Wall Street Gets Downbeat on Solar

By Ucilia Wang

Optimism is hard to find among some Wall Street analysts as two American solar companies get ready to discuss their earnings.

Some analysts are taking a dim view of SunPower Corp. (SPWRA) (SPWRB), which is scheduled to release its quarterly and 2008 financial figures after the market closes on Thursday.

Jeff Osborne at Thomas Weisel Partners believes the solar panel maker, based in San Jose, Calif., will face tougher times ahead than what SunPower has anticipated. The company already warned investors back in November that revenues for the fourth quarter of 2008 and this year would drop, but attributed the changes to foreign currency fluctuation (see Stocks Stumble After SunPower Lowers Forecast).

The company expects to generate $388 million to $418 million in revenue for the fourth quarter, with earnings of between 24 cents and 31 cents per share and a gross margin of 24 to 25 percent. For 2009, SunPower anticipates bringing in $2 billion to $2.1 billion in revenue, with earnings of $1.68 per share.

In a research note this week, Osborne said the 2009 revenue is likely to be even lower. He's reducing the revenue estimate from $1.97 billion to $1.38 billion.

The credit crunch will continue to squeeze SunPower's business, which includes not only making panels but also installing them, Osborne wrote in this week's research note. Uncertainties over the once-booming market in Spain, whose government has significantly downsized its solar incentive program for 2009, does not bode well for the company.

"Despite SunPower being a best of breed solar company which we believe will outperform in a credit recovery, we do not think they are immune from the market turmoil," Osborne wrote.

Mark Bachman at Pacific Crest Securities, meanwhile, doesn't even consider SunPower to be one of the best solar companies around. In a research note this week comparing SunPower to First Solar (FSLR), another large American panel maker, Bachman said a solar power plant built with SunPower's equipment doesn't necessarily perform as well as the company likes to claim.

Bachman made a similar comparison in a previous research note and saw First Solar as a stronger competitor in the marketplace (see First Solar Reaches Grid-Parity Milestone, Says Report).

Bachman lowered his estimate of SunPower's 2009 revenue to $1.8 billion from $2.1 billion.

First Solar, long loved by investors and analysts, isn't immune to Wall Street's bearish outlook. The company, based in Tempe, Ariz., has built a reputation for being able to produce solar panels cheaper than anyone else in the industry.

Osborne at Thomas Weisel Partners has cut his estimates of First Solar's 2009 revenue and production, citing difficulties in gauging market demand this year. He expects the company to produce 837 megawatts worth of panels instead of 975 megawatts in 2009, and the annual revenue to reach $1.72 billion instead of $1.99 billion.

In discussing its third-quarter earnings last October, First Solar executives said they expected to generate $2 billion to $2.1 billion in revenue this year (see First Solar Profits Up 54%, Credit Crunch Could Impact Biz).

In a research note this week, Gordon Johnson at Hapoalim Securities said he believed First Solar's own forecast "could prove out of line with reality." Johnson expects the company's 2009 revenue to be around $1.7 billion at the low end.

In a recent interview, Johnson said First Solar will face tougher competition this year because the price for polysilicon is dropping quickly. Polysilicon is the main ingredient used to make most of the solar panels on the market today. SunPower and Suntech Power Holdings (STP), for example, use polysilicon in their panels.

Polysilicon used to be pricy. With more polysilicon factories coming online, however, the prices are falling quickly (see Polysilicon Prices Head For a Steep Fall). First Solar uses cadmium tellurium instead.

"First Solar has had a cost advantage because it doesn't have to buy polysilicon. But it's going to crash and crash again even harder than Suntech," Johnson said.

First Solar plans to release its earnings on Feb. 24.

Comments

[Jake Berzon:]

Unfortunately, most utilities so far have resisted direct investments in solar farms. Instead, in order to meet the mandated minimums, their are looking to purchase alternative energy from others. However, these "others" are not generally deep-pocketed and will need financing in order to play. Financing,which is almost nonexistent for them right now.

So, it looks like the solar panel manufacturers are in for quite a downhill ride. The only thing that appears to be keeping them from crashing is the hope that Obama's infrastructure stimulus package will include lots of alternative energy friendly incentives, including financing for their potential customers.

