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Drew Cameron

DSTI AT A GLANCE

P/E ► -0.373   EV/EBITDA ► -0.503   ROA ► -52.1% AVG ROE ► -74.1% AVG Debt to Equity ► 0.910 AVG Current Ratio ► 0.108 AVG Interest Coverage Ratio ► -251 AVG

 

 

 

 

 

 

Daystar Technologies is a producer of Copper Indium Gallium Selenide (CIGS) thin-film photovoltaic(PV) solar panels. The company uses its own manufacturing process, that it claims increases the cells' efficiency and reduces production costs. CIGS has proven to be more efficient than the other thin-film technologies, Cadmium Telluride and amorphous silicon. Using CIGS, DSTI has achieved a 14% conversion efficiency,^[1] a full 8% above the average for thin film cells.^[2] Although thin-film technologies have proven to be cheaper to produce than the standard poly-crystalline silicon panels, they are less efficient and require more space to produce the same quantity of electricity.

Daystar Technologies is in the process of constructing its first large scale production facility in California, which is designed to produce 25 MW of solar panels each year. With the growing concern over global warming, solar and other forms of renewable energy have received support in the form of larger investments, government tax breaks and subsidies, in order to make them more competitive. Development incentives from New York and research grants from both government and private sources have accounted for a majority of Daystar's revenue through the first quarter of 2008.^[3] The solar PV market has been hampered by silicon shortages as a majority of PV systems use purified silicon for their products; however, Daystar does not use silicon and thus benefits when its competitors are forced to pay more for silicon. Unfortunately for Daystar, silicon shortages look to be nearing an end, as suppliers continue to ramp up production and complete new facilities to supply the market. Daystar and its primary competition in CIGS, Ascent Solar, are looking to enter the market, and compete with the more established PV manufacturers First Solar, Suntech Power Holdings, and SunPower.

Business Financials

Daystar is in the process of expanding and plans to complete its first large-scale, 25 MW, production facility by the end of 2009. The facility is designed to produce the company's Copper Indium Gallium Selenide(CIGS) thin-film solar panels using its secret application process. Daystar hopes that the production facility will let it to produce the CIGS coated glass panels at a cost below a dollar per watt and achieve a 14% conversion efficiency. The company chose to focus on coated glass panels over the alternatives, flexible thin film and building material PV, because the glass panels can easily replace the crystalline silicon panels that dominate the existing commercial market. In preparation for the production facility the company has heavily invested in research and development. In 2006 the company spent $10 million, more than 50 times its revenue, on research and development, with that number increasing to $10.4 million for 2007.^[4]

In 2007 Daystar Technologies had total revenue of approximately $60,000, down from 2006’s value of $180,000. The company had an operating loss of over $29 million in 2007, which proved to be 64% greater than DSTI’s loss of $17.75 million in 2006. The company has posted greater losses as it has continued through its development stage, spending much of its money on research, development and planning its 25 MW production facility. DSTI has obtained a majority of its revenue from research grants and government bonuses for alternative energy businesses. At the end of 2007, the company had $420,000 in deferred revenue as a result of grant requirements that the company had yet to meet.^[5]

Daystar Technologies had its initial public offering in February of 2004. In October 2007 DSTI completed its follow-up public offering of 15 million shares, from which the company had net proceeds of about $68 million for future expenses.^[6]

Trends & Forces

CIGS is an Economic Alternative to Silicon Based Solar Cells

Daystar produces CIGS thin-film PV cells, instead of the crystalline silicon cells that make up approximately 90% of the PV market.^[7] As of March 2007, the average thin-film cell had a conversion efficiency of 6%, while the average crystalline silicon cell had a conversion efficiency of 15%.^[8] DSTI and other CIGS manufactures have shown promise with the technology as they have achieved conversion efficiencies in the lab approaching 20%.^[9] Conversion efficiencies at this level would make CIGS far more efficient than the other thin-film technologies, Amorphous Silicon and Cadmium Telluride, and even more efficient than some crystalline silicon panels.^[10] Although promising, manufacturers have not been able to commercially produce CIGS panels at such a high efficiency, with DSTI predicting an efficiency of only 14% for its planned 25 MW facility. Although Daystar's cells are more efficient than most competing thin-film manufacturers, the level still falls short of SunPower's silicon cells that have a conversion efficiency of 23.4%.^[11] Although CIGS cells are generally less efficient than those made from crystalline silicon, they cost less to produce. CIGS has the potential to be more cost effective than other PV technologies, as DSTI plans to achieve production costs below a dollar per watt with its new facility.^[12] In the silicon PV market, Evergreen Solar (ESLR) plans to cut manufacturing costs from $2.25/watt to $1.50/watt by 2011 by reducing its silicon consumption from 5 to 2.5 grams/watt with its patented ribbon manufacturing technology.^[13] Some non-silicon manufacturers have already achieved production costs lower than Evergreen Solar's predictions, but even First Solar, which is able to produce cells at $0.98 per watt^[14] is still above the dollar per watt level that DSTI plans for its CIGS facility.

