Friday, March 27, 2009

Update on solar stocks

I made a series of posts 3-4 months ago about some incredible bargains in solar stocks. At that time we were in the midst of the 2008 global market crash. The market was in transition from supply constrained (due to the end of a multi-year shortage of silicon) to demand constrained. Basically the lousy economy, falling home prices (and credit crisis) has made it hard to finance relatively large expenditures like a car purchase or solar installation.

Wall Street has become very bearish on the solar sector--releasing a raft of downgrades in the sector over the last couple weeks--pointing to greater silicon supply (and thus lower silicon prices) and lower module prices (they fell about 7% in Q4 08 and probably fell another 7% in Q1). For some reason Wall Street analysts think that a big price drop combined with a big increase in incentives will not increase demand. (but hey these guys also missed the crash) Six months ago wholesale panels cost ~$3.5/watt, now they are ~$3/watt. A 15% drop in prices in 6 months is challenging (it is about 2 years worth of estimated price declines before the global market crash), and could result in some ugly inventory write-downs for Q1. Remarkably solar stocks have held their ground or even moved higher with this onslaught of downgrades--perhaps because silicon prices are falling faster than module prices? If silicon dropped say 30%, module makers could actually end up with higher margins.

Looking beyond the next couple months there are some reasons to be very bullish on solar. Starting in 2009-2016 utilities, and homeowners in the US get an uncapped 30% federal tax credit (businesses already had this)--look for this to boost solar adoption in the NE and SW where many states offer additional subsides (In CA state + federal incentives cover more than 1/2 the installed cost of solar.) The recently passes $787B stimulus bill has a number of goodies for solar and the Obama budget for 2010 will likely continue to support renewable energy.

Just this week China announced that it will offer a solar subsidy of nearly $3/watt. Details are still sketchy, but on its face this is a bold move. This really surprised me and I think changes the solar market psychology (especially for Chinese companies) from survival mode to growth mode. For the first time the US, China, Japan and Europe will all be offering significant subsidies for solar power. Once the recent drop in silicon and module prices is digested and assuming it is passed on by installers, I think demand will surge. I even wonder what the next bottleneck will be…inverters?

I continue to think that Sunpower is one of the best positioned solar companies, in terms of a great brand and diversified activities (50% of revenue from making solar panels and 50% from installing them). They have the most efficient solar panels on the market (silicon based) and have been able to maintain a premium price as a result.

SPWRB trades at just under $22/share (make sure to buy the B class shares since they are 15% cheaper than the A class). I think SPWRB will double in the coming year.

MEMC (ticker WFR) is a maker of silicon that goes into solar cells (and semiconductor chips). The price of silicon is dropping while the company is expanding capacity. This makes analysis a little complicated. Sales and earnings could grow if prices stabilize, or they could shrink if the price of silicon keeps dropping. Surprisingly it was the major semiconductor chip companies delaying orders that most hurt the company last quarter...the solar half of their business did just fine. The stock is trading about $18.5 and I think it will rise to $26 in the next year (N.B. WFR had a big move this week, up about $3 on takeover speculation--I think a takeover is very unlikely). If the shares run up another $2 in the coming days I'll probably sell some shares. I'd wait for the shares to pull back to ~$16 to buy back in. News of stabilizing silicon demand/prices (especially from chip companies like Intel) would cause me to adjust these targets upward by several $.

FirstSolar is the other widely acknowledged leader in the solar field because it offers the lowest cost panels (it uses a thin film technology that does not rely on silicon). Obviously low cost solar is all good and FirstSolar will do well in a growing market for solar. FSLR trades at about $147 and it will likely rise 50% in the coming year. While I like FSLR, I am concerned that the drop in silicon prices over the last couple quarters mostly benefits its competitors and may put some downward pressure on its margins.

If you prefer to get broad exposure to "clean tech" companies (i.e. but you don't want to buy individual stocks) you can buy an PBW (powershares wilderhill cleantech--an exchange traded fund/ETF) for just over $8/sh. An ETF is basically a mutual fund that you can buy and sell just like a stock (no minimums, no early withdrawal penalties, etc.). Because it is a fund I would look for at most 25%-30% appreciation in the coming year: price target $10-$11.

If you want to buy one solar stock, buy SPWRB.

If you'd prefer to buy a diversified clean tech fund buy PBW (you get the above three along with several dozen other companies from electronics to wind and everything in between).

Disclosure: I own shares of WFR, SPWRB and PBW.

Take this post for what it is: one person thinking out loud. I only post it because there has been such a deluge of Wall Street “professionals” trashing solar stocks recently that I feel compelled to respond. Please consult an investment professional before acting on any stock recommendations from any blog—especially this one! I am an aggressive investor with an off the charts tolerance for risk. These are my personal views based on my (incomplete) understanding of solar markets. Do your own due diligence.

Wednesday, March 18, 2009

Getting more out of Utility Scale Solar PV—Dynamic Solar Arrays

In recent years we have seen a growing interest on the part of companies and individuals in using solar power in the US. The interest has translated into installations in the states that offer the best incentives. Just in the last 18 months we have begun to see forward leaning utilities bid/announce projects in the hundreds of megawatts (i.e. utility scale solar). It is exciting to see some utilities making real investments in solar power, because those of us in the solar field need utilities as our partners to realize the full potential of solar power.

