing programs - which allow customers to finance the upfront costs of an installation in exchange for signing long-term contracts to buy electricity produced from the system – could become more attractive, he said. 

Meanwhile, Jim Jenal, CEO of solar installer Run on Sun, said he thinks the shaky stock market will have little long-term impact.

"I tend to take a longer-term view, and I think this is going to shake out," he said. "It seems to me right now that people are very unstable in their outlooks. I think once the election – either way – there will be greater stability. I don't expect the credit crunch as such to last long term."

Julia Hamm, executive director of the Solar Electric Power Association, said the economic situation may have a short-term impact on the solar industry, but that she expects it will impact solar less than other industries.

After all, the solar industry is used to dealing with fluctuating policies and markets, she said. "It's been on the roller coaster ride its whole existence," she said. "Smart companies are aware of this and know how to weather short-term [challenges]."

Also, she said, utilities are moving full-speed ahead with solar installations, as a new tax-credit program passed earlier this month makes previously excluded utilities eligible for the credits. 

"While we could maybe see a short-term downturn in residential and commercial markets - although hopefully not [now that the new tax credits have passed] - the utility [market] can be a bridge to keep the industry growing," she said.

Utilities in states such as California have been scrambling to meet requirements that they get a certain percentage of their electricity from renewable sources. They will still be working to meet those targets in spite of a weak economy, Hamm said. 

"They're not going to say 'Time out, pause,' because the economy's bad," she said.

Comments

[Piggybank:]

good stuff. Solar is part of the sollution to this mess. Decrease oil dependency, make the economy more effeciant, increase margins of all industry's with cheaper electricity, create jobs, and help the ecology. The subsidies are in place, the quarter results and growth of solar company's remain strong. there has been no indication yet that this industry is in any way affeced, while we see about every other industry be affected indeed.

The maket has so far overreacted with arbitrary selling off everything. Sure solar multipliers were high, but it is a strong growth sector too. the raw numbers remain great, rising sales, rising profit, expanding industry. Let the industry post another 2 quarters of great numbers on earnings during this crisis and were off for decades. people will weel unhappy should they not have taken the opportunity to buy at these cheap levels if this scenario continues to fold out so positivly.

And why not? Solar is not a big industry. With all it's current cappacity it hardly manages to provide more than 0.3% of world needed electricity. All in all, i think this industry is still so small and yet so promising that it is quite easy to dodge the ill effects of this credit crisis. And afterall, the only concern for solar company's atm is that this crisis might inpact it's superb growth, not it's current revenue. Other company's are facing real decline in demand, solar is not even feeling decline in a demand that is far higher than the sector's output, to be only concerned about how fast they could still grow, thats one heck of a luxury at this moment.

2008 Oct 16 01:44 PM

[Ange:]

Ange - www.ibuyitgreen.com

Yes friends great points, so far so good. Slow and bumpy ride yes, but nothings stopping the movement to a cleaner - healthier - sustainable direction/ responsibility. The companies involved will make it through to make peace with the reckoning -BeWell

2008 Oct 16 05:30 PM

[gebby:]

finally a positive article on solar that tells it the way it is. not with the usual outsized concerns as expressed by investment banks with conflicting loyalties.

thank you

2008 Oct 16 05:48 PM

[NOWHEREMAN:]

Solar will prosper, I don't doubt that aspect at all.

Solar Stocks however have been treated as if they were Newly innovative High Tech Companies. They Aren't. Solar Research has been ongoing since the 70s.

Solar stocks are in reality the new Utility stocks, their multiples will go down to reflect it.

2008 Oct 17 11:14 AM

[frflyer:]

paultaut
Where do you get the idea that solar companies are the new utilities? That is more than just a stretch.

2008 Oct 17 03:17 PM