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Friday, April 29, 2011

Total eclipse of independent US solar companies?

The purchase by Total SA of a controlling interest in Sun Power is sending shock waves through the solar industry.

The investment in 60% of the Class A (SPWRA) and Class B (SPWRA) shares would value SunPower at around $2.3 billion — up about 40% from the pre-offering price.

Even with the jump, Sun Power is only the second most valuable US solar company. First Solar (FSLR) now has a market cap of $12b. Of course, First Solar is the world’s second largest solar company (by 2010 PV capacity) and thus is nearly in a league by itself.

Various reports position this as a decision by oil companies to diversify their energy business against future shifts in supply and demand. Here’s the Dow Jones version:
Total, which has had an active solar focus since 1983, decided to invest in SunPower after a two to three-year search "for a strategic partner in the solar business," Philippe Boisseau, head of Total's gas and power division, said in an interview. He added that solar power will become a crucial energy source in Europe and North America and that Total intends to become a global leader in the solar industry, in addition to its core oil and natural gas businesses.

"Solar will gradually take its share" of the world's energy market, Boisseau said. "We want to be there when this happens."
Of course we’ve been down this road before — oil companies bought solar companies in the 1980s but didn’t do a terribly good job of running them.

Given the IPO difficulties faced by other solar companies (like other other tech startups), the idea of acquisition by big oil companies has raised the market value (and hopes) of other solar companies — both private and public. For example, Motley Fool wonders whether LDK Solar might be undervalued.

But will there be any US solar companies a decade now? Will they be subsidiaries of oil companies (or Chinese solar companies)?

I would think that a company that manufactures a high-volume, high-demand product should be able to create a positive cashflow self-funding business. The real problem is how much capital does it take to get to that point?

The seven large Chinese crystalline silicon PV companies got $30b in government money to create scale. There’s no US company that’s going to get $4b in private venture or debt financing. Being acquired by a big sugar daddy is the only way they can get this kind of money.

At $4.2b, Total SA’s recent quarterly profits are only the fifth largest of the world’s oil companies, leaving four other companies with even more cash to fund expansion of a PV manufacturer.

Tuesday, April 26, 2011

Cashing out on Mojave solar bonanza

BrightSource Energy — the Oakland-based builder and operator of California solar thermal plants — has filed for a $250 million IPO. The S-1 doesn’t say how many of the 94.3 million shares it plans to sell

According to its S-1, the company was losing $40+ million/year but last year losses rose to $71.6 million with cumulative net losses of $177.3 million. The company did end the year with $37.8 million in cash equivalents on hand. But the S-1 says “executing on our pipeline and expanding our business requires significant additional capital.”

The S-1 said that it‘s signed 14 contracts with PG&E and/or SCE to deliver 2.6 GW of solar capacity. The first of these is the Ivanpah project, with a gross capacity of 392 MW on 3,600 acres near Baker in the Mojave Desert, on the I-15 between Los Angeles and Las Vegas.

The S-1 says this is the first of the company’s projects, with construction begun in October 2010, the first phase due in 2013 and the remainder in 2014. The project received a $1.6b loan guaranteed by DOE, as well as $300 m in equity from NRG Solar, $168m from Google and $130m from BrighSource.

Veteran solar scribe Ucilia Wang sees this as a multi-million dollar bet on Ivanpah — and that seems like a good way to interpret it. The success of Ivanpah (and Coalinga Solar-to-Steam) are essential to getting financing for the remaining projects.

Some have questioned whether solar thermal (such as the BrightSource solar tower) can be cost competitive with PV in the long run. That’s not the real question: can BrightSource execute on its current plans (without internal or external delays) and deliver the contracted energy reliably?

Assuming there are no loopholes in the contracts, the Power Purchase Agreements are (by design) bankable revenue sources — representing the desperation of California utilities with the RPS gun to their head, buying from (thus far) the only gigawatt-scale game in town. Still, it’s hard to see how a successful IPO for BrightSource helps any of the PV companies, or for that matter those of the solar thermal operators who lag BrightSource by several years.

Friday, April 22, 2011

California PV: at what price?

With Gov. Brown’s assent, the California legislature has formalized the 33% in 2020 Renewable Portfolio Standard imposed by Gov. Schwarzenegger. Even without a feed-in tariff, the state is marching towards having more RE usage than the rest of the US or Western Europe.

A quick glance at the California Solar Initiative data — back when the CSI incentives were relevant — shows that residential solar is relatively inconsequential in the state’s RE energy footprint. The real action is on large commercial and utility scale installations.

Last year saw a huge rush of utility scale plants being started in the Mojave before before federal subsidies expired.

However, energy writer Richard Nemec wonders whether these plants ever made economic sense. Earlier this week he wrote in the Los Angeles Daily News:
nine projects were given the green light, collectively totaling enough megawatts to equal about two San Onofre nuclear plants. Three months into 2011, however, two of the largest projects slated for the Southern California desert regions have been sold, utility contracts canceled and their futures put in doubt.

To date, three of the major projects are under construction, but a lot of that work is preliminary, awaiting more complete financial backing.
In addition to problems completing projects, there is also the price that the utilities (and thus businesses and consumers) will be paying for their power:
The state regulatory commission's consumer unit report concluded that approved solar contracts for the state's major private-sector utilities have collectively been about $100 million overpriced. This sort of largess does no one any good.
One reason for paying inflated prices is the RPS standard. Another is the expiring federal subsidies which caused firms to rush deals to regulatory approval before key issues were resolved.

This is perhaps the Achilles heel of utility scale: the small-numbers irrationality. When you have nine deals, it takes only a few bad decisions to have one-third or half of the projects collapse.

For residential and small commercial, some owners may behave irrationally, but in the long run we’ll expect buyers to act in their own self-interest: if the systems make sense, people will buy them and if they don’t, they won’t. (Yes, some consumers will pay a green premium to save the planet, but most probably won’t.)

The CPUC report looked at 184 projects — you would think enough to see a pattern in the proposals, and perhaps for the industry to figure out what’s feasible and not feasible. But I think the combination of RPS and federal subsidy deadlines induced an irrationality into the process.

The legislature (and the new governor) has made it clear that it wants more RE power used in the state. It remains to be seen whether they will pay attention to the inherent flaws in their mandated approach — rushing adoption ahead of grid parity — or will just ignore the wasted millions (if not billions) because it doesn’t show up as a tax that they can be blamed for.