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photo: Sungevity

Berkeley on Friday hands over checks to the first two homeowners who tapped the California city’s pioneering solar financing program to install solar arrays.

The city fronts the cash for rooftop solar panels for any Berkeley business or homeowner, who pays back the cost through a 20-year surcharge on their property tax bill. If a home is sold, the surcharge rolls over to the new owner. The city council created a Sustainable Energy Financing District and launched a $1.5 million pilot program for the Berkeley FIRST Financing Initiative for Renewable and Solar Technology) in November to finance 40 rooftop systems. It took all of nine minutes for those 40 slots to be filled when the online application went live.

Berkeley issued a bond for the programs that was bought by Oakland-based Renewable Funding, which financed the solar arrays and whose president, Francisco DeVries, devised the Berkeley program when he served as Mayor Tom Bates’ chief of staff. Renewable Funding now is taking the program nationwide as cities from Portland to Tuscon consider adopting similar solar financing schemes. Under legislation enacted last year, any California city can implement a Berkeley-style program.

Municipal financing of solar arrays has become even more attractive since October when Congress lifted a $2,000 cap on federal tax credits for residential systems. Homeowners now can claim a tax credit for 30% of the cost of a solar system. When a state rebate is added, the cost of going solar in California has fallen by half.

Municipal financing programs are good news for solar panel makers and installers like SunPower (SPWRA), SunTech (STP), Akeena (AKNS) and First Solar (FSLR), the thin-film solar company that recently jumped into the residential market.

On Friday, Berkeley homeowner Jeanne Pimentel will receive a check from the mayor to hand over Borrego Solar, which installed her solar panels while homeowner Aaron Mann will sign his check over to Sungevity.

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optisolar-panels
photo: Optisolar

SAN FRANCISCO — With the financial crisis dimming solar’s prospects to become a significant source of renewable energy, utility giant PG&E on Tuesday said it will spend $1.4 billion over five years to install 250 megawatts’ worth of photovoltaic panels in California while contracting with private developers for another 250 megawatts. PG&E chief executive Peter Darbee said the utility is also prepared to be a “green knight,” rescuing distressed big centralized solar power plant projects by providing financing so they can get built.

“We have contracted for 24% of our energy to be renewable and we’re concerned whether our [developers] will have access to capital,” Darbee said at PG&E’s San Francisco headquarters during a press conference. “We think financing for these projects may be in jeopardy. PG&E is well-positioned with its $35 billion balance sheet to step up and help.”

PG&E’s (PCG) move to take a direct role in obtaining the renewable energy it needs to comply with California’s global warming laws could be big business for solar module panel makers and installers like SunPower (SPWRA), Suntech (STP) and First Solar (FSLR). The action was prompted in part by a change in the tax laws that lets utilities claim a 30% investment tax credit for solar projects.

Fong Wan, PG&E’s vice president for energy procurement, said most of the 500 megawatts of solar panels will be installed on the ground in arrays of between one and 20 megawatts at utility substations or on other PG&E-owned property. (The utility is one of California’s largest landowners.) A small portion may be installed on rooftops, he said.

PG&E said the solar initiative will generate enough electricity to power 150,000 homes and will provide 1.3% of the utility’s electricity supply.

“There’s no or little need for new transmission and these projects can plug directly into the grid,” said Darbee. “Given our size and our credit ratings and our strength, we can move forward where smaller developers may not be able to do so.”

The California Public Utilities Commission must approve PG&E’s solar initiative, which Wan estimated would add about 32 cents to the average monthly utility bill.  An $875 million program unveiled by Southern California Edison (EIX) last year to install 250 megawatts of utility-owned rooftop solar panels has run into opposition from solar companies that argue it is  anti-competitive and from consumer advocates who contend the price is too high. The state’s third big utility, San Diego Gas & Electric (SRE), has also proposed a rooftop solar program.

Wan acknowledged that objections to Edison led PG&E to design its program so that private developers would have a 50% stake in the initiative. PG&E will sign 20-year power purchase agreements for privately owned solar installations.