Jan 29 02:10 PM

[Gumby:]

California get 15% of electricity from coal but not one coal fired powerplant exists in California.. All is imported from other states through gridlines... We will need 30-50% more coal in ten years as dozens of coal fired powerplants will be built in America.. Can solar keep up with it?? We need to find thousands and thousands of acres of raw land or rooftops to place solar modlues on... We have to climb up and down buildings to install one module by one module that delivers only 60 watts each... When you talk about gigawatts of electricty., you are talking about billions of modules.. where are they?? and Where is the place to install?? Tax breaks will not help with rooftops and land...

Jan 29 02:48 PM

[RJMoran:]

Solar also takes a great deal of 'credit' to finance the build out which, as we all know will be tighter going forward. Gumby is right. Trying to 'scale up' with solar is next to impossible. ALL the solar panel output in the world does not equal the electric output of ONE coal fired power plant! I'm all for wind, solar, tidal, etc, but people do NOT get it the scale issues. And further, these are not 'alternative' power sources but derivative power sources. They ALL require fossil fuel inputs in factories, electricity to build the module, ship it, install it. When solar powered plants create parts for wind turbines and solar panels, then you'll be talking. Otherwise they ALL 'derive' from fossil fuel energies in their creation (metal, part manufacture, etc) to production, shipping etc. As an investable idea though, they ALL require a LOT of credit...Not good, these days!

Jan 29 09:34 PM

[mkreisel:]

"They ALL require fossil fuel inputs in factories, electricity to build the module, ship it, install it. When solar powered plants create parts for wind turbines and solar panels, then you'll be talking. Otherwise they ALL 'derive' from fossil fuel energies in their creation (metal, part manufacture, etc) to production, shipping etc."

So you better develop those new energy sources as long as there are still enough fossil fuels left!

Jan 29 11:14 PM

[Jack Lifton:]

I am amazed that the statement below and the naive comment by the gentleman from Hapolim Securities below is simply reproduced without comment by this author:

'Polysilicon used to be pricy. With more polysilicon factories coming online, however, the prices are falling quickly (see Polysilicon Prices Head For a Steep Fall). First Solar uses cadmium tellurium instead.

"First Solar has had a cost advantage because it doesn't have to buy polysilicon. But it's going to crash and crash again even harder than Suntech," Johnson said.'

In fact "not having to buy polysilicon" because it uses cadmium tellurium places the focus on the real problem, which is that First Solar uses cadmium telluride! Cadmium is only obtained as a byproduct of primary base metal mining, principally from zinc. Tellurium is only obtained similarly from copper and lead mining with more than 90% coming from primary copper mining.

The production of zinc, copper, and lead is down sharply from its highs in 2007-8 due to the financial meltdown and lessening of demand. Therefore it is a disadvantage today to be dependent on a product that critically uses cadmium telluride.

Jan 30 09:40 AM

[John Cordes:]

Gumby, your comment sounds contrived. Solar is like cloud computing. There are utility sized projects, then there is individual sized. The vast majority of Spain's incentives went to individuals. Quite often small plot holders who could utilize a little space to build their own little solar farm. Here in Austin Tx. the city just announced a 30 MW plant, and the city currently cash rebates $4/watt on new commercial and residential installs, exclusive of any federal incentives. That was last year's rebate package, most likely it will get better. That is clearly the trend and it will propagate around the country. Especially when oil starts uptrending. The most popular aspect of President Obama's campaign rhetoric was his promise to instigate renewables as a national priority. Maybe you're long on coal or short on FSLR, I don't know, but your arguements, along with R.MOran's are contrived and counter to the mega-trend or macro tendencies within our society. You can't fight it, and pissing on it will only cause you to miss the next technological trend. All great macro-trends based on technological innovation or application is initially capital intensive. When whale oil was replace by petroleum, railroads, combustion engines, air travel, nuclear power, computing and internet infrastructure. Yet in all cases we cannot imagine life without them and how we could have flourished in their abscence. It becomes intuitive in hindsight. That is the macrotrend of renewable energies you cannot inhibit.

Jan 30 09:52 AM

[Bob55:]

There will be a shift in world mentality towards renewables as a necessity to address world environmental and, yes, even geopolitcal problems. Yes, <I>at least for now</I>, solar and wind may not be seen as being cost-effective as, you say, a coal plant but you must not discount the environmental price related to global warming and pollution. Solar technology is quickly advancing in efficiency and it's only a matter of time before it is as efficient as fossil fuels.

I also envision over this decade and the next many countries around the globe will come to depend on solar and wind for an ever-growing percentage of their electric production so it is not too farfetched to see everything from factories to electrical cars running off electricity produced mainly by solar and wind in the coming future.

