vitamin_j

Three Things Obama Will Do to Advance Alternative Energy

I want to see an initiative to put solar on government buildings as much as the next guy, but I think it's premature to say it's "clear" such an initiative will occur. I for one have heard nothing definite on solar from Obama. The only energy "source" he has mentioned as a specific initiative in his transition is efficiency, specifically in schools. If he's made an actual statement that he's going to do something involving solar, I'd appreciate a reference. Otherwise, nothing is "clear" when politics are involved.

"Companies who have domestic production should benefit, including FSLR, STP SPWR, ENER." - Factual error. STP does not have domestic US production (if that's what the vague phrase "domestic production" meant). They have a US sales office, and now a US based installation venture, but no production. They've talked about building a US factory, but haven't yet bc of the credit crisis.

"Wind energy has been proven cheaper than solar and has achieved grid parity to some extent." - This shows a lack of understanding of what "grid parity" means. In California, Hawaii, Italy, and other markets, the annualized cost (over 20-25 years) of installing solar on a large home and the cost of buying grid power at current rates is equivalent. Tiered rates and peak power make a big difference. In places like Alabama, where electricity retails for 7c/kwh, solar's a long way off.

So to compare wind and solar in terms of an abstract "grid parity" is really not meaningful.

Suntech Power: Now a Takeover Target

That 50% thing appeared on the STP chat board last week and may have come from an article in China with potentially questionable translation. Anyone who wants to appear credible on solar can't just throw out such a figure without better citation or explanation. It's like saying, "Yes, and their plans for cheap cold fusion should also help them grow revenue." Huh?

Of course, this author doesn't seem very credible. Anyone who says

"As the top two solar companies, Suntech Power (STP) and First Solar (FSLR) dominate the European and U.S. markets respectively."

not only hasn't done their homework, they haven't even cracked the book. First Solar has sold almost exclusively in Europe, almost exclusively in Germany, and is just now moving into the US. Suntech is a similar story, though they also have some Asian sales. I'll take my information from someone who actually follows the companies, listens to cc's, thank you.

Finally, I would question whether anyone could just acquire Suntech without some intervention from the Chinese government. My sense is that they wouldn't just let their flagship solar company be sold off to the Japanese or the Americans without raising some barriers - similar to when the Chinese wanted to buy that oil company of ours.

Four Reasons to Expect a Solar Boom

Look, I own STP and think the company's real good. However, your assertion

"Companies like First Solar and Suntech Power are self-funded companies that have been making money all the time, and these two companies have sufficient funds to expand their businesses."

is not true. Suntech has been partially funding its Capex through debt issues, most recently this past March. First Solar does indeed fund its expansion entirely through free cash flow. This makes it almost singular among solars. Suntech is one of the best of the silicon-based companies, and unlike most goes in and out of positive free cash flow. Also unlike most other Chinese solars, it is sitting on quite a money pile at the moment, which should give investors greater confidence for near-term headwinds. However, to imply that it funds itself solely through retained earnings like First Solar is misleading.

Solar Stocks Are Now Attractive Again

This author doesn't seem to understand that FSLR, STP, and LDK are very different businesses within the solar industry. Factors that will lead one to succeed may not do so for the other.

A stock screener can tell me who has a low forward P/E and other various pretty numbers. If I'm going to decide on a company's value, I better understand their business and what variables will affect it in the future. This writer doesn't help much there.

Need Cash? See Suntech

Mr. Morel,

I am surprised that you are investing in Suntech yet seem blind to their strategy and to the demands of the silicon PV supply chain. Are you just reading those bearish (now bullish again) Motley Fool articles and wondering why you bought STP again?

I also wonder if we heard the same CC. Analysts did indeed ask very detailed questions about the investments you mention - how each was doing in production, etc., what some of the details of the investments were in numbers and terms - and the terms of silicon supply prepayments (going down significantly over the year, I'd note).