PG&E will also need regulators’ approval to inject equity financing into companies developing big solar power plants. The utility has signed power purchase agreements for up to 2,400 megawatts of electricity to be produced by solar thermal  and photovoltaic power plants to be built by companies like Ausra, BrightSource Energy, OptiSolar and SunPower.

“We are looking at the least risky and most developed opportunities to see where we can be the most helpful,” Darbee said.

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In the green stimulus sweepstakes, big potential winners are companies like Silicon Valley startup OptiSolar.

The solar-cell maker came out of nowhere last year to score a deal with utility PG&E to build the world’s largest photovolaic power plant, a 550-megawatt monster that would cover some 9 1/2 square miles on California’s central coast. OptiSolar subsequently began construction of a factory in Sacramento to produce the thousands of thin-film solar panels needed for the project. Then the economy tanked and as financing dried up, OptiSolar laid off half its workforce – some 300 employees – and halted construction of the Sacramento facility.

With a Colorado solar company executive joining President Barack Obama as he signed the $787 billion stimulus legislation into law Tuesday at a solar-powered museum in Denver, OptiSolar and other renewable energy companies stalled by the financial crisis may see their fortunes revive. The package allows builders of big renewable energy projects to apply for a government cash grant to cover 30% of construction costs in lieu of claiming a 30% investment tax credit. A dearth of investors who finance solar power plants and wind farms in exchange for the tax credits has put in jeopardy green energy projects planned for the desert Southwest and the Great Plains. The cash grant would shave about $300 million off the projected $1 billion price tag for OptiSolar’s Topaz Solar Farm.

The stimulus package also includes $2.3 billion to fund a 30% manufacturing tax credit for equipment used to make components for green energy projects, a provision OptiSolar can tap to help finance its solar cell factories. And the company may be able to take advantage of the legislation’s government loan guarantees for large renewable energy projects.

“It will lower the cost of the factory we’re building in Sacramento and make it easier to attract financing,” OptiSolar spokesman Alan Bernheimer told Green Wombat, noting the company’s priority is to complete the facility and begin production of solar panels. “The factory is more than shovel ready – our shovels are hanging on the wall where we put them when we had stop work in November.” (OptiSolar currently manufactures solar modules at its Hayward, Calif., plant.)

Fred Morse, senior adviser to Spanish solar energy giant Abengoa, says the stimulus package puts back on track a $1 billion, 280-megawatt solar thermal power plant the company will build outside Phoenix to produce electricity for utility Arizona Public Service. “With the stimulus bill we’re very confident we’ll be able to finance the project,” says Morse. He says Abengoa expects to use the government loan guarantees to obtain debt financing to fund construction of the project and then apply for the 30% cash refund. “I think the entire industry is very optimistic that these two aspects of the stimulus package, the grants and the temporary loan guarantees, should allow a lot of projects to be built.”

Mark McLanahan, senior vice president of corporate development for MMA Renewable Ventures, agrees. “I expect the government grants to attract new investors,” says McLanahan, whose San Francisco firm finances and owns commercial and utility-scale solar projects.

There are some strings attached, though.

To qualify for the cash grants, developers need to start shoveling dirt by Dec. 31, 2010. That means only a handful of big solar thermal power plants planned for California, for instance, are likely to make it through a complicated two-year licensing process in time to break ground by the deadline. One of those could be the first phase of BrightSource Energy’s 400-megawatt Ivanpah power plant on the California-Nevada border. But BrightSource’s biggest projects, part of a 1,300 megawatt deal signed with Southern California Edison (EIX) last week, won’t start coming online until 2013 at the earliest.

Another Big Solar project, Stirling Energy Systems’ 750-megawatt solar dish farm for San Diego Gas & Electric (SRE), will be racing to meet the 2010 deadline. The project is in the middle of a long environmental review by the California Energy Commission and the U.S. Bureau of Land Management which currently is scheduled to stretch into 2010.

SolarReserve CEO Terry Murphy says his Santa Monica-based startup has a couple of solar power plant projects in the works that should be able to take advantage of the stimulus provisions. “The likelihood of us being able to close on a financial deal has increased,” Murphy says.

