Green Tech

Financial analysts at Citigroup have joined the ranks of solar-company watchers that see falling prices and collateral damage in the next two years.

For consumers, the up-front price of getting solar-electric panels is still high--in the range of $20,000 to $35,000. A shortage of silicon cells is one reason that panels remain expensive.

But the overall demand for solar cells and panels is still very strong, driven by corporate customers and utilities. The solar industry has been ramping up production of silicon wafers in an effort to keep up.

In a report published on Thursday, Citi said it believes that the silicon shortage will become a silicon oversupply, which will start to push down prices next year and then accelerate further in 2010.

Analysts also see demand risks from potential changes in 2010 to rebate programs in Germany and Spain, two of the largest markets for solar.

For consumers, falling solar prices means that they'll be able to purchase more watts per dollar. That's not necessarily good news for manufacturers, though.

"We think headwinds will start to intensify, moving into the second half of 2008, as the current environment of benign pricing begins to rapidly reverse course in '09 and accelerate in '10, and decline faster than most can cut costs. In this environment, we think a shakeout will ensue," according to Citi's report.

Softening consumer demand
Like many financial analysts, Citi sees First Solar, which makes cells from cadmium telluride rather than silicon, as a leader because it anticipates making electricity at "grid parity" in 2012.

Meanwhile, on Thursday, Akeena Solar reported a first-quarter loss and said conditions in the consumer market were softening. It warned that a recession and tight credit were making homeowners hold back on solar purchases.

In addition, Akeena said a federal tax credit for renewable-energy purchases, which has not been renewed, is hurting business.

That pessimism appears to have spilled over onto solar-installer Real Goods Solar, which went public on Thursday but saw its stock price end the day below the low end of its anticipated offering price of $10.

The most vexing problem facing the solar electric industry the past few years has been a shortage of silicon, the most common material used to make solar cells.

But once that silicon shortage eases, prices for products could start drop significantly--and dig into solar companies' profits.

Lux Research on Thursday published a summary of a report that predicts that the solar bubble will burst next year.

An oversupply of silicon won't be the only reason that prices will fall, according to Lux's report.

Several other solar technologies are emerging that will give incumbent solar photovoltaic providers more competition, including thin-film solar cells made from materials other than silicon.

"The market is now approaching a tipping point: We project that the supply of solar modules will exceed demand in 2009, leading to falling prices and a shakeout among companies that aren't prepared to thrive in this new environment--particularly crystalline silicon players that haven't invested in new thin-film technologies," said the report's lead author, Ted Sullivan, in a statement.

Traditional panels will also get a run for their money from concentrating PV systems, solar thermal, and organic solar cells, which are all maturing, said Lux Research.

The findings from the company, which specializes in nanotechnology, are consistent with what many people in the solar industry have been saying for some time.

The constraints on silicon supply are easing, which should put more price pressure on manufacturers in the coming years.

However, the overall solar industry is expected to continue to grow rapidly. Even Lux forecasts that the annual growth rate will be 27 percent over the next five years--becoming a $70 billion market by 2012.

As a result, what's likely to happen is that there will be consolidation among the several existing solar suppliers and the dozens of start-ups that have entered the field over the last few years.

An economic stimulus plan passed the Senate on Thursday without extending an important tax credit for the solar and wind industries.

Renewable energy companies and advocates were bitterly disappointed late last year with the passage of the Energy Act, which did not extend an investment tax credit. It would have been funded by repealing an existing tax break to oil companies.

Right now, renewable energy projects receive a federal tax credit once they are completed, but that provision runs out at the end of 2008.

On Thursday, the Senate again left out the tax credit extension, which solar and wind business people say is important to the stability and growth of the renewable energy industry.

"It is crucial for Congress to return to work to pass an eight-year investment tax credit for America's solar energy industry. Investing in America's solar future costs little and will keep the power on in homes and businesses in all 50 states," Rhone Resche, president of the Solar Energy Industries Association, said in a statement.

The SEIA said that it will pursue other opportunities to extend the tax credit this year.

Atlanta-based Suniva said on Tuesday that it has raised $50 million to commercialize its solar-cell technology, which it says will be as cheap as conventional electricity.

Investors are New Enterprise Associations and H.I.G. Ventures, according to the company's Web site.

Suniva has licensed technology from Georgia Tech's University Center of Excellence in Photovoltaics (UCEP) to make very thin solar cells--less than 100 microns.

Using monocrystalline silicon, it said it can improve the efficiency of cells to about 20 percent, which is the high range of traditional panels. SunPower has a panel with 22 percent efficiency.

Its manufacturing process is efficient as well. The company told VentureBeat that a staff of 40 people could man its operations for round-the-clock production.

The venture round will be used to build a manufacturing facility in the Atlanta area, the company told the Atlanta Journal Constitution.

Solar-technology companies, one of the hottest areas of green-technology investing, continue to attract the funding.

The surge in interest in solar power has pushed up the price of silicon, spurring investments in alternative materials and novel manufacturing techniques.

Amid a drop in solar company stocks and concerns over a green-tech investment bubble, Sanford Bernstein analysts issued a report on Tuesday that takes the long view on alternative energy, arguing that the sector is a relatively safe bet.

Persistently high fossil fuel prices and environmental regulations mean that alternative energy technology companies are poised for growth in the coming years, the investment firm said in its report, one of several over the past two years to analyze the changing energy business.

During a teleconference, analysts said there is no end in sight for high prices of oil and natural gas, even though there will be some cyclical changes. That's because the costs of extracting these fuels continues to go up, due to falling reserves at existing wells and high construction costs.

The electricity generation business, which relies heavily on fossil fuels, will also see higher prices, Sanford Bernstein analysts said. About 60 percent of power generation worldwide comes from coal and natural gas.

Another factor will be regulations to curb the amount of greenhouse gas emissions from power plants, which will significantly affect the economics of the business. Operators of coal-fired power plants, in particular, are exposed to regulations to limit carbon dioxide emissions.

How to benefit?
Some companies are well positioned to benefit from these economic and environmental factors, notably renewable energy technology providers and utilities with expertise in nuclear power, which has low emissions.

Solar and wind, which represent just about 2 percent of power generation, will continue to grow dramatically. Investments will be driven primarily by state-level renewable energy mandates, called renewable portfolio standards, and by goals in Europe to have 20 percent of electricity produced from renewable sources by 2020.

"We don't have firm targets, and these targets globally are very much in flux...But the magnitude of spending being discussed will result in massive growth rates in this sector," said Richard Keiser, global technology strategist at Sanford Bernstein.

Similarly, hybrid vehicles are poised for rapid adoption. They only represent about 2 percent of new car sales now, but could go to 10 or 20 percent over the next 10 years, Keiser said.

Despite the upbeat assessment on the alternative energy sector as a whole, individual stocks are not immune to the general market downturn, which is being driven by concerns over a global recession.

Stocks of public solar companies, in particular, have cooled off.

First Solar, which some people refer to as the "Google of solar" because of its rapid rise in price, is down about 34 percent since the beginning of the year, while SunPower is down by 42 percent.

Keiser said that many solar companies do appear to be overpriced. But, he said, the leading companies in the field, including First Solar, SunPower, and Q-Cells, can count on future revenues because much of their output is already on order.

"I don't think that it's a no-brainer that all these names are insanely expensive," he said.