Whether or not these are "good investments" I suppose depends on your view of the silicon market and business, and of these particular suppliers. Have you looked into Nitol as a company? Glory Silicon? Hoku? Asia Silicon? I have (somewhat), and my impression is that Suntech is buying stakes in the best of the new wave of silicon refiners because it can afford to. These refiners are run by serious experts who are likely to successfully manage the difficult technicalities of silicon production.

I would also say that, while its margins will come down, silicon refining for the PV industry will be a growth business for years to come. So, in buying equity stakes in these companies, Suntech has wisely bought into its own growth along with the growth of the industry. It did this while avoiding having to itself become a refiner - build its own plant, etc.

The result of these recent investments, combined with existing long-term supply deals, is that Suntech will see 20% lower silicon costs in 2009, and costs will continue to decline thereafter. Given that silicon is 70% of a panel's cost, that means that total panel cost will be down roughly 14% in '09. With ASPs holding steady so far or declining in low single digits, that means a fatter gross margin for Suntech, which has secured 900 MW of silicon for its 1000 MW 2009 capacity. They will (along with every other module maker) continue to have significant capex, but these improved margins can only get them closer to being cash flow positive (which they were in 07, I believe). Other silicon PV solar companies cannot say the same for their silicon costs (see Trina), margin outlook, or the resulting ability to organically grow operations.

So my opinion is that Suntech is strongly positioned to succeed in the today's silicon PV business. They also have an admirable long-term orientation. They consistently talk about grid parity - that's when China and India will get in the solar game in a major way - and how they're going to get there. Other risks - a miraculous breakthrough by Nanosolar, a huge (contrary to projections and high demand) decline in the silicon per/kg spot market, drastic subsidy changes - could derail their strategy or put silicon PV out of favor. That's the speculative aspect of solar investing. But for today's money and today's knowledge, I think Suntech is one of the premier solar companies operating today.

Disc: long Suntech.

Solar Cycles and Stocks: The Sun Also Rises

Good article about the market - enjoyed reading it. Also nice to know that someone out there doesn't see Akeena as doomed.

However, can we come to some kind of consensus about article names? Can we permanently ban all cheesy sun referencing titles for solar articles such as "The Sun Also Rises," "Here Comes the Sun," etc.? I think diversifying our metaphors will help the industry expand further into the mainstream.

Canadian Solar: The Next Solar Takeover Target?

My take on why STP or SPWR won't acquire CSIQ:

SPWR's business is based around the idea of producing and selling a premium high-efficiency panel, which offers the benefit of cutting "balance of system" costs (higher efficiency means less panels per system, means less wiring, racking, labor, etc. to install). That focus on "balance of system" explains why SPWR acquired Powerlight and participates in the installation/integrati... business - it's where they will best compete in the solar value chain as their business progresses.

Why then would they want to get a producer that makes panels that are OK, industry standard, but aren't any more efficient than the norm? So they can buy the company, then retrofit all the production lines? Or increase the number of panels per installation? What does UMG get them - beyond panels that are less efficient than the norm? Such an acquisition would just weaken Sunpower's strategy, so I don't see it as likely.

With Suntech, it's a little more of a natural fit. However, I'd question why they wouldn't just take the billion plus they'd spend on CSIQ and put it towards their own capacity expansion? The extra capacity would be the only thing of value STP would gain, plus there would be the money, time, and risks involved in bringing together two different manufacturing organizations, QC methods, etc. It's easy as an investor to treat these things as afterthoughts, but they're the "devils in the details" for M&A.

Finally, I'd mention that Suntech CEO Dr. Shi was pretty dismissive of UMG technology during the Q&A at the recent InterSolar show. So neither company seems likely to acquire CSIQ, in my opinion.

Semiconductors: Is the Glass Half-Empty or Half-Full?

I'm bullish on solar but don't know where you get the idea that solar subsidies are likely to pass this year. Bush has indicated that he will veto the bill currently under consideration (it raises taxes on hard working money managers' offshore income streams), and I really doubt that the Senate will have the override votes needed.

I think we in the US market (especially those of us who hold Akeena) are in for a tough rest of the year, with prospects improving in '09.

If you know something I don't about the legislation, do share.