Solar analyst Nathan Bullard of research firm New Energy Finance expects the stimulus package to prompt a push for large photovoltaic power projects. That’s because in California such solar farms – which essentially take rooftop solar panels and mount them in huge arrays on the ground – do not need approval from the California Energy Commission and can be built relatively quickly.

That’s good news for companies like thin-film solar cell maker First Solar (FSLR), which builds smaller scale photovoltaic power plants, and SunPower (SPWRA), which has a long-term contract with PG&E (PCG) for the electricity generated from a planned 250-megawatt PV solar farm to be built near OptiSolar’s project.

“It’s great for PV because you can definitely can get construction done by the end of 2010,” says Bullard. “It’s also good news for smaller and mid-sized developers who couldn’t access tax-equity financing.”

The catch, however, is that renewable energy companies still must raise money from investors in a credit-crunched market to cover construction costs, as the government doesn’t pay out the cash until 60 days after a solar power plant or wind farm goes online. And as McLanahan points out, the cost of raising capital from private equity investors is typically higher and will add to the cost of renewable energy projects. Those costs will only rise if the government is late in paying out refunds.

MMA Renewable finances large commercial arrays and solar power plants and then sells the electricity under long-term contracts to customers who host the solar systems. The loan guarantee provision of the stimulus legislation will help secure financing from investors skittish that some of MMA Renewable’s customers may default on their agreements, according to McLanahan.

Says Murphy: “The fact that we’re getting iron into the ground and getting things moving helps us.”

The wind industry also stands to gain from the stimulus package through a three-year extension of the production tax credit for generating renewable electricity as well as the government cash grants and manufacturing tax credit. Despite a record year for wind farm construction in 2008, projects have come to a standstill in recent months as the financial crisis froze development and forced the European-dominated industry to lay off workers.

“I think it’s good down payment on what needs to happen,” says Doug Pertz, CEO of Clipper Windpower, one of two U.S. wind turbine makers. “A lot more needs to be done but I think this will start to bring a lot of people back into the marketplace.”

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photo: WorldWater & Solar Technologies

As the financial crisis short-circuits the ambitions of green tech companies, solar financier MMA Renewable Ventures is pushing ahead with raising its fifth fund. Meanwhile, its solar power plant joint venture with Chinese solar cell maker Suntech – Gemini Solar Development – has been selected by utility Austin Energy to build a 30-megawatt solar farm in Texas.

The San Francisco-based firm just completed its $200 million Solar Fund III, which invested in 20.6 megawatts of photovoltaic solar arrays for companies like Macy’s, the Gap, Lowe’s and utility FPL (FPL) as well as the Denver International Airport. MMA Renewable (MMAB.PK) provides the financing for the installation of large commercial solar arrays on big box stores and other locations while retaining ownership of the systems. The electricity produced is sold to the building owner under a long-term contract.

“The good news is that we can raise another fund in a tough market,” MMA Renewable Ventures CEO Matt Cheney told Green Wombat, adding that the company aims to raise $200 million or more for Solar Fund V.

That doesn’t mean it’ll be easy. Many of the Wall Street banks that invested in big solar systems are no more and demand for the tax credits generated by the projects has fallen faster than the Dow Jones as most companies aren’t piling up much tax liability these days.

“The ones that are left are being very picky and asking a lot,” says Cheney, adding that banks and other investors are demanding higher returns on their investments. Still, he notes, past MMA Renewable investors like Wells Fargo (WFC) remain relatively healthy. “If you look at every country in Europe and the U.S., there are good examples of financing institutions that were less impacted by the financial crisis, which is a deep one,” he says.

One possible source of new tax-equity investment may come from well-capitalized utilities that, thanks to a change to the tax laws Congress made last October, can now claim tax credits for solar projects. PG&E (PCG) CEO Peter Darbee, for instance, has said his utility plans to invest in solar power plants.