Continued Worldwide Silicon Shortages Will Hurt Daystar's Competitors

DSTI, unlike other PV manufacturers, does not use poly-crystalline silicon for its products and so is not hurt by rising silicon prices. For Daystar's competitors who use poly-crystalline silicon in their solar cells, the cost of the silicon alone accounts for approximately 45% of the module's cost.^[15] This means that when silicon prices rise DSTI's competitors are forced to either absorb the extra cost, or pass it on to their consumers. The price of silicon has increased as a result of the rapid growth of the PV industry and the continued demand for processed silicon from electronics manufacturers. The increased demand in the world market has caused severe shortages, but these shortages are being addressed by silicon manufacturers and likely will not last much longer. Hemlock Semiconductors began production from its new facility in June of 2008, a facility that is expected to produce 9,000 metric tons a year, and perhaps as much as 36,000 metric tons per year after improvements slated for 2011. This alone dwarfs worldwide silicon production in 2005 of only 26,000 metric tons.^[16] Although the demand for silicon is expected to stay quite strong, these and other additions are likely to ease the silicon shortage and soften prices. Although a decrease in the price of silicon will benefit the solar industry, it will hurt DSTI as its Silicon-based competitors are able to drop their prices.

Government Incentives Help Daystar and its Customers Offset Costs

Solar is not an economic choice in today’s energy market due to the large initial investments that are required and the efficiency of available panels. The large initial installation costs and uncertainty about the panels’ longevity deter most electric generators from investing in solar power plants, because other sources have proven to be more predictable and cost effective. As a result, commercial and private PV systems have become reliant on subsidies and other government incentives, spurred by rising energy prices, fears of climate change, and desires for energy independence, to make them economical. For the 2008 tax year, the Federal government has a personal tax credit of up to $2000 for the installation of residential solar panels, and 30% of the cost of corporate installations go towards a tax credit.^[17] The future of the federal incentives beyond 2008 are in question, though; in June of 2008, the Senate failed to vote on HR 6049, the Renewable Energy and Job Creation Act of 2008. The act would have extended and expanded various aspects of the nation’s renewable energy program.^[18] Many states have their own monetary incentives for private and commercial installations. One New York program offers as much as $1.5 million for the creation of a manufacturing facility and the production and sale of clean energy products.^[19] These and other subsidies will need to remain intact until solar power becomes competitive with incumbent energy generation if solar is to become an important part of our power supply. Many states have pressured utilities to invest in renewable energy sources with the creation of mandates that require a minimum percentage of the state’s energy to come from renewable sources. One example is California, which has mandated that 25% of its electricity will come from clean sources by 2020 and 75% by 2050.^[20] These mandates benefit renewable energy companies as they force utilities to expand their generation portfolios, regardless of subsidies, or purchase Renewable Energy Credits(RECs) from others that produce renewable energy.

Homes with Solar Panels Sell Faster

DSTI plans to produce its thin-film CIGS solar panels at a cost per watt that is well below others in the industry and at an efficiency approaching that of the average crystalline silicon panel. Despite falling housing values and a tough market for new homes, houses that are built with integrated solar systems are flying off the market - at twice the rate of grid-based houses.^[21] Couple the higher sales rates with legislative tax breaks for residential solar panels, like the California One Million Solar Homes initiative, and housing manufacturers have strong incentives to add solar panels to their construction plans.

Competition

The solar PV market is growing quickly, with companies like Daystar and Ascent Solar Technologies (ASTI) looking to establish themselves as competitive members. The companies hope that the benefits of CIGS will allow them to compete with the established members of the PV market First Solar (FSLR), Suntech Power Holdings, and SunPower (SPWR) and the expanding concentrated solar market. Other big players in the PV market are relatively small segments of larger corporations like BP (BP), Kyocera (KYO) and Sharp Corporation (SHCAY).

