Thursday, February 22, 2007
Solar Electric Boom - Applied Materials
Solar Electric stocks traded in the US have leapt in value over the last months. Take a look at these: First Solar (FSLR), Trina Solar (TSL), SunTech Power (STP) and SunPower (SPWR). I am an investor in STP and SPWR. I was not agile enough to get in on FSLR and TSL - and they are up about 80% in a month. Of course this cannot be sustained.
It is interesting that this surge occured just after Pres. Bush's mention of climate change in his state of the union address and the release of the IPCC report on climate change. I believe they are related.
OK, let's not pay so much attention to stock prices. Lets talk about the future of solar power. (It is gonna be huge - most people have no idea.) The future of solar power is all about reducing its cost per watt. And I mean significantly. While maintaining quality and hopefully 25-year module warrantees.
TSL and STP are in China and currently make fairly conventional crystalline silicon low-cost good-quality modules. To significantly reduce module prices they will need to significantly change how they make panels.
SPWR has their main factory in the Philippines and makes a complex crystalline silicon module with the highest efficiency of any module on the market (close to 20%). It is not a cheap panel. However the complexity of their panel shows (e.g., wire pickup on the backs of the modules) that they have both technical and manufacturing savvy. They may be better positioned than TSL and STP to make the technical leaps need to significantly reduce modules costs. (Q: But what do I really know? A: Not much.)
FSLR makes their modules out of Cadmium Telluride, which are rare 0r poisonous metals. However their cost is really low. I read somewhere, (Photon International magazine perhaps) that there manufacturing cost is under $1.60 per watt. FLSR’s conversion efficiency is also much lower than a crystalline module, around 10%. I did not buy the stock because I know nothing about this type of module. It has been on the market of less then five years. I do not envision a huge market for it (afterall telluride is rare) and they will be all on their own when it comes to R&D and improving their manufacturing process.
Now let me throw out my current favorite "solar" stock. They will not make panels but the assembly lines that make the panels. With their assembly lines any firm with money and the ability to run a large plant will be able to make either thin film or crystalline panels. The firm is Applied Materials (AMAT).
AMAT has a market capitalization of over $25 billion, sales of about $10 billion per year, and has been around for 40 years. AMAT "engages in the development, manufacture, marketing, and service of fabrication equipment for the semiconductor and semiconductor-related industries worldwide." Google "AMAT, Solar and Piper Jaffray" – to hear their recent, Feb 21, solar presentation.
They have already sold solar equipment to Q Cells of Germany, Nanosolar (a VC start up) of California and SunPower of California (source). AMAT is forecasting $500 million in solar sales by 2010. Their first generation thinfilm machine makes a large sized panels (the size of garage doors) with about 10.5% efficiency.
As far as I know, AMAT is the largest firm to step into the solar market in a serious manner. Here are some recent quotes from the media (source):
"Mike Splinter, chief executive of the US semiconductor group Applied Materials, told me his company is two years away from a solar product that reaches the magic level of $1 a watt."
"Cell conversion efficiency and economies of scale are galloping ahead so fast that the cost will be down to 70 US cents by 2010, with target of 30 or 40 cents in a decade.” We think solar power can provide 20pc of all the incremental energy needed worldwide by 2040," he said."
"Applied Materials is betting on both of the two rival solar technologies: thin film panels best used where there is plenty of room and the traditional crystalline (c-Si) wafer-based cells, which are not as cheap but produce a higher yield - better for tight spaces."
They also forecast using 7 grams of silicon for their crystalline panels. And "By 2010, crystalline silicon solar cells will sell for about $1.25 to $1.50 per watt, while thin-film solar cells will sell for 90 cents to $1.30 per watt. The thin-film cells, however, will be less efficient." (Source ) Note, they are talking "cells" in that last quote, and cells have to be assembled into modules or panels.
So today I purchased some AMAT stock.
Yes, at first solar will be a very small share of AMAT's business and their chip business may continue to falter. But with their business expertise, financial resources, and engineering might, I foresee that they will rapidly grow into and take leadership of the solar cell production line market place.
The question is, could the relatively small firms that purchase AMAT equipment do better than AMAT? The answer is probably yes.