Game Changer in Solar Energy: PG&E Inks Deal

We have quite the huge announcement from Sunpower (SPWR), Optisolar and PG&E (PCG) after hours.

This is a long term game changer if the utilities themselves decide to go solar as opposed to individual and corporations. Sadly our Congress still sits on their hands on the renewable tax credits for alternative energies while the rest of the world moves onward. California is trying to move on, with or without the rest of the U.S.

Solar is real and not a fad, unlike what you are currently seeing on the popular financial TV shows. The questions will be who will be the ultimate winners and how many will there be? [Jan 3: The Long Term in Solar] Intel (INTC) is getting in [Jun 17: Intel Creates a Solar Company Spin Off] Applied Material (AMAT) is getting in - these are not small start ups guessing on a "maybe" industry. And Goldman Sachs (GS) is quietly snapping up the land throughout the southwest US desert.

Meanwhile the "Fast Traders" and pundits point their nose upward and remind you of the solar fantasy in the 1970s and how this is just a repeat. Nice.

• Pacific Gas and Electric Company today announced it has entered into two utility-scale, photovoltaic [PV] solar power contracts for a total of 800 megawatts [MW] of renewable energy. This significant commitment to photovoltaic technology will deliver cumulatively 1.65 billion kilowatt-hours of renewable energy annually. This would be equivalent to the amount of energy needed to serve approximately 239,000 residential homes each year.
• PG&E entered into an agreement with Topaz Solar Farms LLC, a subsidiary of OptiSolar Inc., for 550 MW of thin-film PV solar power. The utility also signed a contract with High Plains Ranch II, LLC, a subsidiary of SunPower Corporation, for 250 MW of high-efficiency PV solar power.
• "These landmark agreements signal the arrival of utility-scale PV solar power that may be cost-competitive with solar thermal and wind energy," said Jack Keenan, chief operating officer and senior vice president for PG&E.
• The 550 MW Topaz Solar Farm project would utilize relatively low-cost, thin-film PV panels designed and manufactured by OptiSolar in Hayward and Sacramento. Located in San Luis Obispo County, California, the project would deliver approximately 1,100,000 megawatt-hours annually of renewable electricity. The project is expected to begin power delivery in 2011 and be fully operational by 2013.
• SunPower's planned 250 MW solar ranch, would be located in San Luis Obispo County's California Valley and will deliver an average of 550,000 megawatt-hours of clean electricity annually. The project is expected to begin power delivery in 2010 and be fully operational in 2012. The ranch would employ SunPower's proprietary crystalline PV solar cells, which generate up to 50 percent more power than conventional crystalline cells. The company would install its patented SunPower® Tracker solar tracking systems at the site, which tilt toward the sun as it moves across the sky, increasing energy capture by up to 30 percent over fixed systems, while reducing land-use requirements

