Thursday, May 27, 2010

Reducing the installed cost of solar

I have a simple idea that can reduce the installed cost of solar.

Pre-assemble the solar panels into multi-panel blocks before shipping to the customer roof. Make (and test) all the electrical and physical connections between the each of the panels in the block at the factory or warehouse. This will reduce the number of connections the installation team needs to make on the roof which will allow a team to install more kW each day.

Imagine connecting 5 200W panels into a 1kw block at the factory. You may pay a little more to ship the panels to the customer site and lifting the panels to the roof (assuming a roof mount), but once on the roof you will be connecting 1kw blocks with basically the same labor you used to need to connect 200W.

There will be some optimal size to the pre-assembled blocks that balances out the on roof savings with the extra transport and lifting costs. Smaller firms may only want 3 panel blocks so a two man team can handle the panels on the roof, while a large commercial installer with trucks and equipment could pre-assemble full strings of panels.

The pre-assembly should take place in a workspace (factory) designed to facilitate the assembly work, and it goes without saying that factory labor is cheaper (not to mention safer and more comfortable) than on roof labor. I'd guess this could lower installed cost by $0.20/watt--perhaps more in high labor cost locals.

Hopefully someone (panel manufacturer? distributor? installer) will seize on this simple idea.

Wednesday, May 26, 2010

SPWRB now extraordinary value

I feel compelled to follow up on my post on SPWRB from two weeks ago.

At that time I argued that the shares represented an excellent value. Now the shares are trading at $9.60/share--down 20% in just two weeks, with no change in fundamentals, I have to say they represent an extraordinary value.

The P/E on projected 2010 earnings is now 6.7; on 2011 the P/E is 4.5.
The P/S on projected 2010 sales is now ~0.5. The price to book is about 0.8.

I freely admit that I don't understand why the shares have sold off 50% in 3 months. But the sell-off is way overdone and the value is there. Soon investors will see that all the downside (and then some) has been priced into the shares and then a strong rally will ensue.

In my experience shares always fall lower than expected and then proceed to rally sooner...

Saturday, May 15, 2010

The oil volcano continues...

The BP "spill" a.k.a. the gulf oil gusher of 2010, is going from what initially sounded like a mess with a tragic accidental loss of eleven lives (@1000 barrels/day),
to a national environmental disaster (@5000 barrels/day)
to what could turn into a(n international) catastrophe that will make the Exxon Valdez look like a kindergarden prank (@50,000 barrels/day? 100,000 barrels/day? 200,000 barrels per day? 300,000 barrels/day? more?)

Something that is important to remember is the original well was drilled in the expectation of lots of oil production. 5,000 barrels a day at $80/bbl is only $400,000/day, but that wouldn't pay to run the lights on a rig that required 126 people to operate, let alone make a profit.

Remember each barrel counts as 42 gallons.

"Pre-Drilling: BP estimated a spill of 165,000 barrels per day would not even reach land!"

These is an incredible video of the "spill" taken last week about 3-4 screens down on this page:

This guy from this website says that video we have seen of oil+gas pouring out of a broken pipe shows a 5 foot diameter pipe!

In less than a week it will have been erupting oil for a month!!!

Friday, May 14, 2010

Sunpower shares represent excellent value

As a follow-up to last week's post on solar stocks, I just have to comment on Sunpower.

In the last week alone the SPWRB shares have sold off an additional $2 (~18%) and now trade under $11.50/share. At this price SPWRB looks like "a sure thing" investment if your investment horizon is 1 year or longer.

The P/E on 2010 earnings is ~8 and the P/E on 2011 is ~5.5. The Price to Sales is now under 1 on trailing twelve month (TTM) and under ~0.7 for 2010 (projected) revenue of $2-2.25 B. The shares are trading at roughly 1x book value. If Warren Buffet invested in technology shares, I think SPRWB would now be on his radar.