And speaking of the full potential of solar power, for years many utility executives have dismissed solar because it is intermittent—i.e. the utility cannot control the output of today’s solar panels at any given moment. Despite such lack of control solar power is beginning to make inroads, but wouldn’t utilities be even more interested in solar power if we could give them some control over the output of their PV panels?

What if we could not only give a utility executive more control over the output of a solar panel, but also improve the performance of the solar panels at the same time?

Talk about win-win!

So how might one provide greater control over the power output of a panel AND enhance performance of the panel at the same time?

By building a system that allows one to control the temperature of the solar panel.

It is well documented that solar PV panels produce less power at elevated temperatures. The obvious corollary is that PV panels produce more power (all else equal) if one lowers the panel temperature. The amount of power increase (or decrease) is small for each individual degree change, but can add up to a considerable fraction of total output over multiple tens of degrees (20%+ of total output would be quite practical).

One simple way to control the temperature (and hence the power produced) of a panel would be circulate a fluid, such as water, across the panel. Assuming the water temperature is cooler than the panel, controlling the flow of water across the panel allows one to reduce the temperature of the panel—and thereby increase the power that panel produces.

Obviously one would need a large reliable source of cooler than panel temperature water, luckily in most places the ground itself (if you dig down several feet) offers a consistent year-round reservoir of cooler than panel temperatures that are multiple tens of degrees cooler than the temperature most solar panels operate at. Cheers to the geothermal folks.

Finally if one maintains two fluid reservoirs at different temperatures, one can control the temperature of the solar panels (and hence the power output) at any intermediate temperature by simply mixing the fluid from both reservoirs together as needed. This means the utility would be able to dial up (or down) the amount of power produced by its solar panels as desired between the limits imposed by the reservoir temperatures.

So how might a utility use a Dynamic Solar Array? The simplest (and most logical to those in the solar industry) would be to turn the temperature setting to the coolest point and generate as much additional power as possible. But another possibility would be to make adjustments to maintain as stable an output as possible over the course of a day--i.e. dial up the power 10% to offset a drop in power due to a passing cloud and lower the power back down 10% after the cloud passes. Or the utility could set the temperature at some intermediate point for most of the day, but boost the output from the panels to maximize production at a period of peak demand. Obviously the utility could use a Dynamic Solar Array in many different ways (that’s the point of giving them more control!) depending on its other generating assets and objectives.

Is this extra control (you still need sunlight!) worth the expense of adding plumbing to solar panels and across the entire solar plant while maintaining relatively large fluid reservoirs at different temperatures? That is a question the solar industry and utilities must determine together.

I’m optimistic that adding relatively simple technology, like plumbing, and one which utilities have considerable experience using throughout their operations, that can potentially boost solar PV panel output by 20% or more would be given serious consideration all on its own. Offering utilities greater control over a relatively expensive asset they have complained about not being able to control in the past seems like one of the purest expressions of “adding value” I can think of.

Sunday, March 15, 2009

Mind blowing greed

From the annals of you can't make this shit up:

"Insurance giant AIG to pay $165 million in bonuses"

Yes, this the same AIG that has received $170-180 BILLION in taxpayer funded bailouts over the past 7 months.


From the article
Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support the company is receiving, this official said.
In a letter to Geithner dated Saturday, Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.
Liddy said in his letter that "quite frankly, AIG's hands are tied" although he said that in light of the company's current situation he found it "distasteful and difficult" to recommend going forward with the payments.

*allow me to count backwards from 10 to 1 to avoid going ballistic*

Okay...first as a matter of English, how can a bonus be a contractual obligation? A bonus is quite literally "something extra", "in addition to what is expected or strictly due". Second even if you accept the dubious notion that a bonus can be a contractual obligation, nobody should expect a bonus for bankrupting the firm! (and this is what the good folks at AIG have done). I'd really like to see the clause that says you get this bonus no matter how completely you fail in your job--such that Mr Liddy's "hands are tied".

Speaking of tying hands...where is the investigation into the massive fraud that AIG perpetrated?

I think the most responsible reaction to AIG getting all legalistic (I mean so what if AIG "could face lawsuits" from the clowns that blew the place up?--oh noes! not lawsuits! AIG is only the biggest insurance company on the planet--or pretended it was!) is to send in a medium sized army of federal investigators to comb through AIG's books and emails looking for anything worthy of prosecuting.

Mr. Attorney General, are you listening?

They sold hundreds of billions of dollars of financial insurance without any ability (or intention) of paying if off...that is a textbook case of fraud. And it was clearly a conspiracy...possibly involving racketeering! This is like an institutionalized Bernie Madoff x 10!

I think the Treasury should furthermore freeze the assets of any individual at AIG suspected of involvement in the fraud or the conspiracy to commit the fraud.

And these scoundrels are demanding bonuses!

Thursday, March 05, 2009

Talking the market down...

Interesting...CNBC is talking the market down...not that the market needs a lot of help. Still is it normal for CNBC commentators to recommend investors short equities including the most beaten up names?

I thought investors were supposed to look for opportunties to buy quality names, with good management, and proven earnings potential at a low price. Can prices go lower? of course that is always a risk. Yeah a bad recession is taking down earnings this quarter and next--Uhm is that news?

I understand stearing clear of financials...but suggesting people short them here? That seems foolhardy. If you think the world economy will not recover--and I admit there is a small chance it won't (5%? 10%?) then sure, why not short the market? not that all the money you make will do you a whole lot of good if you are right!

But barring a complete halt to world trade, for non-financials I expect this time we are in will look like the buy of the century in a few years.