GreenWombat article - California's Game Changing Solar Deal

• In a move that could alter the economics of the global solar industry, California utility PG&E on Thursday announced that it will buy 800 megawatts of elecricity produced from two massive photovoltaic power plants to be built in San Luis Obsipo County on the state’s central coast. The 550-megawatt thin-film plant from Bay Area startup OptiSolar and a 250-megawatt PV plant from Silicon Valley’s SunPower dwarf by orders of magnitude the five-to-15 megawatt photovoltaic power stations currently in operation around the world.
• Most of the industrial-scale solar plants designed to replace fossil-fuel power use solar thermal technology, meaning they deploy mirrors to heat liquids to produce steam that drives electricity-generating turbines. Photovoltaic power plants essentially take the solar panels found on suburban rooftops and put them on the ground in gigantic arrays.
• How gigantic? OptiSolar’s Topaz Solar Farm will cover 9 1/2 square miles of ranch land with thin-film panels like the ones in the photo above.
• “Obviously this is huge and a bold move,” says Reese Tisdale, a senior analyst who studies the economics of solar power for Emerging Energy Research in Cambridge, Mass. “It’s a pretty big jump in manufacturing capacity and a big opportunity for the PV industry, particularly for thin-film.”
• If the power plants are ultimately built - and that’s a big if, given the challenges to get such facilities online - and other utilities follow PG&E’s lead, demand for solar modules could skyrocket.
• “If we were trying to do it this year, it would be all of our production,” says Julie Blunden, SunPower’s vice president for public policy. “SunPower is ramping very quickly. By 2010 our production will be at least 650 megawatts.”
• The PG&E deal puts OptiSolar in the spotlight. Founded by veterans of the Canadian oil sands industry, the stealth Hayward, Calif., startup has kept its operations under cover, avoiding the media as it quietly set up a manufacturing plant in the East Bay and prepared to break ground on a million-square-foot factory in Sacramento. (can't wait for the IPO) ;)
• It has long been an open secret that building massive photovoltaic power plants was not economically viable. So what has changed too make constructing gargantuan PV power plants profitable?
• “Lots of things have changed,” says SunPower’s Blunden. “Power prices are going up and public policy is requiring utilities to have a portfolio of renewables.” And after building some 40 megawatts of power plants in Spain, SunPower has been able to improve its manufacturing processes and cut costs, according to Blunden. “We could see where the cost reductions were coming down and the benefits of scale,” she says. “We saw there was a way for us to be competitive with other renewables.”
• Goldstein says OptiSolar’s business model of owning the supply chain - from building its own machines to making solar cells to constructing, owning and operating power plants - will allow it to reduce costs. “By taking control of the value chain from start to finish, by being vertically integrated and cutting out the middleman,” he says, “we can be competitive not only with other renewable energy but with conventional energy.”
• Photovoltaic power plants do have certain advantages over their solar thermal cousins. They don’t need to be built in the desert, thus avoiding the land rush now underway in the Mojave. PV is a solid-state technology and with no moving parts - other than the sun tracking devices used in some plants - they make little noise and are relatively unobtrusive. Most importantly in drought-stricken California, they consume minimal water. And the modular nature of solar panels means that a power plant can start producing electricity in stages rather after the entire facility has been constructed.
• But contracts are no guarantee the even a watt will be generated. The Topaz and California Valley projects must overcome a number of obstacles, not the least of which is the U.S. Congress’ failure so far to extend a crucial 30 percent investment tax credit for solar projects that expires at the end of the year. SunPower’s Blunden acknowledges the PG&E project is contingent on the tax credit being renewed. (plenty of money for corporate farmers, ethanol, and big oil - lots of strife over any credits for wind and solar - welcome to your US leadership - bought and paid for)

NYTimes article here

• Two California companies said Thursday that they would each build solar power plants that were 10 times bigger than the largest now in service, creating the first true utility-scale use of a technology now mostly confined to rooftop supplements to conventional power supplies.
• At peak hours, together the plants will produce as much power as a large coal plant or a small nuclear reactor. But they will run far fewer hours of the year so output will be at least a third less than that of a coal plant of the same size.
• The largest current installation in the United States is at Nellis Air Force Base, in Nevada, with 14 megawatts, also built by SunPower. Spain has one completed plant at 23 megawatts. A German company, Juwi, has a 40-megawatt installation east of Leipzig. Florida Power and Light recently ordered a 25-megawatt plant.
• California requires that 20 percent of the kilowatt-hours sold by investor-owned utilities come from renewable sources by 2010, a goal that some companies are struggling to meet.
• SunPower’s panels are mounted at a 20-degree angle, facing south, and pivot over the course of the day, so they face the sun. OptiSolar’s panels are installed at a fixed angle. They are larger and less efficient, but much less costly, so that the cost per watt of energy is similar, company executives said.
• Neither approaches the economy of fossil-fuel burning plants, said Jennifer Zerwer, a spokeswoman for Pacific Gas and Electric. But they are competitive with wind power and with power from solar thermal plants. And prices will eventually fall, she said.

Or if you want the Cliff Notes Video - CBSMarketwatch has one here ;)

Huge. If Congress actually budges and allows us to get to a spot Japan and Germany were 7 years ago and Spain 3 years ago.

[Jul 29: Beggers Can't be Choosers - Some Minor Solar Deals]

[Jul 10: Well It's a Start - Sunpower to Build 2 Solar Power Plants]

[Jun 7: As Energy Costs Soar, US Looks to Solar]

Long Goldman Sachs in fund; no personal position

Comments

[surfgrrl]

THANK YOU, PG&E. I wholeheartedly applaud your forward-thinking. If we do not wish to be left in the dark ages, huddled around smoky fires, the time to act is now.

"Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone.
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'."...

Call to action for our Senators and Congresspeople- these will be AMERICAN jobs-this will be progress toward a cleaner, safer, more secure world. Alot is on the line. Get those energy tax credits renewed, and for a reasonable time period, allowing companies to make investments of scale to ensure our bright future.
Go big or don't go- we can find leaders who will, and you will be replaced.

[Wayfarer]

Thanks for the post but I think there must be a miss print in this. The articles say Sunpower's 250 MegWatt system will produce 550,000 megawatt-hours per year. It says Optisolar's 550 MegWatt system will produce 1,100,000 megawatt-hours per year.

This doesn't make any sense because it implies that Optisolar's thin film technology on an unmoving rack system is as efficient as Sunpowers 2 dimensional tracking system. No way.

Further, it is a pretty fair bet that Sunpower's panels will be 22% solar efficient or better. I seriously doubt if Optisolar is produciing a thin film with efficiencies approaching the 30% which would be necessary to make up for being rack mounted. First Solar's efficiencies are about 10.5%. If Optisolar is producing something approaching 30% it would change the world very quickly.

[Doug Korthof]

The BIG advantage of solar has nothing to do with kWh!

The issue is PEAK power, measured in kW!

Solar lowers the daytime peak -- the only time when we are anywhere near running out of electric. California has 52,000 mW available; our demand has never risen that high (of course), even in blackouts or brownouts.

Solar power is a natural "peaker" unit, coming on when electric is needed most. At night, there's too much electric, big generators are shut down to "warm start", an expensive and dirty process.

So each 1 mW of CAPACITY is worth much more than the off-peak kWh.

Peak electric, according to the latest Cost of Generation Study (COGS) is about 42 cents per kWh, while off-peak is pretty much FREE (excess electric sent to California via the Western States DC Power Grid is used to pump water up Lake Castaic; the next day, during peak periods, the 6 pumps turn into generators. Even with losses, it's much cheaper to "store" this off-peak than it is to produce peak power).

[Doug Korthof]

Wayfarer,
Thanks for catching this; we might assume they are talking about some new technology, but on reflection, I think you're right, it's just a misprint.
Sunpower is the most efficient COMMERCIAL panel, at 22%, due to its p-junction technology.

Thin film is much less efficient and operates at much lower voltage, meaning thicker copper wires. Copper is now a significant expense.

[vitamin_j]

I hate to use the C word among this august group of commentators, but does anyone here see this announcement, as Cramer surely would (from his recent talking seizure caught on video), as an indication that only utility-scale projects will realize the cost efficiencies necessary to make solar economically sensible? That such projects will keep the residential/small commercial market a boutique business?

I hate to bring Cramer into this - he is an obnoxious and damaging noisemaker. However, it is true that residential installation is a tough tough business. As an Akeena shareholder (please, castigate me), I watch any potential profits they make devoured by the ballooning costs of selling and marketing. Where one customer, a utility, buys enough capacity to power 240,000 homes, if you're going by the residential model, you'd have to make 240,000 separate sales to accomplish the same thing. That's partially a simplification, but it does make me wonder.

[goldstr]

At long last PG & E has made a decision that is for the greater good for everyone! Just think if it would have been started at the time of the first OPEC squeeze.

[Clearlead]

note, just the other day, DUK announced a pilot program whereby it will own all the solar panels that are installed on residential buildings, take all the power generated, and pay $50 a year in rent to the owner of building. The idea is that DUK will then gain the experience with running its transmission system with lot of distributed intermittent solar generation. Let's face it, the utilities are serious players, and conservative ones at that, who have to meet their RPS requirements by least cost or get dinged by their public service commissions.

[alpha24seven]

Don't count your chickens. This entire deal is predicated on extension of the Fed tax credits. They've tried eight times to get it through with no success and there is absolutely ZERO/NO guarantee it will pass.

All these analysts/company people who casually announce "we expect it to pass in early..." as though it is a forgone conclusion. Right....

If it doesn't pass -- look out below!

[alpha24seven]

@ Doug Korthof Excellent observation lost on many.