On Wednesday, Sunpower released Q1 earnings of 5c/share, in-line with guidence, albeit on the low side. Revenue was strong at nearly $350 M. Management reiterated guidence of $1.45/sh for the full year--with over $1 of the earning hitting in the fourth Q, as solar plants/projects built throughout the year are sold to plant operators upon completion.

Management noted that they had sold out of panels in Q1 and Q2, and that they had hedged nearly 3/4 of their eurodollar exposure at $1.38 USD per E. Sunpower expects to build 550MW of solar panels and 155MW of solar plants. If you assume zero-dollars of profit for every MW of panel built and $1 profit for each MW of solar plant built you get pretty close to the ~$150M in earnings that management expects for the year.

Management claims that both making panels and installing panels yields equivalent gross margins in the low 20% range, although since solar panels now sell for ~$2/W (or less) and the installed cost of solar is above $5/W, probably closer to $6/W, it is easier for me to see the profit potential of the installation side.

Finally Sunpower is building an additional GW of panel making capacity (1GW = 1,000 MW) in the coming year (at which point the total will be 1.55GW) and Sunpower claims a ~4GW of panel installation backlog.

Assuming Sunpower can deliver on its forcast, it would be easy to imagine SPWRB trading above $20/sh within a year (heck it was trading above $19--if only briefly--less than 2 months ago!)

[The SPWR class A shares also sold off, but the B shares typically trade at a 10%-12% discount to the A shares. The B shares are equivalent the A shares--but with extra voting rights. So buy the B!]

Friday, May 07, 2010

Bad year for US solar stock investors.

2010 has not been kind to investors in US solar stocks--and it has been a disaster for Sunpower shareholders!

Frustratingly Sunpower (SPWRA & SPWRB) stock price has performed abysmally so far this year, down almost 50%, with 35% of that hitting in the past 6 weeks alone. All US solar stocks are feeling the heat of the Chinese solar competition which is hurting margins. Sunpower and First Solar (FSLR--which has really been executing on earnings--is basically flat year to date) and even MEMC Electronics (WFR--also flat this year--primarily makes the silicon that solar cells are made of) are in the midst of a multi-year shift in their businesses from all modules (or silicon) to a mix of modules and installation. As the Chinese manufacturers cannibalize panel margins, the thought is that a synergy exists between module making and installing panels that can be captured through integration.

The market is certainly skeptical. Has the skepticism gone too far?

In the case of Sunpower, I believe it has. The company is trading at a 1.4B market cap which is less than 1 times sales (TTM) and a P/E (forward) of ~10. Sunpower has market leading technology and people, and considerable experience with multi-megawatt installations. This is a real company, making real money in markets around the world. At this valuation and market capitalization, it would be a very easy company to acquire. Just as Sunpower was overvalued two years ago at ~$100/sh and the darling of Wall Street, now the pendulum has overshoot on the undervaluation side.

Of course with Sunpower earnings scheduled for May 11, we will soon have more data. While revenues should be strong, expect earnings to be slight--Sunpower guided to $0.07/sh with only a few days left in the quarter. In the meantime they issued $350 million in debt. With full year 2010 estimates around $1.40/sh and full year 2011 estimates at $2/sh, this should be a trading in the low 20s rather than the low teens.

There have been a couple developments in recent weeks including the recent slide in the Euro, and FSLR purchase of a customer (Nextlight) which could negatively impact results this year and next. It is possible management will bring down guidance next week, although they certainly declined to do so when they reported Q4 numbers (late) in mid-March. Module pricing appears to be flat/declining at a manageable rate...Germany is continuing to absorb vast quantities of solar panels, so I don't expect a major downward revision. Although the 20% slide in recent days may mean somebody knows more than I do...I expect it is primarily a consequence of the ongoing market turbulence.

I've also seen reports that Sunpower is losing market share of smaller projects in CA (an important market in the US) to lower priced Chinese manufacturers, but Sunpower also seems to have a substantial backlog of utility scale projects (even if it loses 100-200MW of pipeline as a result of the FSLR acquisition of NextLight).

There have also been good developments including an increase in the amount of solar being installed around the country and a PG&E 50MW order increase (from 200MW to 250MW) and the Flextronics relationship in California.

