ues. Elkem is owned by Orkla (Oslo: ORKNO), which is a Norwegian conglomerate with about $8.8 billion inrevenues in 2006. Details are available on Elkem’s silicon effort at theNews section on its Web site at www.elkem.com.r SolarWorld. SolarWorld AG (German Xetra: SWV GR) announced inJuly 2006 that it had entered a 50–50 joint venture named “Scheuten SolarWorld Solizium GmbH” with Dutch company Scheuten SolarholdingVB to produce solar-grade silicon through a metallurgical process.53The joint venture plans to build a plant with annual capacity of 1,000metric tons. However, the company gave no timeline about when construction on the plant will begin or when production will start.
SOLAR PV CELL AND MODULE PRODUCERSThere are a large number of companies that manufacture solar PV cellsand modules. Some of these companies focus on manufacturing just solarcells, but the majority focus on manufacturing solar modules, which is thefinal product of the PV manufacturing process. Some of the module producers manufacture their own solar cells in-house, making them verticallyintegrated in the cell/module phase of the solar PV value chain. The outputfrom these companies is measured in terms of the electrical output fromtheir product measured in megawatts.Table 5.6 ranks the global cell/module players in 2006 by output,according to data collected by PV News.54 As seen in the graph, thelarge Japanese conglomerate, Sharp, was the largest producer of solarcells/modules in 2006 with 434 megawatts of output. Large industrial conglomerates such as Sharp, Kyocera and Sanyo were big players in 2005,but a variety of pure-play solar manufacturers such as Suntech and otherfirms gained market share in 2006 due to their intense focus on buildingnew production capacity. As far as pure-play independent solar companies,the largest players are Germany-based Q-Cells (German Xetra: QCE GR),
SharpQ-CellsKyoceraSuntechSanyo ElectricMitsubishi ElectricMotechSchott SolarDeutsche Solar/ShellBP SolarSunPowerIsofotonFirst SolarCEEG Nanjing PV-TechErsol Solar Energy AG
123456789101112131415
4342531801581551111109686866361606040
Shipments(MW)
1%53%27%92%24%11%83%1%−11%−3%173%15%200%500%100%
yr-yr %
1238459610/127nr11nrnrnr
2005rank
6753 JPQCE GR6971 JPSTP6764 JP6503 JP6244 TTprivateprivateBP LNSPWR USprivateFSLR USprivateprivate
Ticker
JapanGermanyJapanChinaJapanJapanTaiwanGermanyGermanyUnited KingdomUnited StatesSpainUnited StatesChinaGermany
Base Country
solar.sharpusa.comwww.qcells.dewww.kyocerasolar.com/www.suntech-power.com/www.sanyo.com/industrial/solar/global.mitsubishielectric.com/bu/solar/www.motechind.comwww.us.schott.comwww.deutschesolar.de/ds-eng/www.bp.com/solarwww.sunpowercorp.comwww.isofoton.eswww.ﬁrstsolar.com/www.n-pv.com/www.ersol.de/en
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Source: PV News, April 2007, Prometheus Institute, Cambridge MA, www.prometheus.org.
