Akeena Solar, Inc. (AKNS)

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Jin Bin Liu

Akeena Solar designs and installs solar systems for residential and commercial customers. These systems use photovoltaic cells to convert sunlight into electricity, which is then stored in batteries or fed into an electric utility’s grid system. Akeena Solar is the only publicly-traded pure play installer on the Nasdaq. Compared to the typical commodity solar panel, Akeena's patented solar panel system, Andalay, reduces rooftop installation time by 50%, requires 70% fewer parts to manufacture, and requires 25% fewer rooftop attachment points.^[1] To date, Akeena has installed over 6 MW of solar powered electricity. ^[2] An estimated 85% of solar installations in the US are done in California^[3], where Akeena is based and has nine out of their ten offices.^[4]

Since solar power is not yet competitive with conventional forms of electricity, its use is dependent on federal and state incentives. The federal government offers a 30% investment tax credit and 5 year accelerated capital depreciation for businesses that invest in solar power equipment. These federal incentives also apply to home offices. State incentives come in the form of rebates that depend on the watt output of the system installed. Connecticut, for example, offers up to $25,000 in rebates for residential installations of systems that output up to 5kW.^[5]

Business Financials

Akeena installs solar panel systems for residential and small commercial customers in California, New York, New Jersey, Pennsylvania, and Connecticut. The company prides itself on convenience and aesthetics, which is apparent in their new patented system, Andalay. Andalay is supposed to reduce installation time by 50% and require 70% fewer parts to manufacture. The decrease in both manufacturing and installation costs is expected to drive revenues. In fact, the new panel is expected to increase gross margins by 5% to 10%. ^[6] Thus far, Akeena has only entered into agreements with Suntech and Kyocera to manufacture the Andalay panels.

Akeena has seen strong revenue growth over the past few years, growing by a factor of more than 4 from 2005 to 2007.^[7] Due its operating expenses, however, Akeena has seen minimal or negative net income since 2005. These expenses can probably be attributed to Akeena’s aggressive expansion into what it believes are prime markets. Over the course of 11 months in 2007, Akeena opened five new offices in California.^[8]To date, Akeena has installed nearly 6.2 MW of solar powered electricity.

Akeena is sensitive to its small supplier base. In 2007, Akeena purchased over 90% of its photovoltaic panels from four companies: Kyocera, Sharp Electronics, SunPower and Suntech Power Holdings.^[9] If its suppliers suffer increases in the costs of raw materials like silicon, those costs will pass on to Akeena’s expenses.

Trends and Forces

Government Support for Renewable Energy is Vital to the Growth of the Solar Industry

The large upfront costs of installing a solar system make solar energy more expensive than paying for other forms of electricity. The average retail price of electricity for residential customers was $0.10/kWh ^[10] in 2006, compared to an estimated $0.38/kWh for solar power.^[11] Government rebates are essential in making solar power competitive with electric utilities. Governments are subsidizing clean, renewable energy due to the rising prices of traditional forms of energy like coal and oil and also in response to growing concerns about the environment. The US government offers a tax credit of 30% (capped at $2000 for residential consumers) for solar energy investments.^[12] However, this tax credit is set to expire at the end of 2008 and the Senate was unable to reach an agreement to extend the tax credit during meetings in June of 2008. Many renewable energy companies have suspended projects indefinitely until the future of the tax credit is certain.^[13] The “Million Solar Roofs”^[14] program in the state of California aims to create 3000 MW of solar electricity by 2017. As a part of this program, the “California Solar Initiative” was launched in 2006, offering more than $2 billion in incentives over the next decade to consumers of solar power.^[15] Akeena can only thrive in environments where government subsidies make the company's cells cost-competitive with traditional forms of energy. Akeena has responded by building all their West Coast offices in California.

