Solar panel maker First Solar’s Google-like stock price — shares
soared 34 percent today to close at $224.43 — is either a sign that
green tech is getting bubbly or that investors genuinely see a huge
potential market in renewable energy.
Probably a bit of both. The Phoenix-based company makes thin-film
solar modules for use in solar power plants or in rooftop arrays for
commercial buildings. While thin-film offers lower efficiency than
traditional silicon-based solar modules, it can be produced cheaper,
and First Solar (FSLR) has been rapidly ramping up production. The
trigger for today’s investor love was First Solar’s third-quarter
earnings report on Wednesday that showed revenue spiked 106 percent to
$159 million from the previous quarter and up a whopping 290 percent
from a year ago. First Solar — fun fact: it’s biggest shareholder is
the estate of Wal-Mart (WMT) heir John T. Walton — also upped its 2007
revenue forecast to $480 million to $485 million from an earlier
estimate of $400 million to $415 million. The stock fell back to $206.85 at the close of trading Friday.
Investors were prepped for by recent announcements from First Solar
that the company would double its manufacturing capacity by the end of
2009 and that it had signed new deals with customer. Much of First
Solar’s production goes to solar companies in Germany, where generous
government subsidies have made the a country solar hotbed. First Solar
also is benefiting from being one of the first new-generation thin-film
solar companies to market. A host of thin-film startups like Nanosolar
and HelioVolt — they also minimize the use of expensive silicon but use
a different technology — have scored hundreds of millions of dollars in
funding from venture capitalists but have yet to produce products.
Savvy investors also know that the U.S. market is poised to take
off, particularly for utility-scale solar projects. Half the states
now have imposed so-called renewable portfolio standards that require
varying percentages of utilities’ electricity be obtained from
greenhouse-gas free sources. In California, for instance, in addition
to the state’s global warming law that will cap greenhouse gas
emissions, portfolio standards oblige utilities like PG&E (PCG),
Southern California Edision (EIX) and San Diego Gas & Electric
(SRE) get 20 percent of their power from renewable sources by 2010 and
a third by 2020. They’re going to need a lot of solar power plants to
meet that mandate.
That explains why other solar module makers have experienced a similar run-up in their stock. For instance, SunPower (SPWR), which makes solar panels used in residential and commercial arrays as well as in photovoltaic power plants, has seen its shares spike 81 percent over the past three months to close at $141.93 on Thursday. That’s a 322 percent premium over what the stock was trading a year ago.
Green Wombat 
Promising but First Solar makes me think of some questions. Why I don’t hear in the media about sales in the United States like I do with other solar companies, and why they have a lot of sales in other countries like Germany and Malaysia.
With all of the solar thermal power plants that will be starting to show in a few years, how is First Solar’s technology going to compete with solar thermal which has a higher efficiency, lower cost, storage so it works at night, and is not toxic like cadmium telluride?
The Coming Green Collar Job Boom
The American Solar Energy Society reports that by 2030 one in four workers will be wearing green collars at work….
If we fast-forward to 2100, the emergence of solar energy will be viewed as one of the most transformative events of the 21st century. It will affect the environment, global economics and geopolitics. Solar can be deployed locally and there are no emissions. It will reduce air pollution, which will reduce the incidence of many public health problems such as the high incidence of asthma in urban settings. Since there are no noxious emissions, such as nitrous oxide and sulfur dioxide, associated with coal burning plants, the deployment of solar will alleviate the problems of acid rain and the denuding of forests due to acid rain. There is no carbon dioxide produced when semi-conductors such as silicon convert the sun’s energy into electricity. Therefore, the main cause of human induced global warming will be dramatically reduced from entering the atmosphere. Global politics will no longer be influenced by who has the largest petroleum reserves. This has led to strange bedfellows between Presidents and dictators, democracies and theocracies.
Once the renewable energy infrastructure is in place: solar panels, solar thermal collectors, concentrating solar power, windmills, tidal turbines, geothermal wells, there will be no need to horde non-renewable energy sources that are dwindling at an exponential rate. Our current course is unsustainable. The time period from the industrial revolution until now will be viewed historically as the fossil fuel era that enabled humans to advance to the renewable age. The fossil fuel era was necessary and served its purpose. It is just unsustainable. Electric cars powered by wind and solar will be the norm by the turn of the century and hopefully a lot sooner. The Renewable Revolution has begun. Energy is a huge business, and once wall street saw the huge potential for greenbacks in green energy, there was no turning back.
Right now, most renewable energy cannot compete with fossil fuels on a straight economic basis. Wind needs the federal production tax credit to be viable. Solar needs the 30% federal tax credit, and accelerated depreciation along with state specific rebate/financing programs in order to compete with coal, natural gas and nuclear generated electricity. Since most renewable energy is currently dependent on federal and state legislation that is short sighted and intermittent, it has been hard for renewable companies to effectively plan for the future and reach the economies of scale that will allow them to exist without government aid.
Germany currently has the most installed photovoltaic capacity despite being at 60 degrees north latitude and having the same solar resource as southern Alaska. The German government has made a long term commitment to solar through a feed in tariff that assures solar energy producers a stream of revenue at a set rate for a specified amount of time. Other countries have followed this model, most notably Spain where solar has taken off over the last 2 years as the feed in tariff model was adopted. Only a few of the states in the U.S. have significant solar programs, most notably California, New Jersey and Colorado. Most states that have any significant amount of solar installed have offered an upfront rebate to help offset the high upfront cost of installation.