Company
JWPR076-Asplund
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TABLE 5.6 Top Global Solar PV Cell/Module Producers in 2006 Ranked by Shipments (in megawatts)
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China-based Suntech (NYSE: STP), and Taiwan-based Motech Industries(Taiwan: 6244 TT).The larger solar PV companies that are listed on U.S. exchanges areshown in Table 5.7, ranked by market cap. The U.S.-listed solar sector wasvery thin prior to 2005 with only a few U.S.-based public solar companiessuch as Evergreen Solar and EMCORE. However, the U.S.-listed solar sector now has a healthy 13 companies with market caps over $100 millionand more IPOs are on the way.The most notable feature of the U.S.-listed solar sector is that themajority of the companies are based in China. Suntech Power Holdings(NYSE: STP) was the first Chinese company to go public in the UnitedStates in December 2005 with a $400 million IPO. Since then, seven morecompanies with China-based operations have gone public in large IPOsranging from about $100 million to $470 million. These IPO’s included LDKSolar (NYSE: LDK), Yingli Green Energy (NYSE: YGE), Trina Solar (NYSE:TSL), JA Solar Holdings (Nasdaq: JASO), SolarFun (Nasdaq: SOLF), ChinaSunergy (Nasdaq: CSUN), and Canadian Solar (Nasdaq: CSIQ). CanadianSolar has its headquarters in Canada but its operations are in China.The Chinese IPOs from December 2005 through June 2007 raised a total of $2.1 billion. That illustrates how the global solar industry has hit thebig-time and is attracting substantial amounts of investor capital. The Chinese IPOs illustrate how China is becoming the main manufacturing hub ofthe world’s global solar module industry, although there are still numerouskey players outside China that can thrive as well since in the long-run technology is more important than cheap labor in further cutting solar costs.The two largest U.S.-based solar companies are SunPower Corp(Nasdaq: SPWR) and First Solar (Nasdaq: FSLR). Both companies haveseen their respective stock prices soar through mid-2007. SunPower sellspremium, high-efficiency solar panels. Sunpower not only has an insidetrack on sales inside the United States but also made a smart acquisition byacquiring PowerLight Corporation in January 2007, which is the largest U.S.installer of solar power systems on customer sites. SunPower is a spin-offof Cypress Semiconductor (NYSE: CY), which is still the majority shareholder of SunPower.First Solar has done extremely well because it manufactures low-costthin film solar panels based on cadmium-telluride. Those low-costs solarmodules are being snapped up by solar park operators. First Solar hasa huge backlog of orders and is in the process of expanding capacityas quickly as it can. Another U.S.-based solar company, Evergreen Solar(Nasdaq: ESLR) has an innovative “string ribbon” technology for manufacturing solar cells, but the company has been unable to ramp up productionfast enough and is still mired in losses.
Nasdaq: FSLRNYSE: STPNasdaq: SPWRNYSE: LDKNYSE: YGENYSE: TSLNasdaq: ENERNasdaq: JASONasdaq: ESLRNasdaq: SOLFNasdaq: CSUNNasdaq: EMKRNasdaq: CSIQ
First SolarSuntech Power HoldingsSunPowerLDK Solar CoYingli Green EnergyTrina SolarEnergy Conversion DevicesJA Solar HoldingsEvergreen SolarSolarFunChina SunergyEMCORE CorpCanadian Solar
$8,314$5,845$5,143$3,850$2,367$1,813$1,265$1,077$998$604$449$305$279
$135$599$237$105$1,639$115$102$72$103$81$150$144$68
$4.0$106.0$26.5$25.9$216.2$12.4($18.6)$11.1($26.7)$13.6$11.8$58.7($9.4)
Net Income(Loss)($ mln)
2.9%17.7%11.2%24.5%13.2%10.8%−18.2%15.3%−25.9%16.8%7.9%40.9%−13.8%
Net IncomeMargin
www.ﬁrstsolar.comwww.suntech-power.comwww.sunpowercorp.comwww.ldksolar.comwww.yinglisolar.comwww.trinasolar.comwww.ovonic.comwww.jasolar.comwww.evergreensolar.comwww.solarfun.comnawww.emcore.comwww.csisolar.com
Web site
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Source: Company ﬁnancial statements.