Which Solar Stocks Will Continue To Shine?

I think STP is currently a great company at a good but not great price. The others are OK companies at great prices. With a horizon of more than a year (outside Yetiv's range I think, to be fair to him), I'd rather own the great company. From this extended POV, I find it quizzical that Yetiv's playing a value game in a growth sector, putting it all on forward P/E as he does, and all for 3-4 month swing trades. Of course, it seems to work, so I can't begrudge him that. More good fortune to you, sir.

However, I would add to Yetiv's risks that, by following his method and ignoring industry forces and qualitative factors for a company, if unforeseen circumstances soured on your 3-4 month gain, you'll either have to unload at a loss or hold a second-tier solar through an industry shakeout that first tiers like Suntech are going to win.

Trina Solar: Best Value in the Solar Space

Hi Jack -

I'm enjoying your series of articles. Seems to be generating high quality discussion about solar, which is a compliment to your work.

I'd question your heavy reliance on PEG as the basis for picking a solar company to invest in. Don't qualitative factors such as size, technology, management, and prior execution enter into your analysis? Or, in your mind, do these factors matter only in how much they manifest themselves in the PEG, ie the proof is in the pudding and PEG is the pudding?

I can see PEG as a determinative factor for success if you believed the solar panel/component industry was purely a commodity business. There are arguments that that's exactly what it is, or what it will be in the near future. In that case, the company that can produce the interchangeable product, in this case the solar panel, with the most profit (and in a growth industry the most profit growth) wins flat out. Those arguments may be borne out.

However: Brand? Access to markets? Partnerships? Relationships? Guanxi? Diversity? Products? Record?

Do all these take a backseat to PEG?

You may poo-poo the factors I cite as too soft. I'd agree one has to look at the hard measures, the bottom line, etc. However, I'd be more comfortable hearing something like "this company has this great PEG, and here's why they're a great company that's going to continue to win in the solar industry (especially with trailing data limited)."

My point in slogan form: I'd rather by a great company at a good price than a good company at a great price.

This might depend on horizon - mine might be farther out. What's yours? Is the "value" you see in TSL a question of months? Years? A year? You seem to be limiting yourself to a year tops (2009 eps worthless except as speculation, you say) - right?

3 Reasons To Be Bullish on Solar Stocks - Cowen

Well, we give the oil companies billions in direct subsidies each year, and I hear they're at least breaking even. And you don't see us spending 500 billion per year, plus 150 billion in supplementals, on a military and navy in order to secure silicon. So at least some of our huge defense spending is an indirect subsidy. You also don't see us placing any value on carbon emissions - how much do you want to bet we're going to keep that policy in place?

Right now solar is a victim of its own success. Once the industry actually has the refined silicon to supply it, not just the semiconductor industry, then grid parity's getting close. The industry talk is generally 12-18 months for the silicon, and three to five years for grid parity pricing. There's your horizon.

Is Solar Power Inherently Deflationary?

Supershort - I wouldn't read too much about the viability of solar energy into the overvaluation of one company, SPWR (which, while not the best investment right now, is still an excellent, growing company).

I also don't know where you get this "they say the costs of the systems are increasing." Who is this "they," and to what systems to they refer? Sunpower has laid out a plan to cut installed system costs in half by 2012. Suntech is going to do them one better. While a silicon shortage has kept panel prices high, silicon production will more than triple over the next two years, more panel makers are getting in the game, so panel prices have nowhere to go but down. Competition is going to become fierce and bloody, in fact. And that's just for traditional silicon based PV panels - Nanosolar is selling 3rd Gen CIGS panels that generate at the price of coal - their main question is, can they scale?

Meanwhile, Akeena has designed an EZ install panel that cuts other system costs like labor and racking.

And that ten-year payoff you describe for a system (I assume your "investment" refers to a solar system, not a solar stock)? It's well worth it for a system that is guaranteed for 25 years by panel companies (and may last even longer, given past panel performance). It also assumes that electricity rates in a place like California remain flat going forward vs going up more - not too likely, right?