A new and potentially bigger worry is whether MMA Renewable customers – big box retailers and the like – will be survive the financial crisis. MMA Renewable’s business is built on long-term power purchase contracts – as long as 20 years – that provide a predictable and steady revenue stream to investors.

“Would you buy a corporate bond from a large U.S. company that went out 20 years today?” Cheney asks. “You would most likely tell me that’s a long time. You don’t know if you want to take that risk beyond five or ten years. That’s the equation that’s present in the marketplace today.”

In California, at least, demand for solar has remained strong: This week state regulators reported that installed solar systems more than doubled in 2008 from the previous year.

One bright spot may be the market for smaller-scale photovoltaic power plants and MMA Renewable’s Gemini joint venture with Suntech (STP).  The Austin Energy project still must be approved by the city of Austin, but Cheney says Gemini is in the midst of negotiations with other utilities as well.

When SunPower (SPWRA) reported record fourth-quarter earnings Thursday, CEO Tom Werner said the Silicon Valley solar cell maker was shifting resources to its power plant building business in 2009 and had 1,000 megawatts of projects on the drawing boards.

There was just one catch:  money. “We have a strong pipeline of projects fully permitted, or with permits in process, that will be buildable,” Werner said, ” when financing becomes available.”

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photo: Ausra

When Green Wombat sat down for a chat with Ausra founder David Mills back in September 2007, he allowed that it was not unreasonable to expect the Silicon Valley solar startup to soon be building several massive megawatt solar power plants a year. The optimism was not unwarranted. After all, in the space of 12 months Ausra had relocated from Sydney to Palo Alto, raised $40 million from A-list venture capitalists and was about to ink a deal with utility PG&E for a 177-megawatt  solar power project.

That was then. This month Ausra laid off 10% of its 108 employees amid a move to stop building Big Solar projects – for now – to focus on providing its solar thermal technology to other power plant developers and to industries that use steam. (Ausra’s compact linear fresnel reflector technology deploys flat mirrors that sit low to the ground and concentrate sunlight on water-filled pipes that hang over the mirrors. The superheated water creates steam which drives an electricity-generating turbine.)

“I think our competitors will figure this out sooner or later but nobody’s going from a five-megawatt project to a 500-megawatt project. No one’s going to finance that,” Ausra CEO Bob Fishman told Green Wombat. “If you look at the amount of money it takes to be involved in the project development business, that’s not something a startup can do.”

At least any time soon. Ausra last year opened a robotic factory in Las Vegas to make mirror arrays and other components for the many power plant projects it had on the drawing boards. Just three months ago the company flipped the switch on its five-megawatt Kimberlina demonstration power plant outside Bakersfield. But as the credit crunch hit, financing for billion-dollar solar power projects evaporated. Then in October, Congress passed legislation allowing utilities like PG&E (PCG), Southern California Edison (EIX) and San Diego Gas & Electric (SRE) to claim a 30% investment tax credit for solar projects. As the only well-capitalized institutions left standing in the energy game, utilities are stepping forward as investors.

PG&E CEO Peter Darbee says he’s prepared to make direct investments in solar power plants – projects the utility needs to comply with a California mandate to obtain 20% of its electricity from renewable sources by 2010 and 33% by 2020. Under pressure to meet those targets, California utilities have signed more than four gigawatts worth of power purchase agreements with solar power plant startups like BrightSource Energy, Solel, Stirling Energy Systems and eSolar. Utilities also have begun signing deals for electricity produced by smaller scale photovoltaic power plants built by companies like First Solar (FSLR) and SunPower (SPWRA).

Fishman said Ausra will complete the 177-megawatt Carrizo Energy Solar Farm in San Luis Obispo County on California’s central coast to supply electricity to PG&E. “If Peter Darbee wants to own Carrizo rather than buy the electricity, we’re willing to do it. It makes sense,” he says.

Ausra will also will complete a second big solar power plant planned for Arizona. But the company has quietly let drop a Florida project for utility FPL (FPL) and is negotiating to offload lease claims it filed on federal land in Arizona and Nevada for solar power plants during the solar land rush.