Another thing that is never talked about. Instead of making your entire home solar powered, you could buy a solar powered device that either heats/cools or both. This way on extremely hot or cold days, this home based system in aggregate would shave peak demand. If it heats, it could really damage the price of heating oil in say the North East.

The other beauty to this is that it should be MUCH less expensive than an entire home PV installation.

[akapital]

Yup, alot of people never understood that solar is not going to end up on people's rooftops, although certainly that is an option but that will likely be one of the small scale uses of solar and certainly one that is not as cost efficient as others. Indeed, the larger use and larger scale use will be with companies like PG&E building out solar farms and attaching it to the grid (as they announced today).

Great article, great news!!

[David Lentz]

Certainly, solar on homeowner rooftops is an expensive proposition for existing homes, and probably will always be so. But for new home construction (and someday, in the far distant future, we will once again build new homes), where one can site the home in an optimal manner for solar energy (rooftops at an appropriate pitch, facing south) and roll the cost of the solar into the mortgage, solar makes GREAT SENSE for individual homeowners. It is probably not more expensive than 2X-4X the cost of the heating and A/C equipment (I just replaced our furnace and A/C, so I have some recent data on this), and there is zero fuel cost going forward for the 20+ years of useful working life of the solar collectors. Technologies like ENER's Solar Shingles spring to mind, which are VERY low-cost when installation expense is taken into consideration.

Anyhow, I just wanted to hold open a ray of hope for homeowner solar electric power. It's not a completely hopeless case. One can see housing developments where rooftop solar is part of the package a few years from now. The biggest roadblock is the current nightmare in the mortgage and homebuilding industries, and eventually, this too shall pass.

[fran]

your IFs and BUTs highlighted in blue/orange carry a big story witin this BIG story. the two technology cos. are committing to become major utilities with very newofferings with very little experience as a base. i wish them all success in this gargantuan task.

as no financials have been released by any of the 3 players, individual investment thoughts would be very premature. no dates for such info has been released.

it would appear that PG & E are offering to purchase power to fullfill CA RPS requirements with full financial/technical/ma... risk left to SUNPWR/OPTISOL. P G & E have many such contracts established. it will be important to understand these many aspects to properly assess this ventures attributes.

[CLH]

Solar will never compete with other energy sources except with huge gov. subsidies which PG&E is salivating at. Pity the poor tax payer.

Wind power is ever less usable.

[pprimo]

doing mega solar projects makes a much sense as putting a mini-refinery in each household. Solar lends it self to site based installation, not megaplants subject to huge transmission losses. This is a step forward ONLY in that it may help lower the cost of the cells to the tipping point of grid parity. Then again, driving up demand for solar may keep prices high and prevent the decentralization of power generation that the power companies fear is coming. Disintermediation in power production, could be slowed by utilities hoarding solar production.

[Jack Yetiv]

I wrote a series of articles on solar on this site several months ago, so, to avoid repetition, my comments here will be brief:

1) It was actually another Calif utility--Southern Calif Edison--that launched meaningful utility-scale solar in the US with its 250 MW announcement on March 27 of this year. SCE's is a distributed model, where they will rent large commercial rooftops on which they will install dozens if not hundreds of panels. Therefore, solar on distributed rooftops will continue to grow and prosper, especially in new construction (as noted above) and via BIPV (building-integrated photovoltaics).

2) The distributed model has both cost advantages and disadvantages. The disadvantage is that it's easier to install 10,000 panels in one site than to install 100 panels in 100 different sites. However, the advantages probably overcome this--no need to buy land, no need for new transmission (a real issue in many parts of Calif and elsewhere), and minimal transmission losses, which routinely exceed 10-15% of power produced in a power plant.

3) One of my articles argued that in proper locations, we have essentially reached grid parity. SCE's, and now, PGE's deals, prove this to be true. Why is this true? To briefly recap points in my previous series of articles:

a) Solar's power-production profile better suits peak load (although trackers can achieve close to full power for 12 hours, as my own domestic tracking-PV system has now proved for 4 years), making solar KWH's much more valuable than wind's or conventional power plants.

b) The cost of coal and nat gas have increased a lot in the past year (even taking the recent falls into account), making "conventionally-p... power much more expensive than it used to be.

c) Utilities and their financiers are starting to take carbon production into account, and once you do that, solar becomes very competitive as well.

d) Cost of making solar panels has dropped and will drop even more in 2009 and 2010. Note that the panels for the PGE project won't be getting made until 2009 at the earliest, and more likely in 2010, by which time many solar manufacturers believe their cost of making the panels will be 30% less than it was last year.