This model has been successful in jump starting programs such as New Jersey’s, but it is proving to be unsustainable as the rebate programs become victims of their own success. New Jersey is currently transitioning from an upfront rebate program to a program that is more similar to the feed in tariffs found in Europe and Ontario. Each megawatt-hour of electricity produced in New Jersey generates an S-REC ( Solar Renewable Energy Credit) that trades in free market. Investor Owned Utilities purchase the S-REC’s in this market to meet their quota for clean energy specified in the Renewable Portfolio Standard. If they do not purchase the S-REC’s from homeowners or businesses that are producing solar electricity, they are forced to pay an alternative compliance payment (ACP) which is usually 50% more expensive than purchasing the S-REC’s in the market. The S-REC income to the owner of the solar array provides another stream of revenue in addition to their lower electric bill that aids in paying for the solar project. New Jersey is proposing to increase the ACP and establishing a floor for the S-REC in lieu of the current rebate program. With the federal tax credit, accelerated depreciation, S-REC income, lowered electric bill, many commercial projects in New Jersey have gotten IRR of 10% or more and paybacks of less than 7 years. With some creative financial engineering, many third parties are stepping in to finance solar project in New Jersey. Companies such as Sun Edison and MMA Renewable Ventures will own and operate a solar array, charging the customer a lower rate per kilowatt-hour with a fixed rate of price escalation over the next 25 years which is what most solar panels are warranted to produce electricity for with a .5% degradation/year) Wal-Mart and Staples are not interested in owning the solar array on their roof, however, they will sign up for a lower guaranteed electric rate over the next 25 years
Many states have adopted a Renewable Portfolio Standard (RPS) that mandates that investor owned utilities in the state produce a certain amount of their electricity by renewable means by a certain date. New Jersey’s RPS requires the IOU’s to produce 20% of their electricity by renewable means by 2022. It has also specified that 2% of this electricity come from solar. That translates into 1500MW of solar in New Jersey by 2022. Currently there are approximately 26MW installed. Each MW installed costs about $6,000,000. Approximately 60% of this cost is the solar panels. This is one small state. Imagine if the rest of the country adopts aggressive programs like this. No wonder, Sunpower is trading a 600 times trailing earnings!
Recently, there have been several major announcements of 500+ Megawatt concentrating solar power plants being planned for the Mojave Desert. These plants will use parabolic trough mirrors to concentrate the sun’s energy on oil contained in tubes. The oil will be heated to several hundred degrees Fahrenheit and used to turn water into steam, thereby running a turbine, which will produce electricity. There has been a plant like this running in the Mojave since 1984, successfully producing clean energy. Over the last 20 years, the price of oil went dramatically down, the price of electricity was cheap and there was no public movement towards green energy. However, as oil has spiked over $90/barrel, the price of natural gas has gone up, the electricity markets have become deregulated and the price of retail electricity has skyrocketed, concentrating solar plants are starting to make economic, environmental and political sense. Using a fuel free energy source such as solar will prevent wild price swings in electric rates such as those seen in California post deregulation. Solar can be compared to a fixed rate mortgage while fossil fuel power plants can be compared to an adjustable rate mortage (ARM). The fixed rate mortgage is more expensive to begin with but you are protected from huge price swings that come with fluctuations in interest rates. An expensive lesson Wall Street and Main Street have both learned in recent history.
One major obstacle is getting the transmission lines from the desert to the grid or from offshore wind farms to the coast. Government incentives are need to make this investment in infrastructure economically viable. There has been a greenshift in the American psyche which will reward politicians for supporting projects like this. The collapse of the bridge in Minnesota this past summer demonstrated that much of the United States infrastructure needs to be upgraded for the 21st century, the national electric grid included. Perhaps levying a tax on carbon dioxide or simply diverting money from foreign wars to domestic infrastructure could pay for these updates.
As far as public policy goes, the United States needs to adopt a coherent, long term commitment to supporting renewable energy. Government incentives will be needed in the beginning, but as economies of scale are reached in production and installation, the government incentives can be phased out. Just as Eisenhower built the national highway system post World War II, the United States needs to update it’s national electric grid and invest in renewable energy infrastructure that plugs right into a 21st century “smart” grid. By preventing events such as the blackout of 2003 and the blackout in Queens, NY in the summer of 2005, these updates will pay for themselves with the avoidance of one major event. It is in our national security and economic interests to focus on the issue of future energy needs immediately. The 30% federal tax credit and accelerated depreciation for solar, commercial projects needs to be extended to at least 2015 in for the industry to continue to grow, bring costs down and become competitive with traditional sources of electricity. With these extensions, which are currently part of the Energy Bill which is in committee, the solar industry will be able to reach the holy grail of “grid-parity”, whereby solar will be just as cheap, if not cheaper to produce than traditional sources of electric production. Once “grid parity” is reached, all incentives can be removed and the beauty of the free market will take over pushing solar energy to installed capacity levels unachievable through government subsidized programs.
John Moran
E-mail johnflanaganmoran@gmail.com
John I agree with most of what you said. I have always felt that no matter what side of the whole global warming debate you were on, it is pretty hard to argue the point we would not be better off being energy independent. I feel it is our most important national security issue right now and would be a perfect candidate for some the defense budget.
I would disagree with you about holding the German model of solar up as something we should try and copy. If I remember right they are paying 50 cents a KW. That is more than 5 times the present average generation cost, and more than triple the average electric bill, in the US. For solar to ever become a major part of the American lifestyle we are going to have to make it reasonably priced and not pass a bunch of feel good laws that don’t make much economic or environmental sense. I feel we should concentrate our limited funds to places that show the most promise first.
One thing I would strongly agree with you about is our need to upgrade our infrastructure. Most importantly our transmission infrastructure. Renewables will never make an impact on the economy if we are not able to bring them to market. I used to build and repair power lines and basically our grid is a mess here in California. I now work in the solar thermal power industry here in California. I feel it holds great promise for our future but I don’t believe it will ever be our only answer.