“Other projects in the pipeline we’ll be selling to utilities or developers for a modest amount of cash with a commitment that those developers must use our technology,” says Fishman.

Fishman notes that the cost of licensing a solar power plant can be $5 million to $10 million a year – and in California it’s a multi-year process – so Ausra will realize some immediate savings by morphing into a technology provider.

Customers for Ausra’s technology include oil companies that could inject solar-generated steam in oil wells to enhance recovery of thick petroleum as well as food processing plants and other heavy users of steam. Fishman just returned from a trip to the Middle East where he says he held talks in Kuwait, Qatar and Dubai about using Ausra’s technology for oil recovery and desalinization.

Going forward, he says Ausra’s focus will be on medium-sized power plants. “Maybe next year we’ll do four projects of 50 megawatts a year. It’s a walk before you run situation,” says Fishman. “The financial customers and financial community are going to insist we do medium scale before we do large scale. We’ll still want to do very large projects but given the project finance market, it’ll be a few years from now.”

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With Big Solar thermal power plants bogged down in bureaucracy and facing environmental and financial hurdles, utilities are turning to smaller-scale thin-film solar stations that can be built in a matter of months.

In late December, PG&E (PCG), for instance, signed a 20-year contract for electricity generated  from a 10-megawatt thin-film solar power plant in Nevada owned by energy giant Sempra (SRE) that was officially dedicated on Thursday. The solar farm was built by First Solar (FSLR) in a scant six months. Meanwhile, the utility’s nearly two gigawatts worth of deals with solar thermal power companies won’t start producing power for another two years at the earliest. (Southern California Edison (EIX) and San Diego Gas & Electric signed agreements with solar dish developer Stirling Energy Systems for 1.75 gigawatts in 2005 and those projects are just now beginning to move through the regulatory approval process.) And the financial crisis has made it more difficult for solar thermal developers to obtain the billions of dollars needed to finance the construction of a massive megawatt power plant.

Solar thermal power plants typically use miles of mirrors to heat a fluid to create steam which drives an electricity-generating turbine. Photovoltaic (or PV) solar farms essentially take solar panels similar to those found on residential rooftops and mount them on the ground in huge arrays. (Thin-film solar panels are made by depositing layers of photovoltaic materials on glass or flexible materials.)

“In terms of construction, photovoltaic tends to have a much faster development and construction track,” Roy Kuga, PG&E’s vice president for energy supply, told Green Wombat. “There is a segment of mid-sized projects – in the two to 20 megawatt size – where PV shows a distinct advantage in that market. There’s a huge potential for the PV market to expand.”

That’s good news for companies like First Solar – the Tempe, Ariz.-based company backed by the Walton family that is often called the Google of solar for its stock price and market prowess – and SunPower (SPWRA), the Silicon Valley solar cell maker that’s moved into the power plant-building business.

The speed at which the Sempra-First Solar project went online owes much to the fact that it was built on the site of an existing fossil fuel power plant. “It was already permitted for power generation, transmission existed and it did not have to go through the laborious California permitting process,” says Reese Tisdale, a solar analyst with Emerging Energy Research. “As such, First Solar was able to essentially plug and play.”

Nathaniel Bullard, a solar analyst with New Energy Finance, says he expects utilities increasingly to bet on smaller-scale photovoltaic farms to help meet state mandates to obtain a growing percentage of their electricity from renewable sources. Just this week, PG&E CEO Peter Darbee said his utility plans to invest in solar power plant projects rather than just buy the power they produce.

“I think a utility could easily integrate, technically and financially, 100 megawatts of PV,” Bullard says.  If something is falling behind on your big solar thermal projects, you can plug in PV. I think you’ll see more of this with California utilities and I expect to see it more in Florida and North Carolina. It’s a great runaround to issues of siting and transmission.”

That’s because in California photovoltaic power plants do not need approval from the California Energy Commission. And smaller-scale plants take up far less land and can be built close to existing transmission lines. Most large solar thermal power plants typically are planned for the Mojave Desert and require the construction of expensive power lines to connect them to the grid.

