Solar Energy Race Heating Up

Includes: GE, MMM
by: Kent Moors

Solar energy – as an investment sector – has long labored under the assumption that breakout prospects are dependent upon a few small start-up companies that have insufficient working capital and miniscule share prices.

That may be true in some areas of the technical advances that reduce costs, increase energy harvesting, or provide the myriad breakthroughs necessary for the development of a genuine storage apparatus.

But that is not the case when it comes to simply producing the main components of solar capture technology.

Better-known (and among the largest) players are already moving into solar energy – and doing so both here and abroad. And every time we see new evidence of that, it's an encouraging development, both for solar energy prospects and the investment sector developing around them.

That's because no energy source can expand market presence, attract the significant investment necessary to develop as a genuine alternative source, or overcome a range of infrastructure and system problems based solely on a network of small, under-capitalized companies.

Just yesterday, in fact, two developments arose that testify to the accelerated presence of well-capitalized companies in the solar space.

And that means the solar investment space is finally heating up.

Development No. 1: 3M Brings Solar Manufacturing to China

The first – and most important – was an announcement by U.S.-based industrial goods company 3M Co. (NYSE:MMM). It plans to build a solar manufacturing facility in China, with construction set to begin in the second quarter of this year.

Now, this is the ninth plant 3M has built in China since 1984. But its previous footprint there largely involved technical services, R&D, and basic product manufacturing.

The new plant in Hefei (central China between the Yangtze and Huaihe Rivers) will produce a range of solar energy products.

The latest Chinese plant will also further enhance the company's position in the renewable energy market and follow upon recent investments in solar energy product manufacturing facilities in Colombia, Missouri, Hilden, Germany, and Singapore.

The most interesting part in all of this, however, revolves around one of the products to be produced at the Chinese plant. Among a variety of renewable energy products planned is one that both has a major role to play in solar energy and is tailored to existing Chinese-based production.

It's a product called Scotchshield – a film that protects the back sides of solar photovoltaic modules from moisture and contamination. The film is designed for use with crystalline silicon modules, which just happens to be a type of solar panel made mostly in China.

3M now produces the film at a plant in Decatur, Alabama, but the brunt of its emphasis is likely to shift to Hefei. The company expects to be providing the film to several of the major Chinese solar manufacturers.

It is this sort of bilateral corporate synergy that is likely to enhance major advances moving forward.

As with many other large, multifaceted manufacturers, 3M's involvement in renewable energy has a long history. It goes back to the 1970s.

Yet only recently has management designated renewables as a major growth opportunity. In fact, 3M's renewable energy division did not even exist until two years ago. That unit now encompasses production for the solar, wind, geothermal, and biofuels energy markets.

3M is now moving in on the solar market.

Top executives have identified the industry-wide market for PV panels and related equipment as moving into a major growth cycle. Last December, CEO George Buckley put the growth in that market at 27% through 2015.

Likewise, the company sees its Chinese expansion as paralleling plans for solar energy-related production. In 2010, China accounted for 6% of 3M's total sales – of $26.7 billion – but that share is expected to increase to 9% by 2015. Earlier this year, the company said it would spend up to $1.5 billion on capital expenditures in 2011, with 40% of that directed to developing economies like China.

Sounds like a win-win to me.

But 3M is hardly the only major moving into solar – leading to the second announcement that came yesterday.

Development No. 2: GE Taps into U.S. Solar Market

The largest U.S. manufacturer of wind turbines, General Electric Co. (NYSE:GE) is already a major presence in the renewable energy sector. Yesterday it announced it would build the largest American production site for solar panels.

GE is being unusually coy about where the plant will be located, saying only that multiple locations are under consideration and a final decision would come in three to four months. But it does reveal that it will cost in excess of $600 million to construct, with first production beginning in 2013. The company says it already has in hand orders for more than 100 megawatts of panel production.

GE contends that these panels will be the most efficient so far available, with a rating of almost 13%.

This is thin-film PV technology – a similar, though competing, technology to the 3M-Chinese approach.

That's precisely what I like about these new developments. They create competition. And competition always provides opportunities for investors.

To bolster its own position in what looks like a fast-growing energy application, GE also announced yesterday that it has acquired Arvada, Colorado-based PrimeStar Solar Inc., a developer of the family of thin-film PV solar technology at the basis of GE's solar panel operations. This acquisition has been coming for several years. GE became PrimeStar's majority equity owner in 2008. But it was PrimeStar's breakthrough on the efficiency side with its thin-film technology that finally sealed the deal.

Two gigantic multinational conglomerates are now planning rapid expansions of their solar markets, with 3M producing in central China and GE someplace in the U.S …

It looks like the solar race is getting serious.

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Disclosure: None