Sun, Sep 11, 2005 page12

• Investors turn toward the sun as fossil-based fuel costs rise

  The economics of the solar business has not been tempting to many US consumers or investors for the last two decades, but that mindset appears to be changing

  • NY TIMES NEWS SERVICE
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  As prices for coal, natural gas and oil have soared, solar power has been getting perhaps its most serious look from investors since US president Jimmy Carter pulled on a cardigan and asked Americans to damp their furnaces. The new interest means that the handful of US solar stocks has been surging, too.

  Over the last year, the shares of Evergreen Solar, DayStar Technologies, Energy Conversion Devices and Spire -- all small US firms that make equipment for converting solar power into electricity -- have more than doubled in price. Last month, Cypress Semiconductor said it would try to raise as much as US$100 million in an initial public offering for its SunPower subsidiary.

  "The solar market is projected to grow 35 percent a year for the next three to five years," said Walter Nasdeo, managing director of Ardour Capital, an investment bank in New York that specializes in energy companies.

  

  Tony Nguyen operates a machine for Evergreen Solar that assembles solar panels in Marlborough, Massachusetts in a photo taken earlier this month. Evergreen's wafer-making method uses less silicon, which helps keep the cost down. With prices for coal, natural gas and oil soaring, solar power is getting a serious look from investors.

  PHOTO: NY TIMES NEWS SERVICE

  Back in the days of Carter's cardigan, the US was mired in an energy crisis, with an oil embargo and long lines at gas stations. Today, tumult in oil-producing places like the Middle East and Venezuela is roiling markets. Strong demand for electricity has contributed to increases in the prices of coal and natural gas.

  And Hurricane Katrina, of course, has worsened the situation. Yet these dire developments have been a boon for companies that make devices like silicon wafers and rooftop panels that convert solar energy.

  The economics of the solar business has not been tempting to many consumers or investors. Without government or utility subsidies, the US$20,000 to US$25,000 that it costs to buy and install a typical home solar-power system may be too high to be recouped at the end of a 30-year mortgage.

  But government help, combined with the recent climb in energy prices, has made solar more appealing. Some states offer big subsidies, helping to defray much of the initial cost of a home system.

  Some electric utilities also offer incentives. In theory, solar-energy systems free them from having to invest in additional generating capacity. Homeowners typically connect their systems to the power grid and buy electricity when their panels do not produce enough power; they sell electricity to their utility when they have a surplus.

  Federal law requires utilities to buy excess power generated by consumers using solar power, although rates vary from state to state, said Joseph Schwartz, chief executive of Home Power magazine. And the new federal energy law, signed by President George W. Bush last month, includes a tax credit of as much as US$2,000 for the purchase and installation of a residential solar-power system.

  "Despite all of the concerns about imported oil and climate change, most people make their decision to install solar based on whether they're going to save money," said Steven Taub, director of emerging power-generation technologies at Cambridge Energy Research Associates.

  In states with generous subsidies, he said, solar power may be attractive for many consumers. In New Jersey, for example, subsidies can cover as much as 70 percent of the cost, leaving consumers with a net cost of about US$6,000 on a typical home system.

  Though the four little US solar-power companies stand to benefit from new demand for power, they account for only a fraction of the world's solar-device production. The biggest of the four, Energy Conversion Devices, has a market capitalization of only about US$1.1 billion.

  Giants like BP and Royal Dutch Shell, or Sharp and Kyocera, make most solar gear. Last year, the solar industry produced 1,195 megawatts of new electricity-generation capacity, about the equivalent of one large power plant, Taub said. Sharp alone accounted for about 325 megawatts, he said.

  Yet solar-energy conversion is a tiny part of these hefty companies' sales, so the little independents are a purer play. The business lines of Evergreen and DayStar are almost entirely related to solar power (as are those of Cypress' SunPower). Energy Conversion Devices has other products, but its largest subsidiary, United Solar Ovonics, also known as Uni-Solar, is a solar-power business. And Spire's solar division accounted for an average of 40 percent of the company's sales in 2003 and last year.

  Of course, investing in small-capitalization stocks can be risky. Besides being microbes in an industry dominated by giants, none of the four were profitable last year. Two have short histories as public companies: Evergreen went public in 2002, and DayStar did so last year. All but Spire are developing new solar technologies, and there is no guarantee that customers will embrace their innovations.

  Understanding their plans requires knowing how solar power works. The most popular means of converting the sun's energy into electricity -- silicon-based solar panels -- has progressed over the last three decades but has not changed radically. Silicon is used to make wafers, which are wired to create solar cells. These form the building blocks for solar panels, which sit atop roofs.

  A silicon shortage has driven up the cost of solar-grade silicon by more than 60 percent over the last two years, said Michael Rogol, an analyst at Credit Lyonnais Securities Asia. That offers an opportunity to companies that have devised more efficient ways to use silicon, he said.

  Evergreen's wafer-making method consumes about a third less silicon than usual, said Richard Feldt, its president and chief executive. Many competitors slice blocks of silicon into wafers; that creates waste in the same way a lumberyard spits out sawdust. Evergreen's method, which draws out long ribbons of silicon and slices them with lasers, produces less waste.

  DayStar, for its part, uses no silicon, while Uni-Solar uses far less than average. DayStar, based in Halfmoon, New York, applies a thin film of several elements, including copper, to backings such as titanium foil to create flexible solar cells.

  Uni-Solar marries the thin-film method with silicon.

  Spire, in Massachusetts, produces neither silicon wafers nor solar cells. It makes machinery for building and testing solar panels. In 1999, that enabled it to work with the city of Chicago to equip and run a panel factory there.

  Roger Little, Spire's chairman and CEO, says he sees the Chicago venture as a harbinger of Spire's future; he aims to increase panel production over the next two years.

  That would return Spire to its roots. It started in 1969; early on, it concentrated on solar-power conversion. It diversified into biomedical equipment and electronics after the energy crisis of the late 1970s abated.

  "I've always believed that solar is a freight train that can't be stopped," Little said. "This year, there's a US$10 billion worldwide market for systems."
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