The modular nature of PV solar farms means they can begin generating electricity as each segment is completed while a solar thermal plant only goes online once the entire project is finished.

“Certainly there is a sweet spot in which the project is large enough to gain advantages of scale,” says Tisdale. “Also, these small-to-mid-size systems can be spread about a transmission network, instead of at one site.”

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Solar cells may generate clean green electricity but manufacturing them involves a witches brew of toxic chemicals that could harm the environment if millions of solar panels end up in landfills, according to a report issued Wednesday by the Silicon Valley Toxics Coalition.

The California environmental group is calling for solar manufacturers to take back and recycle their panels at the end of their 20-to-25 year lifespan. “We feel it’s a very important time for the solar industry because it is getting ready to take off and before that happens it’s time to look at important issues around designing out some of the toxics,” Silicon Valley Toxics Coalition executive director Sheila Davis told Green Wombat. “The big issue is whether there is a transparent supply chain and whether solar companies monitor their supply chains.”

The solar industry’s trade group says it embraces the report’s recommendations. “We completely support take-back and recycling,” says Monique Hanis, a spokeswoman for the Solar Energy Industries Association in Washington. “We’re in a fortunate position in that we’re still an emerging industry and have an opportunity now to establish standards and proactively set up processes before we end up with solar panels on every rooftop.”

Julie Blunden, vice president of public policy at San Jose solar cell maker SunPower, points out that an industry-backed group called PV Cycle in Europe is developing worldwide standards for the take-back and recycling of solar panels. “It’s not uncharted territory for the solar industry – we have actually been working on it for a while,” she says. “The idea is for industry to design something that makes sense for a global value chain and a global market.”

The toxics coalition was born in the early 1980s after chip plants were found to be contaminating groundwater with carcinogenic chemicals, setting off years of litigation and turning Silicon Valley into a Superfund hot spot. In more recent years, the toxics coalition has pressed computer manufacturers to take back and recycle PCs and reduce the use of toxic materials that often ended up discarded in Third World countries.

Silicon is the key material used in both semiconductors and conventional solar cells and its production and refinement involve various toxic chemicals.

“Although the solar PV boom is still in its early stages, disturbing global trends are beginning to emerge,” the report states. “For example, much of the polysilicon feedstock material (the highly refined silicon used as the basic material for crystalline silicon PV cells) is produced in countries like China, where manufacturing costs and environmental regulatory enforcement are low.”

But unlike computer makers in the 1980s and ’90s, solar companies like SunPower (SPWRA), Suntech (STP) and Sharp are not about to resist efforts to green up their business. “The people working for these companies are completely committed to preserving the environment and it drives the reason for being in solar,” notes Hanis.

And recycling solar panels can be good for business. When Green Wombat visited SolarWorld’s new solar cell factory in Oregon in October,  COO Boris Klebensberger touted the German company’s recycling program as a competitive advantage, both with customers and as a way to reduce manufacturing costs by recovering expensive polysilicon.

For instance, thin-film solar manufacturer First Solar (FSLR), whose cells are made from cadmium telluride, pre-funds the cost of its take-back program through an insurance program so customers are assured that the panels they buy will be properly disposed of at the end of their lifespan. That addresses a particular challenge the solar industry faces: Will the company that makes a particular solar panel be around a quarter century later to take back and recycle its products? And if not, who takes responsibility for doing so?

Davis says the toxics coalition has approached some solar companies but declined to identify them. “We haven’t talked to a lot of them but the ones we have talked to have been responsive,” she says. “I think that’s because most people in these companies do have an interest in being green. They’re much more receptive to looking at models that would promote their environmental performance.”

Beyond corporate self-interest, government policy considerations are likely to drive the solar industry to devise alternative manufacturing processes and implement recycling programs. For instance, European Union restrictions on various toxic materials in electronic products have encouraged computer makers to green their machines lest they be shut out of a major market. And these days, Dell (DELL) and even Apple (AAPL) see a marketing advantage to touting environmentally friendly computing.

