SolarCity, which does not manufacture solar PV cells or modules but only installs systems, has an agreement to purchase panels from First Solar Inc. (NASDAQ: FSLR) and has also used panels made by Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Kyocera Corp. (NYSE: KYO), Sharp, and thin-film start-up Miasole. The company competes directly with installers Real Goods Solar Inc. (NASDAQ: RSOL) and Westinghouse Solar Inc. (NASDAQ: WEST).

SolarCity has a contract worth about $1 billion to install solar PV systems on military housing, and the company has been able to get financing for its installations by repaying loans through lease agreements or power-purchase agreements with homeowners rather than depending on the homeowners to pay for the solar PV systems up front.

The dramatic decrease in solar panel prices last year has pushed the company’s growth, and SolarCity is now the market share leader in solar installations with 14%. Real Goods, which claims 6% of installations, trails in second place, but the company has expanded into the northeast US and is competing harder with SolarCity in states like New Jersey and Maryland.

The outcome of the trade case involving US-based solar PV manufacturers against Chinese competition could be the make-or-break issue in SolarCity’s plans. Solar PV installers like SolarCity and Real Goods probably account for about half the 100,000 US jobs related to solar energy. Solar panel manufacturing probably accounts for fewer than 5,000. A high tariff on Chinese solar panels could decimate the installation business.

Paul Ausick

SolarCity is the largest solar installer in the US, with about 14% of a market worth more than $2 billion. The company does not reveal its module suppliers, but did sign a 5-year supply contract with First Solar Inc. (NASDAQ: FSLR) in 2008, and has in the past used modules manufactured by both Suntech Power Holdings Co. Ltd. (NYSE: STP), Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), Kyocera Corp. (NYSE: KYO), Sharp, and thin-film start-up Miasole. Competitors among publicly listed companies are Real Goods Solar Inc. (NASDAQ: RSOL) and Westinghouse Solar Inc. (NASDAQ: WEST), formerly Akeena Solar, which licenses the Westinghouse brand from Toshiba Corp.

SolarCity offers homeowners solar installation with a variety of payment options, but the company’s rapid growth has come from its power-purchase agreements with homeowners who install the rooftop systems and then pay only for the power they use. These projects are financed by loans to SolarCity from the likes of Bank of America Corp. (NYSE: BAC) and Google Inc. (NASDAQ: GOOG) which have backed the program with loans totalling well over $240 million.

The company also offers systems purchasing plans and lease plans for residential and commercial customers. SolarCity also has a major contract with the Department of Defense to install solar systems on military housing units. The company was supposed to receive a federal loan guarantee to partially fund the $1 billion project, but the application was filed too late to be considered by the September 30th deadline. That’s when BofA/Merrill Lynch stepped in with financing.

SolarCity is also on the side of installers who disagree with the dumping case filed by the US division of Germany’s Solarworld AG against Chinese solar panel makers. The falling cost of the solar panels has generated more interest among consumers and commercial customers for installing solar PV systems, which is good for SolarCity, Real Goods, and other installers like Sungevity and SunRun.

SolarCity offers installation services in 11 states and the District of Columbia. And unlike the ill-fated Solyndra, SolarCity’s brand is both well-known and popular.

Paul Ausick

Seven US solar PV makers jointly filed the claim last month, but only the US unit of Germany’s SolarWorld was identified. Top US solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWRA) are not among the companies that signed on. No specific Chinese makers were identified in the complaint, but leading makers like Trina Solar Ltd. (NYSE: TSL), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), and LDK Solar Inc. (NYSE: LDK) are surely among the targets.

The solar industry in the US is divided, though, over this trade case. Solar system installers, like Real Goods Solar Inc. (NASDAQ: RSOL), Sungevity, and SolarCity, have welcomed the falling module prices because the lower costs mean more people are installing solar systems on homes and businesses. New financing schemes have enticed many homeowners and businesses to install solar panels at essentially no up-front cost and then pay a monthly rental fee or a monthly power usage fee. One might argue that the easy financing that is becoming available is more responsible for the increase in solar installations than is the low cost of the panels.

The Solar Energy Industries Association, a US trade group, issued the following statement when the complaint was filed: “Global trade in solar products has been good for the United States by expanding export opportunities for domestic manufacturers, creating jobs and driving down costs to consumers.” The group recognizes that most of the jobs being created in the US solar industry are not coming from manufacturing the solar cells and modules, but from making the other pieces that go into a solar system and from installing the systems.