Finally and perhaps most importantly there has been a constant negative drumbeat from wall street analysts and pundits over the past 9-12 months, that has the potential to turn positive if SPWR starts to deliver on its earnings promises.

The sharp 35% plunge in the past month or so means that the lowest price targets of even the most bearish analysts have been met. Another way to look at things is that Sunpower's rate of decline is unsustainable (it just can't continue falling $2.50-$3/week!), which should lead to at least a short term bounce.

I'm sure others around the world have been watching the oil spill in the Gulf of Mexico. It is clear that we need to maintain, or even increase, incentives for renewables like solar to compensate for the great health and environmental risks of fossil fuels.

As soon as investors (and analysts) have a little time to think about things--focus on the longer term, I'm confident that Sunpower will regain its lustre.

23GW Solar Installed Worldwide (Total Capacity)

According to the European PV authority's market outlook, the amount of solar installed worldwide more than doubled over the past two years to reach 23 Gigawatts in 2009.
That is especially remarkable when you realize that annual capacity installations only topped 1GW/yr in 2004.

Even more eye-catching, the europeans are projecting installed worldwide capacity to grow by 50GW or 100GW by 2014. The range depends on the level of support provided to solar: a moderate support (similar to existing incentive conditions = +10GW/yr) and a more aggressive support (stronger FIT in Europe and other countries also adopt strong FIT = +20GW/yr).
Taking the midpoint of those projections (plus what we already have) means the world could have 100GW of solar installed by 2015!

To date the total US installed capacity is ~1.7 GW or 7% of the world total. Recent reports from the California Solar Initiative indicate that solar is being installed at nearly twice the rate of last year. Assuming CA is representative of the rest of the country, the US would be on pace to install ~1GW in 2010 (assuming more installs in the 2nd half).

The turmoil in the currency markets because of Greece may benefit Germany's solar manufacturers if the Euro stays down (or decreases further!) for an extended period of time. 10%+ currency moves will certainly impact the solar market. It will put an additional squeeze on Asian (and US) panel manufacturers, even as they are trying to deal with the mid-year decrease in the German FIT.

About 5 years ago installed solar cost $9 per watt (+/- $1). Today installed solar is in the $7 per watt range and falling. $5/watt installed (for utility scale applications at least) should be possible later this year. Interesting things will begin to occur as installed solar costs hit various milestones below $5/watt.

Saturday, May 01, 2010

Investment in Energy Efficiency--the everybody wins solution!

I believe that April 2010 is a perfect illustraion of all that is wrong with our national energy policy which I can only describe as "produce more at any cost".

April started with President Obama opening up "vast" new areas for offshore drilling (actually that was the tail end of March), in order to entice a few Republicans into supporting a climate bill. This legislation looks to be in serious trouble in any case.

That was quickly followed by the Massey Energy mine disaster which killed 29, and since news reports were so focused on finding any possibly trapped survivors and the raw emotion of the families involved, I have no idea how many were injured. Obviously this was tragic, but it is hardly surprising given the industry, the company and even this particular mine's astonishing tally of thousands of safety violations and millions in unpaid fines outstanding. There was also a much smaller mine accident that killed 2 more miners last week.

Then came the British Petroleum contracted drilling platform explosion in the Gulf of Mexico. This disaster is still unfolding, but while the immediate human death toll is *only* 11 (gosh that seems so wrong to say that *only* 11 platform workers died), with another 17 or 18 injured. The cause is completely unknown at this point but what is clear is that the enivornment of the entire Gulf coast is taking a massive hit--on all fronts. The livelyhoods of millions are already begining to be negatively impacted. The spill rate now estimated at 200,000 gallons/day (5,000 bbl/day) seems to grow daily and all effort to slow the leaking oil are coming up duds. People are rightly asking if this is bigger than the Exxon Valdez spill. The answer appears to be a clear maybe, but we won't know for weeks maybe months.