Ticker Symbol
Company Name
Revenues($ mln)
JWPR076-Asplund
Market Cap($ mln)
TABLE 5.7 U.S.-Listed Solar PV Players Ranked by Market Cap (as of July 2007) with 2006 Financial Data
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THE INVESTMENT OUTLOOK FOR SOLARCELL/MODULE MANUFACTURERSAs mentioned in a previous section on solar industry growth rates, the solar PV industry is growing at a breakneck speed of 40-50 percent per yearand will likely more than quintuple in size between 2006 and 2010. Becauseof strong demand, solar module prices have risen in the past several years,which is unusual since solar module prices typically fall by about 5 percenta year as manufacturers pass through lower production costs. Relativelyhigh solar module prices have undercut solar module demand in some areas of the world. However, the quick expansion of module production inthe next several years stemming from an easier polysilicon supply situationand increased thin film production should satisfy demand and help pricesto start falling again. As module prices fall, this should stimulate fresh demand, thus keeping the market close to balance, in theory at least.As seen in Figure 5.21, the retail price for U.S. solar PV modulesfell sharply by a total of about 20 percent in the two and a half yearsfrom January 2002 through May 2004, according to Solarbuzz’s solar pricesurvey.55 However, module prices started to climb in mid-2004 when demand surged and when module supply was restricted by the polysilicon shortage and the lagging startup of new module production capacity. As the chart shows, solar module prices have been relatively flat since
$5.50
$5.00
$ per Watt
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$4.002002
2003
2004
2005
2006
2007
FIGURE 5.21 U.S. Solar PV Module PricesSource: Solarbuzz LLC Survey, www.solarbuzz.com. http://www.solarbuzz.com/ModulePrices.htm.
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mid-2006, suggesting that supply is catching up with demand. Logic wouldsuggest that module prices should move lower in coming months and yearsdue to the industry’s fast ramp-up of module production capacity and dueto falling production costs. As mentioned earlier, this would be good newsfor the solar PV industry in the big picture because lower module priceswill bring solar PV closer to grid parity and will stimulate fresh demand.The question for solar module companies, however, is the extent towhich a drop in solar module prices in coming years will pressure profitmargins. The challenge for solar cell/module manufacturers is to cut theirproduction costs faster than module prices fall. To the extent that manufacturers can cut their production costs as fast as prices, they will be ableto preserve their profit margins. However, with the surge in production capacity coming on line, there remains a significant risk that solar modulemanufacturers are going to see some profit margin compression in comingyears until the industry can get to more of a long-term steady-state situation. The producers with the highest costs are the ones that will be hurt themost by any fast drop in module prices.In summary, the global solar PV industry has a huge amount of room togrow on the upside with strong demand caused by government mandatesand incentives and also from areas that have high retail electricity priceswhere solar PV is already competitive. The challenge for the solar PV industry is to cut production costs and prices quickly so that solar PV becomesmore fully competitive with retail residential and commercial electricityprices throughout the world and eventually with grid-based electricity production without subsidies. This effort is likely to be successful given theprogress that has already been made and the huge amount of R&D capitalthat is flowing into the industry to find scientific and production improvements.Although the solar industry has a huge amount of upside, there willperiodically be bumps in the road when stock prices become overvaluedand when profit margins decline to possibly push the weaker players outof the market. It is therefore important to focus investment dollars on thehigh-technology players that have strategically defensible positions in theindustry and that will be the leaders in driving the production cost reductions. The following investment criteria are offered to help in an investmentdecision on the solar cell/module players:
r Focus on solar PV companies with the best technologies and most aggressive R&D efforts since those companies will be leaders in beingable to cut prices and yet maintain profit margins.r Choose companies with the lowest production input costs (labor, materials).
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r Ensure the company has no raw material input constraints. Polysiliconcell-based solar module companies need unfettered access to siliconwafers and thin film producers need access to their input materials.r Choose companies with high-quality or differentiated products andstay away from low-end commodity-type solar module producers.r Choose companies with world-class global sales/marketing channelsand strong marketing partner relationships.