Finally, although on the surface of it, this project appears to be "contingent" on extension of the ITC, the reality is that this announcement was meant to put pressure on Congress to do exactly that. I consider it extremely unlikely--especially in the face of this announcement (and I predict you will see other big projects also announced which will be contingent on extension of the ITC)--that Congress will not extend the ITC.

Remember, we also have the likes of Boone Pickens lobbying (and putting pressure on) Congress to act in favor of renewable energy.

Jack

[Wayfarer]

Jack,

Thanks for the post. I too am confident a long term ITC will be passed within the next year. Also, do you have any idea what Optisolar's solar efficiency is? Their large 500 meg entry to the solar world makes me wonder if their solar efficiency is significantly better than FSLR's.

[User 179191]

All comments do indeed raise valid points and therefore have merit - thanks to all. But Jack Yativ's observations seem most balanced (neither all-black or all-white) and worthy of re-reading I think. Thanks Jack.

[kkin365]

Both the initial post and various commentators are superbly done. At issue, perhaps, is the tax credit. How are the 2 presidential candidates' positions on this?

[Jack Yetiv]

Don't know much about Optisolar except that it's a private company based in Hayward, CA, where I used to take helo flying lessons! I have often seen it listed as a minor, start-up thin-film producer, but clearly, 550MW is no start-up (to give you a metric--550MW is in the range of what either SPWR, TSL or CSIQ will make in 2009--total company production). Do keep in mind that these contracts won't begin to be realistically performed for at least 6 months, probably closer to a year, and much can change in a year.

My guess (and it is only that) is that Optisolar's efficiency is today in the ballpark of FSLR, which is about 11%. SPWR has laboratory 23.6% efficiency, and I expect their production panels in 2010 will probably be around 25%.

As to McCain and Obama, to my knowledge, neither has come out and stated a position on the ITC, but both have included "renewable energy" as something we ought to do. But even forgetting the two candidates, there is a growing groundswell of support for renewables in this country, and Boone has helped put renewables/wind on the map. Just like poll results will push Obama not to oppose drilling the OCS/ANWR, I believe the same will happen with renewables.

Watch for this topic to become front and center during the debates.

Also, it's entirely possible that this issue will come up when Congress returns from its recess in a couple of weeks. Remember, the states are way ahead of the federal govt on this issue (30 states now have RPS's, Renewable Portfolio Standards), which will also generate pressure on Congress to do something. Finally, as the economy slows, and unemployment increases, extending the ITC will be sold as a "jobs creation" plan--which of course, it will be.

One way or another--and for so many reasons--this country HAS to support renewables. And, I believe that although we'll be late to the party (compared to Europe), once we get to the party, we'll be the heaviest drinkers.

Jack

[aquaculture]

sodapop i hope....

[User 10755]

SATC... this small alternative energy company will also play a part in this project, on a small scale of course, but hugh none-the-less...

www.satcon.com/about.p...

[Wayfarer]

Jack,

Thanks for the further comments. I too believe alternative energies are a certainty and soon. There are a number of little thinfilms that have or will start production in the next year. On top of Optisolar which is evidently not so little there is Global Solar whose product is flexible and manufactured roll to roll. Their current efficiencies are 10% with projections of 13% in 2010. They have a partnership with DOW which might allow them to scale very rapidly at some point and the flexible product sounds very interesting for covering entire residential roofs.

[User 244621]

Jack,

Do you still believe TSL and SOL are the stocks to own? I would like to be in the best position possible to ride this solar boom now and long term. Has your thoughts changed on what stocks to own inorder to ride this new surge in alternative energy? Thank you for your insight.

[Jack Yetiv]

User, I still believe that TSL and SOL offer the best value in the solar space, and have not sold any of my shares in either one. I bought my considerable position in TSL in the low 40's about maybe 3 months ago, so I am way underwater on those. SOL I bought about 3 weeks ago at $13.54, so I'm good on those.