Obama is also stressing energy independence as another motivation towards endorsing renewable energy. Being as self-sufficient as possible will be an important goal not only here in the U.S. but most countries around the world.

World sentiment for a better, cleaner planet will override whatever negative sentiment there are in Wall Street.

Jan 30 11:48 AM

[Fred W:]

Wow...that is one of the most misinformed posts I have seen in a while. 60 Watts! There are modules in the market that are rated at over 5 times that...and there is ample roof space and available land to support gigawatts in aggregate.


On Jan 29 02:48 PM Gumby wrote:

> California get 15% of electricity from coal but not one coal fired
> powerplant exists in California.. All is imported from other states
> through gridlines... We will need 30-50% more coal in ten years
> as dozens of coal fired powerplants will be built in America.. Can
> solar keep up with it?? We need to find thousands and thousands
> of acres of raw land or rooftops to place solar modlues on... We
> have to climb up and down buildings to install one module by one
> module that delivers only 60 watts each... When you talk about gigawatts
> of electricty., you are talking about billions of modules.. where
> are they?? and Where is the place to install?? Tax breaks will not
> help with rooftops and land...

Jan 30 12:07 PM

[Fred W:]

Your claim that annual solar manufacturing capacity is smaller than "a coal plant" is simply absurd. As coal plants vary greatly in size: What size is the coal plant you reference?
Where do you get your running stats on solar installation capacity?
There are very few sources that have accurate #s for 2007 let alone current worldwide capacity...perhaps you just model production #s in your head?


On Jan 29 09:34 PM RJMoran wrote:

> Solar also takes a great deal of 'credit' to finance the build out
> which, as we all know will be tighter going forward. Gumby is right.
> Trying to 'scale up' with solar is next to impossible. ALL the solar
> panel output in the world does not equal the electric output of ONE
> coal fired power plant! I'm all for wind, solar, tidal, etc, but
> people do NOT get it the scale issues. And further, these are not
> 'alternative' power sources but derivative power sources. They ALL
> require fossil fuel inputs in factories, electricity to build the
> module, ship it, install it. When solar powered plants create parts
> for wind turbines and solar panels, then you'll be talking. Otherwise
> they ALL 'derive' from fossil fuel energies in their creation (metal,
> part manufacture, etc) to production, shipping etc. As an investable
> idea though, they ALL require a LOT of credit...Not good, these days!

Jan 30 12:13 PM

[frflyer:]

Gumby

I think you have it backwards. Coal plants will be increasingly hard to get built because of environmental concerns. Wind power now employs more people than coal.
You only mention solar panels and not solar thermal. The Western Governors Association did a study which found there was suitable land near existing power lines in the southwest to build 300 GW of solar thermal plants. They can replace coal plants because they put out steady power, even at night. They could power the whole country using less land than coal mining and coal plants now use.

And you are looking in the rearview mirrror. The past eight years have not been friendly to renewable energy from the govt. perspective. The administratioin of the past eight years has been decidedly anti science and anti environmental. The reverse will now be true.

Increasing coal use by 30-50% would be climate suicide for the planet. The tide has only begun to turn, and the climate change deniers will lose, as they should. The Senator Inhofe's and their phony lists of skeptic scientists will no longer prevail and set the tone of conversation. Eliminating coal that does not use CCS by 2030 should be our goal. And CCS is still a concept that is not proven.


RJMoran and mkreisel

Your point about solar and wind needing fossil fuels to build is a meaningless statement. What are you trying to say? Anything you build needs these things, so what? I'll bet we build 100 gigawatts of solar before a single nuclear reactor goes online with it's 1 Gw or so of power. Won't those nuclear and coal plants need the same energy and materials to build? There is no shortage of silicon, all we need is the factories to refine it and make wafers.

Credit is a problem that will slow growth in the near term, we all know that.

Jan 30 12:54 PM

[mkreisel:]

frflyer, my comment was a sarcastic response to RJMoran.

I basically wanted to say that transition to solar must happen while there are still plenty of fossil fuels left.

Jan 31 03:21 AM

[Blayne:]

Are you referring to the USA? What is your source for that? The AWEA say that there are about 85,000 people employed in the wind industry and the DoE say that there are about 126,000 people employed at coal mines (direct employees plus contract workers). This doesn't include the people working in coal transport or power generation.

On Jan 30 12:54 PM frflyer wrote:


> Wind power
> now employs more people than coal.

Feb 01 08:09 PM