While there is always the macabre fascination with dwelling on the details of each gristly incident, the reason for this post is to re-iterate the fact that we need to change this equation.

How? We could change the equation by investing massively in energy efficiency. Everyone that knows anything about energy use in this country will tell you that the fastest payback of any energy expenditure is that spent on efficiency. Amory Lovins of the Rocky Mountain Institute likes to say that energy efficiency is not the low hanging fruit, it is the fruit that is already lying on the ground waiting to be picked up. While an investments in energy production will take years or decades to pay off, many energy efficiency investments pay themselves back within months or a few years at the longest. (Months? *you ask in disbelief* Yes months *point to energy efficient light bulbs*)

We should rename the Department of Energy (DOE), the Department of Energy Efficiency (DOEE) and re-task it with developing our vast--yet largely unexplored--energy efficiency reserves.

At an absolute minimum we as a country should take 1% of what we spend on imported energy each year (i.e. several billion $) and use that money to invest in R&D (20%) on new more efficient technology and in deploying the already existing energy efficiency technologies (70%) and in paying producers to design more efficient products in the first place (10%). The long term benefits to our nations finances, our national security, our environment and even our health and general wellbeing will be out of sight!

Why is it that every oven vents into the house in summer? and no refrigerator takes air from outside in winter? Compared to solving the nuclear waste disposal conundrum it would be trivially easy to build kitchens in a way that exhausts heat from appliances outdoors in summer and uses outside air to reduce the cooling load of fridges and freezers in winter. All you need is a little bit of ducting and a fan! Yet nobody is in charge of these interfaces and so we use energy to freeze water in winter and air-condition ovens in summer. I just pick this example because it is one that everyone can relate to. There are many many business specific examples, one that leaps to mind is the energy cost of cooling computer server "farms" in winter. Why not harness the extra heat from the servers to pre-heat water for general use?

Why not let every home or business install a heat exchange interface with the water main? This would let them pull heat or dump heat into the millions of gallons of water that flow under our feet every day--micro-hydro-geothermal. To the extent these millions of gallons of water increase a few degrees in temperature (and I would suggest that reasonable limits be set on any such scheme) that would reduce the energy needed to heat the water from the water mains that goes into each homes, water heater/boiler. I throw these ideas out, not as full fledges solutions, but as simple examples of trivial things that we could do if we all had different incentives.

The beauty of energy efficiency investment is the fast payback. You start saving money on energy immediately. It is like a permanent tax cut for the person making the investment, except everyone in the economy benefits as the upward pressure on energy prices is reduced. (With a normal tax-cut only the person(s) recieving the cut benefits, and everyone else pays more!--or recieves less.)

Efficiency investments are "shovel ready" and the US workforce already had 90% of the necessary skills. These are jobs we can start doing today. Maybe we can do extra training for the guys wearing the toolbelts, but most people who already work in the trades, the salesforce, the purchasing, and accountants, the stock-keeping, the shipping departments etc. can just apply their existing skills to deploying these efficient technologies.

Economy wide investments in energy efficiency strengthen our balance of trade (as we spend less on imports and effectively export the energy we would have used) and better position us to repay our international lenders. If we as a country reduce our energy bills (just like each household) that leaves more money to pay all the other bills that remain.

Efficiency investments reduce our need to import massive amounts of energy from unstable parts of the world, and our need to secure these import routes. Efficiency investments reduce our vulnerability to supply disruptions, and our need to send our children into harms way. Becoming more energy efficient increases our national security.

And returning to the start of this post, investing in energy efficiency will reduce the need to squeeze energy out of every rock we can find or every hole in the ground we can make. Will we still need energy? YES. Hell yes!, but if we are not pressing the accelerator pedal all the way to the floor, we have more time to plan a safe route, and in the event of an accident we will have more time to react to aviod a sudden guard rail or ditch, by not going full throttle.

And finally we will never have to fear the headlines that energy efficiency will bring. Just imagine this headline: "NegaWatt Bomb explodes in Washington DC--saving taxpayers billions! Details on page 3".