But keep in mind this has been a very fickle, anti-solar, anti-oil market, and even though I thought FSLR and CSIQ announced very well, their stocks really haven't gone anywhere, unlike at any time in the past. Part of this is due to the perceived connection between dropping oil prices and a lower attraction to solar, and part of this is due to negative press on the solar companies and ITC expiration concerns.

TSL is by far the PE leader, trading at what I believe to be a 2008 PE of under 9 (I am projecting income at about $3.50 for 2008), while SOL is at about 11-12 PE, but SOL is much more loved by analysts and the investment community.

TSL announces tomorrow and SOL on Tues. In the past, I would have said that if they blow out their numbers, they will go up 30-40%, but having observed FSLR and CSIQ, I'm not as sure this time around. But the solar stocks have shown some strength recently, so maybe we will get a nice run if these companies report very well. LDK absolutely demolished estimates, and last quarter, probably would have run close to 100%, but only ran about 30% this time.

But since I am not a daytrader, I can wait for the market to recognize the value in these names.

Jack

[andymajumder]

Jack, thank you for your comments and prior analysis. I am long TSL, SOL and CSIQ as well.
I am sure the ITC will pass by october this year. Already we can see that the democrats are reconsidering their position on offshore drilling and that should lead to a compromise and eventually the bill should pass.

www.washingtonpost.com...

Congress will definitely pass this before the November elections.

Thanks,
-Andy

[TraderMark]

<<<but SOL is much more loved by analysts and the investment community.

Understatement of the year :) Trina when it fell to upper 20s not only got zero analyst defense, Goldman Sachs actually came out and downgraded with a target to low 20s. Even after the secondary was priced and that headwind was out of the way - no real analyst defense. THis is what happens when you blindside analysts constantly.

That said, still own a sizeable batch on valuation alone and like Jack like SOL for valuation - even after last week's 30% run its still at forward PE of 14 instead of 11. LDK was also impressive this Q.

Don't forget STP reports Wed this week as well although they have been all over the map in each quarter vs analysts

[longtermstocks]

The more players like GE, PG&E, Siemens, Honda, etc.. The more I am re assured that these stocks are the future and the best place to be.

[Mike in COL SPGS]

RE: The ITC that has failed EIGHT times in the Senate.

When a matter like the ITC makes so much sense, but isn't passed, I can only assume that "the fix" is in and the game is being rigged.

IMO, the Senate will delay re-newing the ITC until weak hands panic and sell their stock at a low price to the strong hands. When strong hands are in charge, they'll pull the strings and the Senate will renew the ITC, possibly with even better terms.

Just a hunch, but I trust very little that our Congress does.

[supershort]

"When a matter like the ITC makes so much sense, but isn't passed, I can only assume that "the fix" is in and the game is being rigged.

IMO, the Senate will delay re-newing the ITC until weak hands panic and sell their stock at a low price to the strong hands. When strong hands are in charge, they'll pull the strings and the Senate will renew the ITC, possibly with even better terms. "

The ITC is a subsidy that is not a win win situation, especially for solar. Did anyone take into account the cost of the land into these projects? I haven't seen one account so it is even more expensive to go solar as a renewable. Congress knows this and with a trillion dollar bailout of Freddie and Frannie on the horizon, I don't think that the 30% tax credit will be extended in it's present form. It most likely will be reduced.

Optisolar's "plant" will take up 9 1/2 sqquare miles????? What about the SPWR "plant?" Sorry but I just don't see the EPA approving such a vast destruction of land, even if it is in the desert. Someone will be crying for the scorpions and rattlesnakes for sure.

[Gaucho]

TAKE a look at LDK. By 20011 they will be the largest producer of polysilicon in the world. Their margins will fall. They have long term pre-productions agreements locked in from 5-10 years. They have 3X earnings growth. They will be announcing the first production line of their polysilicon plant before the end of the year. The shorts are trying to get off and are fighting a valiant battle but the stock price KEEPS rising. The PEG is about 3.6!!!!!!
The stock has peaked twice at about 70 per shares and this time the earnings are 3X and the polysilicon production build out will have started

THIS STOCK WILL BREAK 100 by years end!!!

[Gaucho]

LDY SORRY CORRECTION THIER MARGINS WILL RISE AND THEIR COSTS WILL FALL.