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Drew Cameron

SolarWorld AG produces and markets solar panels and silicon wafers for solar applications. The Germany-based company obtained 51% of its 2007 revenue from sales within Germany, with 78.8% of its revenue originating from sales within Europe.^[1] At the end of 2007, it had annual production capacities of 185 Megawatts (MW) for modules, 205 MW for solar cells and 385 MW for silicon wafers.^[2] One MW of installed solar power is enough to supply approximately 300 German households.^[3] In November of 2008, SolarWorld offered a billion Euros for the purchase of GM subsidiary, Opel, in an effort to enter into the automotive market supplying "green" vehicles.^[4]

High oil and gas prices, a fear of climate change, and political support for alternative energy sources have fueled the emerging solar market. Tax credits and subsidies like Germany's Feed-In-Law help to make solar technology more cost competitive, but prices remain high as there is a shortage of refined silicon; the principal input for silicon-based solar panels.^[5] The average long-term contract price of polysilicon increased approximately 20% from $50-$55 per kilogram in 2006 to $60-$65 per kilogram delivered in 2007, with market prices sometimes spiking as high as $400 per kilogram.^[6] These increased costs, the uncertain future of government subsidies, and emergent financing concerns following the 2008 Financial Crisis all threaten to slow growth in the rapidly expanding solar industry.

SolarWorld’s main competitors are other silicon-based solar panel manufacturer’s, including SunPower, Kyocera and Suntech Power Holdings as well as solar wafer manufacturers PV Crystalox and LDK Solar (LDK) .

Business Financials

German based SolarWorld operates in all aspects of the solar production market including the procurement of raw silicon, its processing into silicon wafers and the final production into solar cells and panels. The company's headquarters and largest production site is located in Freiberg, Germany. It also has several other production sites in Germany, along with ones in the US, Spain, South Africa and is beginning operations of a plant in South Korea as part of a joint venture, SolarWorld Korea Ltd.^[7] A majority of SolarWorld's German operations are under the names of fully owned subsidiaries, Deutsche Solar AG and Deutsche Cell, as well as its raw silicon processing group, Sunicon, while the international facilities operate under the SolarWorld name.^[8]

SolarWorld earned 698.8 million Euros in revenue in 2007, up 35.6% from 515.2 million in 2006. ^[9] This includes 9.2 million Euros that were from discontinued operations with its sale of Swedish subsidiary Gallivare PhotoVoltaic AB in early 2008. ^[10] The company had an operating income of 168 million Euros, or 24% of its revenue in 2007, up from 10.9% in 2006.^[10]

^[10]

SolarWorld earned 51% of its revenue from sales within Germany in 2007, with an additional 27.7% coming from sales within Europe.^[1] In 2008, it expects to more than double its module sales in the expanding US and Asian markets, hoping to earn over 60% of its 2008 revenue from sales outside of Germany. ^[11]

^[1]

SolarWorld placed a billion Euro bid for GM's Opel in November of 2008, showing the company's desire for expansion into other industries.^[4] Despite allegations that the bid was simply a marketing stunt, SolarWorld's CEO, Frank Asbeck, has claimed that the bid is part of a serious effort to enter into the automotive industry by supplying "green" vehicles to European consumers.^[12] The company hoped to use the Opel plants and automotive knowledge of Opel's employees, along with its own expertise in solar electric systems, to produce high efficiency engines, hybrids and electric vehicles for the future.^[4] Although GM quickly dismissed the bid, it shows a determination from SolarWorld to not only expand into growing solar markets, but to also to expand beyond the traditional solar panel industry.

Business Segments

^[13]

Modules and Trading (75.5% of 2007 Revenue)^[13]

The sale of solar panels and modules through SolarWorld's trading segment make up a majority of its revenue, accounting for 75.5% of the revenue in 2007. The silicon wafer and solar cell segments of the company operate primarily to supply the required cells for panel and module production. This allows SolarWorld to avoid the supply issues faced by other solar panel manufacturers, and eliminates the need for long-term supply deals. At the end of 2007, it had an annual module production capacity of 140 to 185 MW.^[2]

Silicon Wafers (20.6% of 2007 Revenue)^[13]

Germany is SolarWorld's primary market for solar panels, but plays only a small role in its sale of silicon wafers. Although a majority of its total revenue came from sales within Germany,^[1] only 10% of the silicon wafers sold went to other companies within Germany.^[11] SolarWorld sold most of its silicon wafers to companies in faster growing markets, with 43% being sold to companies in Asia, 39% to other countries in Europe and 8% going to the Americas.^[11] All of the recycled and processed silicon produced by its silicon refining segment is used to make the company's silicon wafers, of which 50 percent was kept for cell and panel production in both 2006 and 2007.^[14] The remaining 50% was sold to external sources. As of the end of 2007, it had an annual production capacity of 245 to 385 MW for silicon wafers.^[2] SolarWorld looks to increase the volume of its silicon wafer sales to over 750 MW in 2010. ^[15]