Yes, I have skin in the game (long Suntech and Akeena). Yes, I believe in solar from an ecological perspective. Yes, it's not going to be a fix-everything energy solution for the next five years (more nuclear could be needed too) - still a lot of growing for the industry to do. And yes, it may change a lot from its current form. Or perhaps not change, but diversify into a wider package of solutions.

However, I think that you really can't dismiss solar at this point. The subsidies needed to get the industry to grid parity (in the 2012 to 2015 realm) are nothing compared to the money our government already gives oil companies, not to mention the billions in defense spending for maintaining security in our Middle Eastern and now African filling stations. I think, long term, it's also the best single energy solution running - think of it as the real, original nuclear power, fusion energy at last. The sun is a giant reactor; all we have to do is find the best way(s) to plug in.

Solar Technology: Cutting Costs the Unsexy Way

Thanks for the response. I am definitely watching those SGA expenses - I don't see how they can improve much in Q4, however I think they will improve over the year. Taking the Q3 call at face value, about a million of their loss (working from memory, not reference) resulted from their mispricing - they expected panel prices to drop over the year, and panel prices did not. Forgive my inexperience, but is that an ERP problem, or just an unfortunate economic call on their part? They also had problems with sales commissions and with installers working overtime - essentially, too much business, too few installers = lots of overtime. Also stock compensation for their departing CFO, among others. Growing the business in that state is a recipe for growing losses, I agree, but I tend to attribute it to growing pains, a temporary state, etc. I believe more "steady state" quarters are on the way that will show better results.

I will take a look at those inventory figures - that's very interesting, and a question I hadn't considered enough, or perhaps not in the right way. I'd also note that they are clearing inventory to make way for their new panels, so I expect that to also weigh on Q4.

I hold some AKNS, so I tend to believe that they made good investments for growing the company long term - they opened a lot of offices in '07. They say each office takes 6-12 months to really get up and running, so I anticipate that those 6 or so offices will stop dragging and start showing more results. I also think that they've got a marketing/sales operation that's sized for the larger company they anticipate being, say by the end of this year. It's an aggressive approach, for sure, but I knew I was buying aggressive when I bought this one.

I also tend to buy into their story about the Andalay panel - it will reduce costs, time, and bring licensing money that will bolster the bottom line. I do however wonder if it's the competitive advantage they claim - after all, REC Solar has come out with a "Solarak" system that also reduces installation costs - so once everyone has an efficient system, then where is Akeena? But I don't know any more about that REC system than what the PR says right now. Maybe Andalay is still the best design out there. At the least it will help Akeena get installation costs down.

Also - is Andalay the "vaporware" you're talking about? I'm about as far from the Valley as you can be, so maybe the term is lost on me. But Andalay exists and is going into the OS, so to speak. Or do you mean the "patent pending" aspect of it? Or some larger metaphorical usage of "vaporware"?

Finally, longer term, I think Akeena will do best if they focus more on being a design company, and not stake their business solely on the "hardware / construction" aspect you mention. That's the way they're trending with Andalay, and they need to keep that up if they're going to make it longterm (or get bought by someone with that view). For example, before someone installs a system on their house, have a thorough energy audit, do everything possible to boost efficiency, so you install the Kws you reasonably need (maybe that's already industry practice). Or with coming things like plug-in hybrids - they need to (maybe they are) get an integrated/plug n play/andalay style carport charging station. Partner with General Motors on it. Basically, diversify, partner, license - think there's a lot with efficiency, monitoring, allocating (a non-technician talking here), financing, carbon-auditing, consulting, and more that would go hand-in-hand with small, distributed PV systems - and that could help buffer them against the ups and downs of the installation business.

Thanks again for your previous response.

Solar Technology: Cutting Costs the Unsexy Way

Mr. Whitehill, I found your comment very interesting.

I'm wondering: are you implying that Akeena is, in your opinion, a "top heavy" company? If so, could you elaborate on why you believe this? Is it specific to their "inventory problem," or general to the company as a whole (sales, marketing operation, etc.)? Thank you very much for your insights.

-A small-time Akeena investor