The solar industry has time on its side when it comes to developing toxic reduction and recycling programs. While an iPod may end up on the trash heap in 18 months, the typical solar panel won’t come off the roof for decades.

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Amid the daily drumbeat of mass layoffs, here’s some sunny news: Solar startup Suniva cut the ribbon Thursday on a photovoltaic cell factory outside Atlanta.

As solar factories go, Suniva’s plant – the first such facility in the Southeast – is relatively small, making 32 megawatts of solar cells annually until  production is fully ramped up to 175 megawatts in 2010. But the factory will create 100 green collar jobs and it follows the opening of  SolarWorld’s new solar cell fab outside Portland, Ore., that will  produce 500 megawatts’ worth of solar cells, and thin-film solar startup HelioVolt’s factory in Austin. Meanwhile, Solyndra, a Silicon Valley thin-film solar startup, is expanding its production facilities while Bay Area rival OptiSolar is building a Sacramento factory that will employ 1,000 workers to produce solar cells for the power plant the company is building for utility PG&E (PCG). (Leading thin-film solar company First Solar (FSLR) operates a factory in Ohio as well as plants in Malaysia.) But Chinese solar giant Suntech (STP) last week said it has put plans for U.S. factories on hold due to the credit crunch.

The Suniva grand opening comes on a good news-bad news day for the solar industry. On one hand, President-elect Barack Obama is expected to nominate alternative energy proponent and Nobel laureate Steven Chu, director of the Lawrence Berkeley National Laboratory, as Secretary of Energy. But the solar industry faces a tough year ahead. On Thursday, research firm New Energy Finance, echoing other analysts, predicted prices for polysilicon – the base material of conventional solar cells – would fall 30% in 2009. That’s bad news for conventional solar cell makers like SunPower (SPWRA) and Suntech if they’ve locked in silicon supplies at higher prices but provides an opening for further growth for thin-film solar companies that make solar cells that use little or no polysilicon.

“We expect to see significant drops in the price of modules next year,” wrote New Energy Finance CEO Michael Liebreich.  “Any manufacturer who does not have access to cheap silicon and who has not focused on manufacturing costs is going to be in trouble. The big shake-out is about to begin. The next two years will change the economics of PV electricity out of recognition.”

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photo: Southern California Edison

While demand for solar panels is expected to continue to grow by double-digits in the years ahead, 2009 could be a make-or-break year for some companies, according to an analysis from HSBC Global Research.

After grappling with a shortage of polysilicon – the base material of conventional solar cells – for the past couple years, the industry now faces falling prices. The spot market for polysilicon has plummeted 35% since October, writes HSBC alternative energy analyst Christine Wang, who predicts prices will fall 30% next year.

That’s bad news for solar module makers who locked in long-term contracts at higher prices – which looked like a smart move when polysilicon was in short supply and prices rising rapidly. “The winners will likely be the companies with competitive cost structures, scale, good product  quality, strong balance sheets, and strong customer relationships,” according to Wang. “We believe that new entrants and small players will suffer the most as they lack brand recognition.”

The culprits are the usual suspects – the global financial crisis as well as some cutbacks in subsidies from countries like Spain. Solar cell companies that have rapidly ramped up production over the past two years now may be saddled with too many high-priced products.

Wang downgraded Chinese solar giant Suntech (STP) and set a price target of $4.50 – down sharply from HSBC’s earlier target of $55. Suntech was trading at near $10 Monday afternoon but still nearly 90% off its 2008 high.  (SunPower (SPWRA), First Solar (FSLR) and other solar cell makers have also seen their share prices nose-dive.) “High portion of polysilicon based on contract prices will hurt Suntech,” writes Wang, who estimated that 80% of Suntech’s polysilicon supply is locked into contracts “on less favorable fixed prices.”

Falling panel prices is good news for solar system installers like Sungevity and Akeena Solar (AKNS) and their residential and commercial customers. When Green Wombat ran into Akeena CEO Barry Cinnamon in San Francisco at the announcement of Better Place’s Bay Area electric car project, he said he was in no rush to enter into long-term contracts with solar cell suppliers as he expects prices will continue to fall in 2009.