The solar industry estimates that more than 100,000 US jobs are attributable to making, selling, and installing solar PV systems. Of that number, more than half are installers working for about 10,000 different firms. Some 25,000 jobs are classified as manufacturing, but of that number a generous estimate of how many are actually making cells and modules would top out at about 3,000. The rest make racks and glass and inverters. SolarWorld, the largest solar PV maker in the US, employs 1,300 people at its Oregon plant.

First Solar employs about 4,500 of its total workforce of 6,100 in manufacturing, but 4,100 of those manufacturing jobs are located in Malaysia, Germany, and Vietnam. SunPower employs about 5,150 people, of which 4,100 are manufacturing employees in the Philippines. First Solar planned to employ about 4,800 US workers at a new plant it was building in Arizona, but its recent stock price declines have put that project on hold for an unspecified length of time.

The Chinese government did make loans totalling more than $25 billion to many of its solar PV makers last year to support capacity expansion. Because so much of the country’s manufacturing capacity is dedicated to export, it is at least arguable that the Chinese are violating trade rules related to subsidies. As for the dumping charge, the Chinese claim that economies of scale are driving the price declines.

Penalizing Chinese solar PV makers with higher tariffs, if they are indeed found guilty of anti-competitive practices, will raise the cost of solar modules and US installers could find themselves scrambling for work. The impact of those job losses would be greater than any losses in the solar manufacturing space. Even if the Chinese are found guilty of dumping, the likelihood of a significant tariff on solar modules is fairly remote.

Even more remote is the likelihood that US solar PV makers will benefit significantly from a win. The federal government is unlikely to invest in new manufacturing capacity (think, Solyndra), and private financing for capacity expansion stands no chance of being offered. Why would a bank finance a facility that would be uncompetitive in its market? If First Solar, still the low-cost leader, can’t see its way to adding manufacturing capacity, there’s no reason to think that a smaller company has a better chance.

SolarWorld and its partners picked a good time to file this complaint. The Obama administration has to support the case because the issue has been framed as pitting US workers and US jobs against those cheating Chinese. Going into an election year when unemployment and a weak economy are sure to play a large role in the outcome, no President and no candidate is likely to come down on the side of the Chinese solar makers in this case.

Paul Ausick

It’s not too surprising that First Solar, SunPower, and MEMC are keeping a low profile on this issue. All three own project development and construction companies that focus on large-scale solar projects that are highly likely to use the company’s own solar panels. Pure solar installation companies, like Real Goods Solar Inc. (NASDAQ: RSOL) and privately held Sungevity and SolarCity, have welcomed the lower prices for solar panels because it lowers their system costs and generally helps their business.

As we noted earlier this week, solar panel manufacturing jobs are relatively small beer in the US. The increased availability of financing for residential and commercial rooftop systems is driving the solar installation business in the US, and it is being helped by lower prices for solar panels.

Another twist in this story is that Chinese solar PV makers are currently suffering at least as much, if not more, than their US counterparts. Plummeting prices coupled with manufacturing capacity increases have hurt Suntech and LDK significantly. Some of the Chinese solar makers are also being questioned about their accounting practices, and that has cast a pall over the entire industry.

Unanimity among US solar companies is virtually guaranteed to go missing as this case proceeds. Every company has a different axe to grind, with the large US PV makers/project developers clearly wanting to steer clear of the case, along with US installers who benefit from the lower prices for solar panels. SolarWorld, with about 1,300 US manufacturing employees, and a handful of other small start-up firms are likely to be the only supporters of the trade case.

Politicians from both parties are likely to jump on this case because it has an obvious good guy — the US — and an obvious bad guy — China. Just about any comment from either party can be safely ignored. The lost solar manufacturing jobs would have gone to offshore in any event. Most of First Solar’s manufacturing is done in Malaysia and SunPower’s largest plants are in the Philippines.

The real reason that China supports so much solar manufacturing is not simply labor costs, but the low cost and easy access to capital. That may be changing now, as the country tries to cool off its economy and its inflation rate. The ability of China’s manufacturers to continue driving down costs may be coming to an end regardless of this trade case.

Paul Ausick

The US solar sector has taken a beating in recent weeks with the bankruptcies of panel makers Evergreen Solar and Solyndra. Does this new project help any US solar maker or in any way advance US clean energy goals?

The answer to the first question is ‘maybe’. SolarCity does not manufacture any solar PV hardware — it is an installer that either sells or, more usually, leases the solar panels to homeowners and then collects monthly usage fees. The company signed a five-year deal in 2008 with First Solar Inc. (NASDAQ: FSLR) for a total of 100 megawatts of First Solar’s thin-film solar panels. SolarCity won’t disclose its list of suppliers, but it has worked in the past with Suntech Power Holdings Co. Ltd. (NYSE: STP) and Yingli Green Energy Holding Co. Ltd. (NYSE: YGE), two of China’s lowest-cost providers of crystalline solar PV panels.