• Ascent Solar Technologies (ASTI) is another company looking to create thin-film CIGS PV modules, but instead of coated glass, the company is focusing on flexible, light-weight modules. The company's manufacturing process uses lasers to cut the layered substate and connect the individual PV cells. In 2007 the company had a revenue of $1 million and an operating loss of $7.9 million, as it too are in the development stage and look to begin production at its main facility in 2008.^[22]

• First Solar (FSLR) produces Cadmium Telluride thin film PV panels. The company is already established, with an operating income of about $137 million in 2007, and revenue of over $500 million. The company estimates its production costs at approximately $1.23 per watt, and hope that by 2010 it will be able to make solar panels that can produce electricity at a non-subsidized competitive level.^[23]

• Evergreen Solar (ESLR) produces silicon based PV panels using its proprietary String Ribbon technology. The panels that the company makes using this technology use about half the silicon of conventional silicon PV methods. In 2007 Evergreen had almost $70 million in revenue and an operating loss of $25.6 million, $20.6 million of which went to research and development.^[24]

• SunPower (SPWR) produces silicon-based PV panels for the commercial energy market. In 2007 the company's revenue was almost $775 million and had an operating income of $2.3 million. The company's revenue more than tripled from 2006 to 2007 due to the addtion of an installation segment. The extra revenue was not enough to offset the addition of $80 milion in expenses.^[25]

• Energy Conversion Devices (ENER) makes silicon based thin-film solar panels, as well as computer and battery technology. The company made $113.6 million in revenue and had an operating loss of $42.5 million in 2007. Despite the operating loss of the company, the solar segment had an operating income of $1.9 million in 2007, which dropped from a value of $8.2 million in 2006. This was primarily due to additional investments the company made to increase its production of solar panels in 2008.^[26]

• EMCORE (EMKR) produces PV cells using Gallium Arsenide. The Gallium Arsenide panels have achieved efficiencies as high as 39% with concentrated light, which is well beyond even the best silicon cells that operate at efficiencies around 20%. The Gallium Arsenide panel, however, require direct sunlight and are usually accompanied with mirrors to direct additional sunlight upon the panels. In 2007 the PV segment of the company recorded a revenue of $59.2 million and an operating loss of $25.9 million.^[27]

References

1. ↑ DSTI 10-k 2007 Pg 1
2. ↑ Solar Buzz: Fast Solar Energy Facts
3. ↑ | DSTI 10-k 2007 Pg. 14
4. ↑ DSTI 10-k 2007 Pg. 8
5. ↑ DSTI 10-k 2007 Pg. 14
6. ↑ | DSTI 10-k 2007
7. ↑ Solar Buzz: Fast Solar Energy Facts
8. ↑ Solar Buzz: Fast Solar Energy Facts
9. ↑ Ascent Solar gains funds from the Air Force
10. ↑ DSTI 10-k 2007 Pg. 5
11. ↑ First Solar Efficiency
12. ↑ DSTI 10-k 2007 Pg. 5
13. ↑ ESLR 2007 Earnings Call Transcript, Page 1
14. ↑ First Solar, Inc. Announces 2007 Fourth Quarter and Year-end Financial Results
15. ↑ Solar Buzz: Fast Solar Energy Facts
16. ↑ Clean Tech ‘What silicon shortage, asks Hemlock’ June 3, 2008
17. ↑ DSIRE Residential and Corporate Incentives
18. ↑ Renewable Energy Incentives Stalled in Senate
19. ↑ New York - NYSERDA - Renewable, Clean Energy, and Energy Efficient Product Manufacturing and Incentive Program
20. ↑ [http://www.newrules.org/electricity/rpsca.html California Mandate, Renewable Portfolio Standard]
21. ↑ SPWR 1Q08 Earnings Call, Page 1
22. ↑ Google Finance ASTI
23. ↑ First Solar 10-k 2007
24. ↑ Evergreen Solar 10-k 2007
25. ↑ SunPower 10k 2007
26. ↑ ENER Form 10-k 2007
27. ↑ EMCORE 10-k 2007
28. ↑ ^{28.0 28.1} [http://www.renewableenergyaccess.com/rea/news/story?id=46286
29. ↑ Forbes - Sun King; SunPower's New Solar Panel Is 22% Efficient
30. ↑ SharpUSA Product Brochure
31. ↑ Kyocera - Solar Timeline
32. ↑ Solarfun Website
33. ↑ http://jasolar.com/Web/products-en.asp
34. ↑ TSL 20-F 2007 Pg. 7
35. ↑ ESLR 2007 Earnings Call Transcript, Page 1
36. ↑ EMCORE.com: Terrestrial Solar Cells and Receivers"
37. ↑ ENER F1Q08 Earnings Call Transcript, Page 5
38. ↑ DSTI 10-k 2007 Pg 1
39. ↑ Ascent First Quarter 2008 10-Q Pg 23