Evergreen Solar (ESLR)/Trends and Forces

The recession of 2008 and 2009 has turned an operating loss of $26 million in 2007 to one of $96 million in 2008.^[1] Five important reasons that has occurred include: falling solar subsidies, falling oil prices, tightening credit, falling silicon prices, and falling CO2 emission allowance prices.

Government Support is Vital for the Growth of the Solar Industry - and Has Been Decreasing

Without government support, solar companies would have difficulty selling their products, as solar energy is less cost effective than coal and natural gas.^[2] Governments worldwide have implemented legislation to encourage alternative energy production, due to political pressure from public concerns about climate change and energy independence, but the financial crisis of 2008 and 2009 has hastened the decline of subsidies in large markets like Germany and Spain, the world's largest and second largest solar markets, respectively.^[3] Examples of legislation benefiting the industry by making it more profitable, and therefore more likely to grow include:

The European Union has inked its goals to get 20% of its energy from clean sources by 2010.^[4]
China's Renewable Energy Law aims to raise the total percentage of renewable energy used in the country to 15% by 2020.^[5]
The U.S. Stimulus Bill of February of 2009 included $60 billion in loan guarantees for companies building solar and wind plants.^[6]
Although the Obama administration has the goal of doubling renewable energy production from 2009 to 2012,^[7] until an actual federal law is passed, many states are keeping their local goals and initiatives in place.

**State Level Renewable Energy Usage Targets**^[8]
State	AZ	CA	CO	CT	DC	DE	HI	MA	MD	MN	MT	NJ	NM	NV	NY	PA	RI	WA
Target Percentage	15%	20%	10%	10%	11.00%	10%	20%	4%	8%	25%	15%	23%	20%	20%	24%	18%	15%	15%
Target Year	2025	2010	2015	2010	2022	2019	2020	2009	2019	2025	2015	2021	2020	2015	2013	2020	2020	2020

As the financial crisis has strained government budgets and crashed the price of oil, once a strong motivator for developing renewable energy, support for solar power has, in some places, decreased. Examples include:

In June of 2008, Germany approved a law cutting its solar subsidies by 10%. Further, under the law subsidies will fall another 8%-10% each year for the next three years.^[9] This is particularly damaging to Sovello, the German solar power manufacturer that Evergreen has a one-third stake in.
Also in mid 2008, the Spanish Government cut its solar subsidies by 30%.^[10]

Nevertheless, shifts of power from one administration to another and one party to another in several countries and states have increased the likelihood that new legislation benefiting the industry will pass. Examples include:

Obama wishes to implement a carbon trading scheme. Doing so would make polluting methods of power generation, like coal and natural gas plants, more expensive, making solar power and other clean energy sources more cost-competitive. ^[11]
Ontario is considering implementing solar subsidies.^[12]

The Global Economic Downturn Has Caused Demand Growth for Energy & Petroleum to Slow

As global economic growth took a dive in 2008 and 2009, demand growth for energy has fallen, and is expected to stay low for several years.^[13] That hurts solar companies directly, in that there is less demand for the energy that they produce, but that also hurts them indirectly. As the prices of coal and natural gas have fallen, electricity has become cheaper, making Evergreen's solar power even less cost-competitive.^[14]

With Banks Tightening Credit, Evergreen Is More Cash-Strapped Then Ever

Since the company's formation in 2000, it has not once turned a profit.^[15] Growth for Evergreen Solar has, therefore, been funded through equity offerings and debt, which has been piling up. The company has $381.3 million in obligations coming due from 2009 to 2012.^[15] Unable to maintain liquidity in an environment of tight credit, Evergreen delayed construction of an $800 million plant in Asia, and in December of 2008, shut down its plant in Marlboro.^[16] Besides loosing sunk costs in both projects, by decreasing its production capacity Evergreen has nearly guaranteed that it will receive an oversupply of silicon. The five long-term silicon contracts it made in 2007 included supplies for those two, now defunct, projects.

Evergreen is Tied Into Long-Term, Expensive, Silicon Contracts

The slowdown in the industry combined with an increase in silicon production capacity has made one of solar's largest costs - the silicon of which its cells are made, cheaper. As of early 2009, silicon prices have fallen as much as 50-60% since 2007.^[17] As the recession of 2008 and 2009 was anticipated by few, long term contracts only factored in the increase of production capacity, not the slump in the industry. That’s bad for Evergreen, as it entered into five different polysilicon agreements in 2007, with companies DC Chemical, Silpro, Nitol, and Wacker, to provide all the silicon necessary to meet production targets for the next four years: 125 MW of cells in 2009, 300 MW of cells in 2010, 600 MW of cells in 2011 and 850 MW of cells in 2012.^[18]

Declines in the Price of Carbon Emissions Trading on European Markets Reduces Incentives for Renewable Investment

From the summer of 2008 to February 2009, the right to emit one ton of carbon fell from €30 on the EU carbon market to €11.80.^[19] Research has suggested that carbon needs to trade at around €25 in order to have a significant effect on green investment.^[19] With the price of carbon allowances so low, incentives for clean energy production in Europe have dramatically decreased.

While String Ribbon Technology has Below-Average Efficiency, it Uses Much Less Silicon than Traditional PV Cells

String Ribbon technology is relatively new to the solar market; most solar companies use mono- and polysilicon to produce their wafers in highly energy-intensive casting and machining processes. While these processes allow companies like SunPower, Suntech Power Holdings, and Kyocera to produce solar cells with efficiencies of 23.4%^[20], 19%^[21]</ref>, and 18.5%^[22]) (respectively), they are cost-intensive and use large amounts of silicon. Evergreen maintains that its technology lets it use 50% less silicon than most other competitors, and it is planning to use its new Quad-furnace technology to raise its efficiency from 15% to 18% and cut manufacturing costs from $3.5/watt to $1.50/watt^[23] before 2010, and reduce its silicon consumption by another half, from five grams per watt to 2.5 grams per watt before 2010.^[24] High-efficiency solar companies like SunPower use 7 grams of silicon per watt (on the low end)^[25] to get 23.4% efficiency, while low-cost, non-silicon manufacturers like First Solar produce at 98 cents^[26] to get efficiencies of 10.5%^[27]. If Evergreen Solar delivers on its goals of increasing efficiency while decreasing silicon use, it will have one of the strongest efficiency to cost ratios in the industry.

On a larger scale, solar panel efficiency and production costs are important because Oil and gas prices have, until mid 2008, trended upwards. As rising oil and gas prices lead to more expensive commercial electricity, consumers start to demand new, cheaper sources of power. Solar power is, as of 2009, less efficient than other energy sources, even wind. Sunlight, however, is available in massive quantities for half the day, and is free, unlike oil or coal. For these reasons, when oil and gas prices rise, solar power becomes a more viable alternative, despite its level of inefficiency. Concurrently, as solar power's efficiency rises, it becomes more competitive with oil and gas. The solar industry's R&D focus is on increasing this efficiency while minimizing the use of inputs like silicon, in order to keep manufacturing costs down. If solar companies can develop technology that lets more electricity to be produced with thinner PV cells, for less money, then solar power will become more competitive. (Read More about Evergreen Solar's Competition and Market Share...)

Introduction and Overview | Key Trends and Forces | Competition and Market Share

References

Retrieved from "http://www.wikinvest.com/stock/Evergreen_Solar_(ESLR)/Trends_and_Forces"

Wikinvest © 2006, 2007, 2008, 2009. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.

Advertise | Licensing & Partnerships