Tags: Green Technology, Jason Simpkins, Solar Energy

As Solar Sector Goes Global, Investors Can Capitalize on Dawning of a New Industry

By , Money Morning •

By Jason Simpkins
Associate Editor

Back in the 1970s, when solar energy was brand new, it took as much energy go make a solar cell as that device would produce over its 20-year lifespan.

Just a decade ago, solar-cell emissions were very high - about double their current levels.

But with recent technological advancements, solar technology has turned the corner. The sector is poised for a global business boom as such nations as China, Germany and Japan join the United States in a race to perfect solar power.

"Solar power has been criticized in the past," Vasilis M. Fthenakis, the study's lead scientist told Science News Online, "but what we find out is that those criticisms are not true with the new technologies."

Solar power emits, per unit of energy, about one-tenth the amount of carbon dioxide emissions given off by more-conventional power sources. That makes solar a very viable source of energy, as well as an intriguing profit play, since traditional energy sources are continually scrutinized for their high costs and toxic carbon emissions.

A recent study by the Brookhaven National Laboratory in Upton, N.Y., found that for each unit of energy produced by solar cells, the net emissions of greenhouse gases and other pollutants due to the cells' manufacture, were but 2% to 11% the amount produced by power plants in the United States and Europe.

Unlike their "dark-age" solar predecessors, newly developed solar cells can "pay back" the energy required for their production in just one to three years. And improvements in manufacturing efficiency could reduce emissions from solar power by another 50% in five to 10 years.

In the United States alone, production from solar power installations rose from 49 megawatts in 2002 to 314 megawatts in 2007, the Solar Energy Industries Association reported. One megawatt is enough to power 778 average homes, according to the Energy Department.

"Ten years ago, green was sort of the idea of a few tree huggers in Northern California," John Hardy, an analyst with American Technology Research, told BusinessWeek. "Now, being green has taken on more widespread appeal."

And there are three solar companies riding the wave of that green movement to big time profits, beginning with Japan's Sharp Corp. (OTC: SHCAY)

Sharpening Solar Technologies

Sharp claims it is responsible for 25% of the world's cumulative solar cell production. Sharp estimates that worldwide solar cell production reached 8 gigawatts in 2007, and believes that it is responsible for 2GW of that total cumulative production.

Sharp started making solar cells in 1963, and began the production of the so-called "thin-film" solar cells in 2005. The company also is active in the solar-cell-material and manufacturing-equipment businesses. Sharp is also the only Japanese solar cell manufacturer authorized by Japan Aerospace Exploration Agency, making it the sole supplier of solar cells for Japanese satellites.

After Sharp's supremacy has been tested by German rival Q-Cells, the Japan-based company has responded with aggressive efforts to grow its business.
To address shortages in silicon, Sharp hopes to boost its annual output of thin-film solar cells six-fold by 2012. Thin-film solar cells use roughly one-hundredth the silicon of conventional solar cells.
To achieve its goals, Sharp has planned a new plant in Osaka, which is scheduled to go online by March 2010. The company expects the plant to 1,000MW of cells annually. Sharp also hopes to raise output at its Katsuragi plant in Nara, Japan, from 15MW to 160 MW by October.

Last month, Sharp announced a partnership with Tokyo Electron Ltd. to develop production equipment for thin-film solar cells, which use less silicon than conventional solar cells. Tokyo Electron, which will hold a 51% stake in the venture, expects to start making and selling the equipment early next year.

Sharp will also team up with Japanese homebuilder Daiwa House Industry Co. and Dai Nippon Printing Co. to develop large lithium-ion batteries that can store solar energy for houses. The deal will help Sharp build upon its solar power systems business and let Japanese homebuilder Daiwa House increase the value of its homes with energy saving technologies, the Nikkei Business Daily reported.

Sharp will invest $5.56 million [600 million yen] in Eliiy Power, a developer of lithium-ion batteries. Both Daiwa House and Dai Nippon Printing already hold sizeable stakes in Eliiy.

However, Sharp's biggest deal was announced Feb. 26, when Sony said it would pick up part of the $3.5 billion tab for what will be the world's most advanced TV-panel plant. You see, in addition to being one of the world's largest solar cell manufacturers, Sharp is the third-largest maker of liquid crystal display (LCD) television sets in the world.

Both companies were quick to point out that they were not merging, but merely entering into joint ownership of the Sakai plant. The tie-up will greatly reduce the cost burden for Sharp, and result in the exchange of key technologies and know-how. After assuming one-third of the cost, Sony will own one-third of the most advanced LCD plant in the world. The remaining two-thirds will belong to Sharp.