SolarCity has also used panels from US start-up Miasole to install solar systems on stores owned by Wal-Mart Stores Inc. (NYSE: WMT). Japanese panel makers Kyocera Corp. (NYSE: KYO) and Sharp Corp. (OTC: SHCAY) have also provided panels to the company.

Most of the US solar installers are privately held and relatively small. The exceptions are Real Goods Solar, Inc. (NASDAQ: RSOL) and Westinghouse Solar (NASDAQ: WEST), formerly Akeena Solar, which licenses the Westinghouse name and is not affiliated with Toshiba Corp. SolarCity and Google Inc. (NASDAQ: GOOG) created a $280 million fund in June of this year to  help finance residential rooftop solar projects.

USRG Renewable Finance and Bank of America Corp. (NYSE: BAC) will be the lead lenders under SolarCity’s ‘SolarStrong’ project. SolarCity expects that up to “6,000 direct job-years” will be created by this project. The company employs 1,200 people now, so that’s either five years of work for these workers or at least a few new jobs. But very likely not 6,000 new jobs.

The US armed forces are working toward generating 25% of the electricity they use from renewable power sources by 2025, and this project will help that along.

On balance this project is probably only a modest success for US solar PV makers, unless the federal guarantee carries with it a mandate for sourcing only US-manufactured panels. And that’s not likely. Job creation is modest, and progress toward US military clean energy goals is also modest. One good bit of news is that it does not look like US taxpayers will lose their money this time like they most likely lost $535 million in the Solyndra bankruptcy.

Paul Ausick

The deal follows a recent host of share buybacks and other acquisitions in the solar PV space. Earlier this week LDK Solar Co. Inc. (NYSE: LDK) announced $110 million share repurchase plan. JinkoSolar Holding Co. Ltd. (NYSE: JKS) authorized a $30 million share repurchase plan in May, while the biggest deal was the acquisition of a controlling interest in SunPower Corp. (NASDAQ: SPWRA) by Total SA (NYSE: TOT) for nearly $1.4 billion. Real Goods Solar, Inc. (NASDAQ: RSOL), a solar PV installer, based in Colorado, acquired privately held Alteris Renewables Inc., a Connecticut-based installer, for around $20 million. Don’t think for a second that these are just one-off deals.

In 2010 downstream acquisitions were all the rage. Several solar PV makers bought project development companies. MEMC Electronic Materials Inc. (NYSE: WFR) acquired SunEdison, and First Solar Inc. (NASDAQ: FSLR) acquired NextLight Renewable Power. Japan’s Sharp Corp. (OTC: SHCAY) paid $305 million for project developer Recurrent Energy, and SunPower bought SunRay Renewable Energy for $277 million. The string has about neared its end though, with MEMC’s June 2011 acquisition of Axio Power, a developer of utility-scale solar projects in Canada and the US.

Large, privately held downstream companies are now essentially gone. Solar PV makers wanting to grow either have to build new capacity or look elsewhere in the value chain for opportunities. JA Solar has done both. The company plans to expand production capacity from 2,500 megawatts to more than 3,000 megawatts by the end of the year. The company’s CEO also said that JA Solar would expand wafer production capacity to 600 megawatts by December 2011.

Today’s announcement boosts JA Solar’s 300-megawatt wafer capacity by 485 megawatts, to 785 megawatts, more than 30% higher than the 600-megawatt plan. Clearly JA Solar got a good deal, paying just a 5% premium. But was it a sweetheart deal? JA Solar’s chairman owns 70% of the acquired company. How does that figure in?

Whatever. Solar PV stocks are depressed by a glut of capacity coming online in 2011 that is expected to push supply about 12% ahead of demand. JA Solar, for example, has a trailing P/E of 2.98 and a forward P/E of 4.63. The stock’s price/book ratio is a paltry 0.82. LDK Solar’s numbers aren’t any better, and JinkoSolar’s are only marginally higher.

There could be substantial value in these stocks as the solar PV industry consolidates. To unlock that value is the trick. As installation costs for crystalline solar PV fall every solar PV maker will feel the margin pressure. The traditional way of overcoming that problem is to double down on capacity and cut costs even more as the industry enters a commodity phase.

The companies best positioned to survive are the Chinese, which have proven their ability to get government support when necessary to keep the industry thriving in China. Not all the Chinese makers will survive, but the solar PV industry will and that is what the country’s government wants to see.