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CHAPTER 6
Wind PowerThe Dutch Windmill Gets aTechnology Makeover
he global wind turbine industry is a $23 billion industry with an average annual growth rate of 20 percent over the period of 2002 to2006 and annual growth of +41 percent in 2005 and +32 percent in2006.1 Wind power provides a significant portion of total electricity in someEuropean countries such as Denmark, Spain, Portugal, and Germany. Inthe United States, wind power is the fastest growing utility-scale electricityresource, with an annual growth rate of 27 percent in 2006.2Investing in the wind power sector poses some challenges for U.S.based investors. Publicly traded pure-play companies are mostly basedin Europe and are traded on European exchanges. Two of the largestwind companies, GE and Siemens, are large conglomerates and cannot beconsidered pure plays on wind power. Still, wind power is growing veryquickly, and there are investment opportunities for investors that are willing to venture into stocks outside the United States.The main advantage of wind power is that it produces renewable electricity with zero pollution or greenhouse gas emissions. On the other hand,disadvantages include the intermittent production of electricity, the factthat some regions do not have enough wind to make a wind turbine economical, and the fact that technology improvements still need to be madeto drive the costs of wind power even lower to parity with fossil fuels. Adetailed list of advantages and disadvantages is presented and discussed inthe next section.
T
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ADVANTAGES AND DISADVANTAGESOF WIND POWERAdvantagesr Inexhaustible source of power with no pollution or greenhouse gasemissions. Wind turbines are a completely renewable source of energy, running exclusively on wind. This resource will never run outsince wind is produced by atmospheric temperature variations, therotation of the earth, land and sea effects, and pressure differentialsbetween weather systems. Wind turbines do not pollute because theyproduce electricity through a purely mechanical process, with nochemicals or combustion involved.r Low operation and maintenance costs. Since no fuels are required,total operating costs for a wind farm are significantly lower than thosefor a fossil fuel power plant. Costs vary in practice, but the average operating and maintenance cost for projects installed between2000 and 2005 was only 0.8 cents per kilowatt-hour.3 This is similarto the operations and maintenance costs for fossil fuel power plantsof 0.81 cents per kilowatt-hour (not including fossil fuel purchasecosts).4r Onshore or offshore. The strongest winds are at sea, making thisan ideal spot for wind power. However, building offshore wind turbines is more expensive, both from the standpoint of initial capitalexpenditure and maintenance. At present, most wind power comesfrom onshore installations, with only a few turbines installed at sea inEurope.r Surrounding land is usable. Wind turbines are large, tall structuresthat need lots of space between one another and wind farms thereforeoccupy extensive geographical areas. However, the land between themcan be used for other purposes, such as farming or livestock grazing.Farmers can lease their lands to wind energy operators, obtaining anextra annual income estimated at $55 per acre. For a 250-acre farm,with turbine installations occupying no more than 2 acres, this represents an annual leasing payment of $14,000.5 Many farms in Texas arealready looking to wind towers as a substitute income for depleted oilwells.6r Creates jobs. The European Wind Energy Association (EWEA) estimates that every megawatt of installed wind capacity creates 15 to 19jobs directly or indirectly, and 60 person-years of employment.7r Diversifies energy sources. Wind power increases a country’s diversification of power generation resources, which has economic and political advantages.