Still, not all the news is gloomy for the industry. Wang expects that the financial crisis won’t derail government support for solar, given climate change pressures and state mandates to increase the use of renewable energy. The move by utilities like PG&E (PCG) and Southern California Edison (EIX) to sign long-term contracts for electricity from photovoltaic power plants will also keep demand high in coming years.

Wang projects solar cell demand will grow 45% between 2008 and 2012. “Developed countries are increasingly focused on environmental protection and curtailing the causes of climate change, and we do not believe this trend will shift just because of a (hopefully) short-term financial crisis,” she wrote.

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solana1The credit crunch is taking a toll on the United States’ nascent solar industry, scuttling big renewable energy projects and curtailing expansion plans, solar executives said Wednesday as they proposed the inclusion of green incentives in the Obama economic stimulus plan.

Spanish energy giant Abengoa, for instance, has put on hold plans to build its 280-megawatt Solana solar power plant outside Phoenix to supply electricity to utility Arizona Public Service (PNW) in a $4 billion deal, said Fred Morse, senior advisor to Abengoa Solar.

“We have serious issues getting financing,” said Morse during a conference call held by the Solar Energy Industries Association. Congress in October passed a 30% investment tax credit crucial to the solar industry. But Wall Street’s meltdown has scared off investors that normally would finance large solar projects in exchange for the tax credits.

“The investment tax credit was passed but unfortunately there was no ‘I’ in the ITC,” Morse added. “We have trouble finding tax-equity investors, the financing is gone.”

Suntech America president Roger Efird said that after Congress passed the investment tax credit, the Chinese solar cell maker immediately doubled its sales force in the U.S. That expansion has now hit a wall.

“Plans to double our sales force by the end of 2009 are currently on hold, primarily because business has slowed in fourth quarter because of the credit crunch,” he said. “We had been considering establishing manufacturing in the U.S. The timing of those plans depend on the growth of the market in the U.S. and how long it takes to get through this downturn.”  Suntech’s (STP) stock – like those of rivals SunPower (SPWRA) and First Solar (FSLR) – has been walloped by the market chaos and is down 94% from its 52-week high.

Ron Kenedi of Sharp Solar said the dealers and installers who buy the Japanese solar module maker’s products have had a hard time securing credit to finance their operations.

In response, the solar industry’s trade group on Wednesday proposed that the federal government cut through the credit crunch by adopting tax and investment policies to stimulate the solar sector and create 1 million jobs.

The centerpiece of the plan is a $10 billion program to install 4,000 megawatts of solar energy on federal buildings and at military installations. “The Department of Defense alone could jump start this industry and it could have widespread impact on the use of solar, similar to what it did for the Internet,” said Nancy Bacon, an executive with Michigan thin-film solar cell maker Energy Conversion Devices (ENER).

Bacon noted that the federal government is the world’s largest utility customer, spending $5.6 billion annually on electricity. “This would create 350,000 sustainable jobs,” she said. “The solar industry is ready to deploy these systems immediately.”

The Solar Energy Industries Association also wants Congress to enact a 30% tax refundable tax credit for the purchase of solar manufacturing equipment to encourage solar companies to build their factories in the U.S. That would result in an estimated 315,000 new jobs. Making the current investment tax credit refundable would also help loosen up financing for solar projects, the association said.

Other policies on the SEIA agenda:

  • Establishment of a national Renewable Portfolio Standard that would require states to obtain a minimum of 10% of their electricity from green sources by 2012 and 25% by 2025, with 30% of the total coming from solar.
  • Rapid deployment of new transmission lines to connect cities to remote areas where wind and solar power is typically produced.
  • Expedited approval of solar power plant projects on federal land in the Southwest.
  • Creation of an Office of Renewable Energy in President-elect Obama’s office to coordinate the procurement and permitting of solar power and transmission lines.

“We are working closely with the Obama energy transition team and have been in contact with Congress,” said SEIA president Rhone Resch. “These polices are exactly the kind of shot in the arm our economy needs today.”

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