GH

Alternative Energy Gambles for 2008- Part III

P.S. Something else to think about with respect to tellurium supply: currently silicon for the other kinds of solar panels is in severely short supply... and it was a drag on FSLR's competition, to the tune of SPWR and STP only going up a few hundred percent this year instead of 1000% percent like FSLR. But in 2007, hundreds of millions of dollars were committed to efforts to increase the supply of polysilicon. PrimeStar's entering the industry increases the validity (and fundability) of business plans to create or increase tellurium production. Don't interpret the lag between demand increase and supply increase as an inability to increase supply; it always takes time for a market to respond to an increase in demand. The more illiquid and obscure the market, the longer the delay... and Te is a very obscure market indeed.

Alternative Energy Gambles for 2008- Part III

Tom,

I mostly agree with your other 9 gambles... but shorting FSLR is more like Russian Roulette in my opinion.

Some notes about telurium:
• My research into Tellurium production quickly uncovered the fact that no one currently actively mines Te; it's produced as a by-product while purifying copper ore. So, it seems to me the supply of Te is potentially elastic. Therefore a permanent large increase in its delivered price is unlikely, since a significantly higher price will simply make direct Te mining cost effective.
• Copper demand is in what appears to be a very long-term uptrend. Production via leaching - which produces no Te - is becoming less acceptable for environmental reasons. So Te produced per ton of copper produced, should increase.
• Apart from copper by-production and direct mining, other potential Te sources exist including recycling from various electronic uses, which is a rapidly increasing practice.
• In answer to a question at a public conference, First Solar's CFO assured the questioner that they have "gigawatt quantities" of Te available. I take this to imply they have long-term Te supply contracts.
• First Solar had been developing CdTe cells for many years before their IPO, and had as their prime investor as good an expert on scaling-up as this planet has seen: Walmart's founder. I simply can not believe he would let them ramp up without nailing down their key raw material suppliers.

I disagree with your implied forecast that 2008 will see no extension of the existing federal support for solar energy. The tax parts of the energy bill were removed to avoid Bush's veto (and the bill that passed still directly supported geothermal, as you've noted). But Pelosi and Reid promised that separate bills addressing tax breaks for alternative energy use would be a priority in '08. (Note these tax breaks have been restored late in the game before). Even if nothing passes in '08, it's extremely unlikely that a new Congress and President will be elected in Nov '08 without having promised to support alternative energy, including solar, during their campaigns. But ultimately, as fossil fuel costs continue to increase, subsidies for alternatives become superfluous. (As usual, the U.S. government is planning behind instead of ahead, thereby subsidizing established companies and "inadvertantly" hurting innovation. It's just What They Do.)

- GH