US-based companies, with the exception of First Solar, Inc. (NASDAQ: FSLR) are struggling. Evergreen Solar Inc. (NASDAQ: ESLR) is inches away from collapse. Energy Conversion Devices, Inc. (NASDAQ: ENER) is trading at barely above $1/share, has a negative trailing and forward P/E, and few prospects for getting well again.

The downstream acquisitions of the past year or so were not about consolidation, but about growth. Now we should begin to see some consolidation in the industry as every supplier comes under margin pressure.

JA Solar shares are trading down about -2% in early trading today, at $5.46, in a 52-week range of $4.48-$10.24. On a broader front, the Guggenheim Solar ETF (NYSE: TAN) is up more than 1%, to $7.19, in a 52-week range of $6.52-$9.34.

There is one last issue here.  Even if mergers pick up in the solar space, there is no assurance that high premiums will be paid.  Those old highs at the peak of the solar and energy bubble from late 2007 into 2008 will have little relevance.

Paul Ausick

LDK Solar Co., Ltd. (NYSE: LDK) reports earnings after markets close today, and analysts are estimating EPS $0.85 and $783.87 million in revenues. Estimates for next quarter are $0.70 EPS and $801.64 million in revenues.  Shares closed at $10.31 last Friday, within a 52-week range of $4.97 to $15.10.

Chinese battery maker Advanced Battery Technologies, Inc. (NASDAQ: ABAT) is also scheduled to report earnings after markets close today, but that’s not the company’s biggest issue. The company is the target of a report by Prescience Investment Group that states that ABAT is “fabricating its SEC financial statements.” Thomson Reuters has estimates for EPS of $0.10 on revenue of $32.47 million. Estimates for next quarter are for EPS of $0.11 on revenue of $35.81 million. The stock closed at $1.46 last Friday, and came with a penny of matching its 52-week low this morning. The 52-week range is $1.33-$4.35.

Real Goods Solar, Inc. (NASDAQ: RSOL) is a solar PV integrator and system installer. The company is expected to report EPS of $0.00 on revenue of $18.33 million after markets close today. Estimates for next quarter are EPS of $0.03 on revenue of $23.73 million. The stock closed at $2.45 on Friday and is currently trading at $2.50, near the bottom of its 52-week range of $2.25-$4.80.

Another battery maker, A123 Systems, Inc. (NASDAQ: AONE), is expected to report an EPS loss of -$0.46 on revenue of $18.16 million after markets close today. Estimates for next quarter are for an EPS loss of -$0.39 on revenue of $38.43 million. Shares closed on Friday at $5.74, within a 52-week range of $5.21-$11.53. The shares are up about 1% this morning, at $5.80.

Clean Energy Fuels Corp. (NASDAQ: CLNE), the T. Boone Pickens company that offers a compressed natural gas alternative to gasoline engines, reports earnings after markets close today. Analysts expect an EPS loss of -$0.09 on revenue of $66.90 million. Estimates for next quarter include an EPS loss of -$0.06 on revenue of $73.46 million. Shares closed at $15.39 on Friday, within a 52-week range of $11.75-$19.36. Shares are down slightly this morning, at $15.35.

The spreading oil slick in the Gulf of Mexico and its threat to the Gulf’s fishing grounds put into sharp relief the thin line between the US demand for energy and the country’s demand for food and a clean, safe environment. Those technologies and companies that reduce these threats could get a significant boost from the harm that the Gulf oil spill is wreaking on the environment.

Photovoltaic solar maker First Solar, Inc. (NASDAQ: FSLR) has battled oversupply and lower demand for the past year, but the company reported a stellar first quarter and its acquisition of NextLight Renewable Power gives it a solid backlog of projects going forward. The expected decline in demand from Germany resulting from a cut in the country’s feed-in tariff is currently depressing solar makers’ share prices, but that cut is not likely to have a severe or lasting impact on PV installations in Germany or the rest of Europe. First Solar is well-positioned to take advantage of a growing PV market.

Wave technology pioneer Ocean Power Technologies, Inc. (NASDAQ: OPTT) is currently building a 500-watt power-generating buoy with help from a grant from the US Department of Energy. The company’s buoys harness wave action and convert it to electricity. Ocean Power is not the only company working on this technology, but it was the first and it is still the only publicly traded company in the business.

SunPower Corp. (NASDAQ: SPWRA) manufactures a variety of solar PV products using polysilicon wafers. The company has had its ups and downs in the past year, but is suffering now from margin compression and a pushing out of orders to the second half of the year. The company has been a solid low-cost provider of polysilicon-based PV solar devices and, even though it is struggling now, it’s future should brighten as demand for PV solar grows.