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Disadvantagesr Intermittent power. The availability of electricity depends on windspeed. If the speed is too low, then the turbines will not turn. If thespeed is too high, it might cause damage and the turbines are thereforeturned off. These problems can be reduced significantly by simultaneously using power from wind farms located in several regions, whichresults in smoother energy production. There is also the possibility ofadding an electricity storage system (e.g., batteries), which would allow relatively constant output.r Operation at less than full capacity. Since wind turbines depend onwind speed, wind turbines operate only 65 percent to 80 percent of thetime8 and operate at full capacity only 10 percent of the time.9 A windturbine on average during a year achieves 25 percent to 40 percentof nameplate capacity, depending on the average wind speed for thelocation.10r High cost. Wind power today still costs more than most conventionalpower sources when government incentives are excluded. There arethree reasons for this:r High installation costs. Wind towers are tall structures, with totalheights including the rotor blades currently exceeding 440 feet.11They require solid foundations and towers, and the rotor bladesmust be made with specialized materials to ensure strength.r Power transmission line costs. Wind farms are usually more efficient in remote, windy locations, which often require the construction of long transmission lines. These transmission lines raise thecost of the project and can cause an issue in the allocation of costsbetween electricity producers and consumers.r Intermittency increases costs for the power grid. The intermittencyof wind power generation presents an additional cost to grid operators that need to plug the gaps with backup power plants or the purchase of wholesale power.12 These costs are small when the grid’sreliance on wind power is less than 10 percent. However, costs increase as reliance on wind power increases and some industry observers believe that wind reliance should be capped at 20 percent.13Denmark’s reliance on wind power is the highest in the world at 21.4percent of total electricity consumption.14r Location determines output. Power output is very sensitive to windspeed. Some regions are good for wind power while others will neverbe suitable. Locations must be studied extensively before decidingwhether the site is suitable for a wind farm. In the United States, thefive states with the highest potential for on-shore wind power production are North Dakota, Texas, Kansas, South Dakota, and Montana.15
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r A danger to wildlife. Birds and bats are periodically caught in theblades of wind turbines. However, studies say that the number of birdsthat have died from wind turbine blades is negligible when comparedwith the number of birds that have died crashing against windows andbuildings. One study says that less than 1 in 30,000 human-induced birddeaths are due to wind turbines.16 Newer wind turbine systems are addressing the issue of trying to avoid contact with birds and bats.r Noise and visual nuisance to communities. Wind turbines used tobe noisy. This problem has been addressed over the years and modern turbines are quiet and have been compared to a kitchen refrigerator from a distance of 750 to 1,000 feet.17 Shadow flicker is anotherproblem. Shadows from the rotor can be an inconvenience when theseturbines are placed close to buildings. The areas covered by theseshadows, however, can be calculated precisely and turbines can beplaced accordingly. Wind turbines can have a negative effect on localland valuation. Some people consider wind turbines to be visual eyesores akin to high-tension power lines. The only real answer to theseobjections is to place wind farms in remote locations outside the visible range of towns and cities.
HOW DO WIND TURBINES WORK?Windmills have been used for centuries to obtain mechanical power topump water, grind grain, and perform other tasks. The ancient idea of using the wind to create power has migrated today into modern wind turbines, which are enormous structures that can supply large amounts ofelectricity to a country’s power grid. Current models exceed 440 feet tall(including the rotor blades) and the power output can be 3 megawatts orhigher. For reference, each 3-megawatt wind tower provides enough electricity to power about 825 homes.18 Wind turbines need to be constructedusing specialize materials so they can endure strong winds and harsh climatic conditions.Wind turbines can be classified into small and large units, dependingon their size and application. Small turbines are used for residential use inremote locations or for communities to produce electricity for themselvesor to sell to grid operators. Large wind turbines are utility-grade units thatare typically grouped together in wind farms. Large wind turbines have capacities of more than 50 kilowatts according to a definition provided by theU.S. Department of Energy.19 The largest wind turbines are currently above3 megawatts. (See Figure 6.1 for a picture of GE’s massive 3.6 megawattprototype.)20
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FIGURE 6.1 GE’s Massive 3.6-Megawatt Wind TurbineSource: U.S. Department of Energy, http://www1.eere.energy.gov/windandhydro/wind how.html.