Homes with Solar Panels Sell at Higher Prices

Akeena’s Andalay system significantly reduces manufacturing and installation costs of their solar panels. The new system reduces installation time by 50% and requires 70% fewer parts to manufacture. Despite falling housing values and a tough market for new home builders, houses that are built with integrated solar systems are flying off the market - at twice the rate of grid-based houses.^[16] Coupled with legislative rebates, housing manufacturers have more incentive to add solar panels systems - like Akeena’s Andalay - to their construction plans. For example, the California Solar Initiative offers incentives starting at $2.50 per watt for systems up to one megawatt in size.^[17]

Silicon Demand Growth is Causing Silicon Shortages

Akeena’s suppliers use polysilicon for its products, as do most solar power companies; since 2004, there has been a worldwide polysilicon shortage. This shortage has been caused by a lack of silicon refining capacity. With the advent of solar power and its rapid growth, demand for polysilicon has increased greatly, leading to its undersupply as production capacity is not enough to meet demand. This undersupply has led to rising prices for solar equipment which in turn raises the price of solar power compared to other clean energy production technologies such as wind and ethanol. These rising prices will eventually pass on to solar panel installers like Akeena, and affect them adversely by raising their costs. However, technological advances promise to render silicon shortages irrelevant as manufacturers are developing cheaper alternatives to silicon cells. These alternatives include film-based solar cells^[18], dye-sensitized cells^[19], and plastic solar cells.^[20] In fact, one of Akeena’s suppliers, Suntech, has already begun production of a thin film module that will use only 2% of the silicon used in a traditional photovoltaic module.^[21]

Competition

The following data reflects installations that were completed and been paid for in the year 2007.^[22] Akeena had 1.08% of the market share in terms of revenue and 0.94% of the market share in terms of kW installed. The other top competitors in California include:

• Mohr Power Solar, Inc. (0.75% $ / 0.74% kW) - Specializes in solar electricity, solar pool / SPA heating, solar hot water heating systems for residential, commercial and industrial applications.
• PowerLight Corp. (1.11% $ / 1.01% kW) – Acquired by SunPower in January 2007.
• Real Goods Solar (0.88% $ / 0.77% kW) – Sold the world’s first photovoltaic solar panel at retail. Real Goods is a subsidiary of Gaiam, Inc.
• Regrid Power, Inc. (0.87% $ / 0.79% kW) - Designs and installs residential and commercial solar electric systems in the Bay Area of California.
• Renewable Energy Concepts, Inc. (2.19% $ / 2.02% kW) - Specializes in grid-tied solar electric design and installation.
• SolarCity Corporation (0.67% $ / 0.69% kW) – Based in Foster City, CA.
• SPG Solar, Inc. (1.27% $ / 1.25% kW) – Sells solar energy systems that range in size from 1 kilowatt to over 1 megawatt to businesses, government and agricultural facilities, and homes.
• Unlimited Energy (0.78% $ / 0.86% kW) – Is the largest, locally owned solar contractor in the Central San Joaquin Valley.

References

1. ↑ Akeena Solar Partners with Suntech to Manufacture New Solar Panel
2. ↑ Akeena Solar Homepage
3. ↑ Is Akeena the Next Solar Flare?
4. ↑ Akeena Solar, Inc., 10KSB, March 29, 2007 Item 2. P.27
5. ↑ Rebates and Incentives
6. ↑ Akeena Solar, Inc., 10KSB, March 29, 2007 Item 1. P.9
7. ↑ Akeena’s Income Statement
8. ↑ Is Akeena the Next Solar Flare?
9. ↑ Akeena Solar, Inc., 10KSB, March 29, 2007 Item 1. P.16
10. ↑ Average Retail Price of Electricity to Ultimate Customers by End-Use Sector
11. ↑ Solar Electricity Prices
12. ↑ Solar Economics – Government Incentives
13. ↑ Congressional stalemate over renewable energy
14. ↑ Million Solar Roofs - Environment California
15. ↑ The California Solar Initiative
16. ↑ SPWR 1Q08 Earnings Call, Page 1
17. ↑ The California Solar Initiative
18. ↑ Large-Scale, Cheap Solar Electricity
19. ↑ Taking Nature’s Cue for Cheaper Solar Power
20. ↑ Discovery may spur cheap solar power
21. ↑ Suntech Begins Construction of Thin-film Facilities
22. ↑ California Energy Commission – Emerging Renewables Program Account Activities