Energy Conversion Devices, Inc. (NASDAQ: ENER) is another thin-film solar PV maker that has fallen victim to delayed orders. The company is expecting to turn the corner later this year. All the solar companies face the difficult situation of reducing production costs while at the same time maintaining margins. If prices fall too fast as costs decline, margins get squeezed and that his what has happened to ECD and SunPower. But, like all other alternative energy companies, ECD could get a significant boost as public reaction to the oil spill could lead to the adoption of policies that support the development and installation of alt energy.

GT Solar, Inc. (NASDAQ: SOLR) builds that machines that solar PV makers use to produce wafers, cells, and modules. Its fortunes have followed the solar companies, but GT is working on new technology to reduce the cost of making raw polysilicon. As demand for solar panels grows, manufacturing capacity will grow right along with it, and that’s good for GT.

For a company like Real Goods Solar, Inc. (NASDAQ: RSOL), which offers integration services to residential and commercial customers, the lower prices for PV solar and more generous support from government offer a chance to boost revenues and margins. The company even offers a pre-built solar home for $95,000-$120,000 in its most recent catalog. It may take a while for that idea to catch on, but offering turnkey solutions to consumers at a reasonable price is a good long-term strategy.

Zoltek Companies, Inc. (NASDAQ: ZOLT) participates in the expanding market for wind power generation, making the carbon fibers used in building wind turbines. Demand from the company’s largest company, and world’s largest producer of advanced wind turbines, Vestas Systems of Denmark has picked up again and is expected to continue through the rest of this year.

FuelCell Energy, Inc. (NASDAQ:FCEL) uses of natural gas to power its fuel cells makes it attractive to businesses and utilities looking to boost renewable portfolio generation. The company just won a contract with the state of California to install 5.6 megawatts of fuel cell power plants at four state universities. The plants will use waste heat and water from electricity generation to heat swimming pools and irrigate landscaping.

For the past year or so, Clean Energy Fuels Corp. (NASDAQ: CLNE) and its founder, T. Boone Pickens, have been touting the advantages of natural gas as a transportation fuel. The company is building out a refueling infrastructure, a very risky proposition indeed. However, the low cost of natural gas, its seeming abundance, and the fact that natural gas reducing carbon emissions by about a third from gasoline all work in this company’s favor. Plus, having Pickens out in front guarantees that Clean Fuels will get noticed.

American Superconductor Corp. (NASDAQ:AMSC) supplies wind turbine technology and control systems. The company recently increased its guidance for the rest of 2010 on revenues and margins. Because wind power is the alternative energy of choice in many parts of the world, American Semi is on a path to solid growth even beyond this year.

The opportunities in the alternative energy field vary, of course, but wind should continue to be strong and solar should strengthen as public demand for cleaner energy sources grows following the disaster in the Gulf.  Whether or not these companies can seize the day will likely be on a case by case basis.  Some have not performed well and some face continued pressures ahead.   Maybe these companies have an edge for more projects similar to when oil was well above $100.00 as raw cost comparisons may not be the only measurement ahead.  Opportunity is there.

Paul Ausick

The best performing company, Ener1, is down ‘only’ by just under half.  Just the sort of group one might turn to for advice on how to make money in the cleantech industry.  If any of these companies can get that Obama spending money for green business efforts, they better be on that track now.

You can go to the full list of presentations at the ThinkEquity conference if you choose.

Paul Ausick
March 25, 2009

Yesterday, Real Goods announced its fourth acquisition in less than 12months. It merged with a small private company named Regrid Power for less than $15 million, spending about one-third the purchaseprice in cash and the rest in stock. There’s also an earn-outprovision, but no details were given.

In the announcement, Real Goods noted that Regrid’s founder and CEO,Tom McCalmont, will become the Real Goods CEO within the next twomonths. The founder and current CEO of Real Goods, John Shaeffer, willbecome President. Now it’s not unheard of for one company to buyanother in order to capture management or technical talent. But in thiscase, swapping the CEO of one small company for another doesn’t seemlike a particularly innovative move. If Real Goods wants to grow, itshould probably have gone after a bigger fish. There will be plentyavailable real soon now.

Gaiam Inc. (NASDAQ: GAIA) is the parent which spun Real Goods Solar outas a new company.  Its shares are also a back off of the 52-week lowsand shares are down considerably more than their high.

Gaiam is a lifestyle company promoting its media and apparel for yogaand other healthy lifestyle choices.  Its customers are more likely tobe interested in solar power than many other customers, but this was astrange combination from the start.

Paul Ausick
October 16, 2008