Honda Enters The Solar Market -- Sell-Side Reaction (HMC)

American Technology Research analyst Dave Edwards sent a note to clients outlining his reaction to the news that Honda will produce solar cells (which we covered in Honda to Mass Produce Solar Cells from ‘07 and Honda To Mass Produce Solar Cells). Excerpts:

Honda Enters the Solar Market

Yesterday, Honda announced that it intends to build a 27.5MW solar plant that will begin shipping limited quantities in fall 2006 and will be at full production in 2007. The plant will use a thin-film technology, which uses a combination of copper, indium, gallium and selenium (CIGS) as the active layer rather than silicon. CIGS solar modules have three major advantages: thinness, flexibility, and potential cost/performance advantages.

While CIGS have a theoretical efficiency limit of almost 20%, it is estimated that the commercial reality will be in the 12-15% range. There are a limited number of companies pursuing CIGS today including Shell (RDS-A, $61.55, NR), Daystar (DSTI, Not Rated), and Germany's Wurth. The venture capital world has also invested in CIGS through HelioVolt (New Enterprise Associates), Miasole (Kleiner Perkins) and Nanosolar (Benchmark, Mohr Davidow). CIGS and other thin-film technologies are still fairly limited in distribution and represent only a few percentage points of the total market. In general, the two most noted issues with CIGS are durability and the availability of indium and selenium. Note that although some CIGS vendors claim "non-silicon" as an advantage, as we understand it, the modules actually use a limited amount of silicon as part of an anti-reflective coating.

Why is this announcement important?

New competitor. Honda represents a new, large industrial competitor in the solar industry. Yes, the initial plant is small, but we doubt that Honda is entering the solar market with the intention of staying small. Although we believe that the current competitors have certain IP advantages, we do not believe that solar IP is insurmountable for large companies like Honda, Samsung, etc. While it is encouraging to see a company like Honda invest in the solar industry, it also raises the competitive risk for companies like Evergreen Solar (ESLR, $11.67, Buy) and SunPower (SPWR, $30.04, Hold).

CIGS endorsement. CIGS is still a somewhat unproven technology and we find it interesting that Honda would choose to invest in CIGS rather than a more proven technology. Then again, from what we know of Honda's fuel cell program, the company isn't afraid to invest in technologies about which others have doubts.

BIPV may be the end game. We believe that flexible, thin-film technologies like CIGS will have a disruptive effect, allowing the solar industry to become more mainstream. As solar modules are integrated into building materials such as roofing, siding and windows, we would expect much broader use of PV in commercial buildings. This is clearly not a given outcome since current products need to be modified, manufacturers of roofing/windows etc. need to see solar as an opportunity and architects need to embrace BIPV as part of their designs. Although we do not see BIPV being a large part of the market in the near-term, there are some isolated, early-stage successes, including:

• Energy Conversion Devices' (ENER, $35.32 NR) Uni-Solar division's amorphous silicon product is used in roofing solutions by Germany's Alwitra and California-based Solar Integrated Technologies.
• A school in Munich integrated partially transparent thin-film modules from Schott Solar into the skylights, providing shading and power generation.
• A grain silo in Ulm, Germany is covered with 98 kW of thin-film modules from Wurth.
• Several high rises have integrated PV into the buildings' facades including the Solaire apartment building in New York City and an office tower in Manchester, England.

What does this mean for the current mono and polysilicon players? Long-term, we think it is possible that BIPV will be a major segment of the solar market. Traditional silicon cells can be appropriate for some BIPV uses, but not all due to their rigid nature. For instance, while silicon cells may be integrated into windows, we would expect flexible thin-film cells to dominate any roofing and siding market that develops. To be clear, we think BIPV is theoretically a great market. The challenge in forecasting BIPV is that it has been slow to develop so far and there are still plenty of technical and business development hurdles ahead. That said, we wouldn't be surprised if BIPV products were the fastest growing segment of the solar market by the end of the decade.

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