While a weak U.S. economy may put a temporary damper on television sales, the long-term outlook is exceptionally upbeat. TV unit sales are expected to reach 98 million units this year, an increase of 24% from 79 million last year, according to DisplaySearch.

Fierce competition and rapid advances in technology have resulted in annual price declines of 20% to 30%.

Sharp enjoyed all the benefits of a well-diversified company last year, posting strong fourth-quarter results even as global economies began to sputter. Net income was $278 million for the three months ended Dec. 31, up 3.8% from net income of $267.8 million a year earlier.  Sales gained 12% to $8.7 billion. The company left its full-year forecasts unchanged. In October, Sharp forecast that its net income for the year would rise 3.2%, reaching $994 million, on sales of $32.2 billion.

Sharp can't rest on its laurels, however: The tech industry is notoriously competitive, and competition in the solar industry is escalating.

Q-Cells Cranks Up the Heat

As Sharp was wheeling and dealing last month, German solar-cell maker Q-Cells announced that it had become the world's leading producer of solar cells. Q-Cells also recorded stellar 2007 results and said that it, too, plans to expand production capacity.

Q-Cells reported full year sales of $1.26 billion, a 59% jump. Full-year earnings before interest and tax (EBIT) rose 52% to $301 million, leading to an EBIT margin of almost 23%.

Net income for the fourth quarter rose to $54.5 million, up from $38.7 million a year earlier, the company said in a statement on its Web site. Sales increased 81% to $430.6 million.

Q-Cells kept its growth targets for 2008 in place, expecting sales of about $1.77 billion, which analysts said was a conservative estimate.

"This is impressive since wafer sourcing costs increased while cell selling prices declined. This shows that Q-Cells is very capable of reducing production costs and we see much more still to come," Benjamin Kluftinger, an analyst at Citigroup Inc. (C), told Reuters.

To keep the ball rolling, Q-Cells said it would invest $263.2 million in a production site in Asia, the company's first foray into the region. The facility, slated for construction in Malaysia, will have a maximum capacity of more than 300 megawatts. The factory's first phase will have a capacity of 160MW and is scheduled to start operations in next year's first quarter.

Q-Cells sixth production line at its headquarters in eastern Germany will begin operation in the fourth quarter, and will have an initial production capacity of 130MW. These upgrades will add to a level of output the company says is already the highest in the world. Production volume reached 389.2MW in 2007, outdoing even the company's own goal of 370MW.

"With this figure, Q-Cells would already have produced a greater total output than its largest competitors - Sharp and Suntech," the company said in a statement. Suntech Power Holdings Co. (STP) is the world's third-largest solar cell manufacturer. It expects to have 2GW of production capacity by 2010, double its expected 2008 total.
In 2008, Q-Cells expects total solar cell production to come in between 565MW and 590MW.

Q-Cells productivity is starting to attract attention from abroad.  Masdar Clean Technology, a state-owned fund of the United Arab Emirates, is planning to buy a stake in the German solar cell maker, Die Welt,a German media outlet reported.

"The fund wants [to buy a stake], and we are open to it," a spokesman told Die Welt. The newspaper cited sources as saying Masdar could help Q-Cells finance construction of a thin-film solar cell plant in Germany with a volume of about $764 million.

Last but Not Least

There's a third, relatively unheralded, solar modules manufacturer sneaking into the fold to challenge Q-Cells and Sharp, the industry's two most prominent leaders. Phoenix based First Solar Inc. (FSLR) posted stellar fourth quarter earnings as the company boosted production.

First Solar brought in $62.9 million last year, a 686.3% jump from the $8 million posted a year prior. For 2007, revenue nearly quadrupled to $200.8 million, up from $52.7 million in 2006.

"Our 2007 results increased our position as the low-cost leader in the industry and brought us closer to achieving price points that make our solar electricity viable," without significant government subsidies, First Solar Chief Executive Officer Michael J. Ahearn said during a conference call with analysts.

The company expects revenue to rise again this year, to between $900 million and $950 million.

Like Sharp and Q-Cells, First Solar's profit margins have been insulated by steering clear of a silicon shortage by focusing on low cost thin-film cells, and maintaining globally diversified production bases.

Company officials said earnings were helped by realizing the full production capacity of their factory in Germany. And they expect additional savings from reduced costs at a new plant in Malaysia.

"As we're moving to Malaysia, I think our models imply a 20 cent cost per watt reduction," Jens Meyerhoff, First Solar's chief financial officer, told a Piper Jaffray investment conference.

The company expects its first Malaysian production lines to start running this year, followed by three fully operational lines in 2009, Reuters reported. That would bring First Solar's output capacity to 1GW a year.

News and Related Story Notes:

  • Science News Online:
    Greener Green Energy: Today's solar cells give more than they take