Wind speed is an important factor in considering the location of a windfarm since small variations in wind speed can produce relatively large variations in electricity production. In fact, the electricity output from a windturbine is a function of the cube of the wind speed. That means that doubling the wind speed, for example, actually increases electricity output byeight times.21
TECHNOLOGICAL DEVELOPMENTSThe cost of wind power has dropped by over 80 percent in the past20 years and is likely to decline further with technological advances producing lighter and larger turbine blades and more efficient generators. Thetower height, from the ground to the hub, has increased consistently inthe past 10 years, from an average of 130 feet in 1996 to 275 feet in 2006.22Taller towers and larger rotor blades mean that more area is exposed to thewind, thus producing more electricity. In general, the “hub height” (which
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is the height of the center of the rotor from the ground) is almost equal tothe rotor blade diameter.23 This means that a 275-foot hub height and rotor blade diameter will typically add up to a total height of 412 feet for thetower plus the highest reach of the rotor blade.The average power capacity of wind turbines has been increasing aswell. From 1998 to 2006, the average turbine nameplate capacity has increased by a total of 124 percent from 0.71 megawatts to 1.60 megawatts.24In 2006, about 17 percent of all installed turbines had a capacity of morethan 2 megawatts (up to a maximum capacity of 3 megawatts).25 The sizeof wind turbines will continue to increase. Engineers today are in the process of designing models with nameplate capacity of 5 megawatts and totalheights of over 700 feet.26The construction of wind turbines requires particularly strong materials. Towers are currently made of steel, while rotor blades are carbon-fiberin an epoxy resin matrix or glass-reinforced plastic (GRP) with an epoxyor polyester resin matrix.27 To ensure strength, the blades need to be constructed in one piece by specialized manufacturers. This book’s companionWeb site at www.ProfitingFromCleanEnergy.com has links to video toursof some large wind parks.
OFFSHORE WINDOffshore wind can be much stronger than the wind on land because thereare no buildings, trees, or mountains to slow it down. In addition, installingwind farms offshore beyond the site of land tends to eliminate NIMBYobjections (“not in my backyard”). Offshore wind farms typically meanhigher efficiency and electricity production because of the higher windsand also because rotor blades can be larger since it is easier to transport large blades by ship than by land. Offshore blades with diameters of360 feet are currently being designed.28 The main downside for offshorewind farms is that overall construction costs can be substantially higherthan on land and there are also potential problems with corrosion due tothe salty ocean air. In addition, electrical cables have to be laid underneaththe ocean floor to transport the electricity to shore.Offshore wind power capacity in Europe by the end of 2006 reachednearly 900 megawatts (which is enough electricity to power 250,000homes). Most of these wind farms were in shallow waters with depths ofless than 82 feet.29 As of the end of 2006, no offshore wind farms existed inthe United States, but 2.5 gigawatts of offshore wind projects were in theplanning stage at that time.30
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INDUSTRY GROWTH RATES AND PROSPECTSFOR FUTURE GROWTHAs mentioned earlier, the global wind industry grew at an average annualgrowth rate of 20 percent over the period of 2002 to 2006 and at annualgrowth rate of +41 percent in 2005 and +32 percent in 2006.31 The GlobalWind Energy Council (GWEC) is forecasting that the global wind industrywill grow at an average annual rate of 19.1 percent during the 2006–2010period.32In 2006, $23 billion worth of wind power capacity (15.2 gigawatts) wasinstalled globally, which brought the total installed capacity worldwide to74 gigawatts (see Figures 6.2 and 6.3).33 That is enough electricity to powerabout 20 million homes. GWEC is forecasting that the world’s cumulative total capacity will roughly double by 2010 to 149.5 gigawatts, whichis enough electricity to power about 41 million homes.The European market has grown the fastest and in 2006 represented51 percent of the annual market34 and 65 percent of cumulative installedglobal capacity.35 However, its global market share is expected to settle back in the future as other markets catch up. By 2010, Europe is
175150150129125109
GW
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25
0
17
2000
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FIGURE 6.2 Forecasted Global Cumulative Installed Wind Capacity (in gigawatts)Source: Global Wind Energy Counci, Global Wind 2006 Report, 2006, p. 8 and 13,http://www.gwec.net/uploads/media/gwec-2006 ﬁnal.pdf.
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2521.019.4
2018.116.815.215GW
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107.3
8.1
8.2
2003
2004
6.5
5
3.8
02000
2001
2002
2005
2006
2007
2008
20