Solar Cells (3.9% of 2007 Revenue)^[13]

The purpose of the solar cell segment is primarily to supply SolarWorld with the cells that are needed for its solar panels, and not to earn profit on its own. In 2007, the segment's internal sales reached 264 million Euros, dwarfing the external sales revenue of 27 million Euros. As of the end of 2007, the solar cell segment had an annual production capacity of 185 to 205 MW.^[2] The company produces cells that are on par with the rest of the silicon solar industry, having cell conversion efficiencies that average 15% and go as high as 17%.^[16]

Trends and Forces

The 2008 Financial Crisis Will Slow Solar's Expansion

Companies in every industry are feeling the effects of the 2008 Financial Crisis as budgets shrink and it becomes more difficult to obtain loans and investments. These conditions are especially dangerous to industries, like solar, that are expanding so rapidly (41% per year from 2001-2008^[17]) and require large sums of money to do so. The tighter lending practices will not only make it harder for solar companies to expand at such high rates but also threaten to decrease demand as their customers struggle to obtain funding for the expensive projects. Despite the financial crisis, SolarWorld continues to pursue aggressive plans for expansion, as is evident with the company's billion Euro bid for the purchase of GM's Opel in November of 2008.^[4]

Continued Worldwide Silicon Shortages Will Hurt SolarWorld

Silicon, a necessary input to most solar panels, is one of the most abundant elements on Earth, but refined silicon has been in short supply. As solar power has increased in popularity, raw silicon producers, who previously catered only to the semiconductor market, were unable to meet the surge in demand. Although demand remains high, the shortage will not last much longer as producers expand their refining capacity. Hemlock Semiconductors began operation of its new facility in June of 2008, a facility that is expected to produce as much as 36,000 metric tons per year by 2011. This alone dwarfs worldwide silicon production in 2005, which totaled only 26,000 metric tons.^[18]

For silicon solar panel vendors like SolarWorld, higher silicon prices mean higher production costs and lower margins as the costs are passed onto consumers. In the silicon PV industry, the cost of the silicon accounts for approximately 45% of each module’s manufacturing cost.^[19] The price of silicon has increased with the average long-term contract price of polysilicon increasing from $50-$55 per kilogram in 2006 to $60-$65 per kilogram delivered in 2007, with market prices sometimes spiking to as much as $400 per kilogram.^[20] In order to dampen the effect of fluctuations in the raw silicon market, SolarWorld has entered into joint ventures with silicon supply companies and has focused its attention on improving processes for silicon recycling.^[21]

SolarWorld Stands to Benefit from Chinese Growth

SolarWorld already sells 43% of its silicon wafers to customers in Asia and is expanding its production capabilities in South Korea to better position itself in the growing market.^[11] According to the International Energy Agency (IEA), China's energy demand will surpass that of the United States soon after 2010, based on what it considers a conservative growth rate of 6.0% per year. ^[22] Chinese energy demand is expected to grow by 3.2% every year and double between 2005 and 2030, with potentially higher growth rates resulting in even greater energy demand.^[22] To meet the growing needs, China will need to add 1,300 gigawatts to its electric generating capacity by 2030, more than the total installed capacity in the United States in 2008.^[22] To meet this demand, China will need to invest 3.7 trillion dollars in energy infrastructure to meet the energy needs in 2030.^[22] To meet these goals, the Chinese government has said it hopes that installed solar installations will generate about 300 megawatts of solar power for the country by 2010.^[23]

Environmental Concerns, High Oil, and High Gas Prices Make Solar Panels More Appealing

With the drastic oil price fluctuations seen in 2008 and the increased public attention to the environment, there has been a strong push for the development of reliable economic alternatives, especially in the renewable energy sector. The push for clean energy has benefitted the solar industry, which has averaged 41% growth per year from 2001 through 2008, and is projected to continue in the future.^[17] 90% of solar panels, like the ones produced by SolarWorld, are silicon based, ^[24] and although thin-film technology is growing in popularity, the needs of the rapidly expanding solar industry provide ample opportunity for silicon-based manufacturers to continue their growth. In 2007 alone, there was 2,826 MW of PV solar installations, over a GW more than the 1,744 MW installed in 2006.^[25] With the expansion of the industry and increased investment, PV solar energy has made great strides in the last five years as the panels have become more efficient and costs of production have decreased. According to the Department of Energy’s Solar America Initiative, with continued investment PV solar power will likely become a competitive source of commercial electricity by 2015.^[26]

Government Incentives Spur the PV Market and Help SolarWorld

Solar is not an economic choice in today’s energy market due to the low efficiency of available panels and a very large initial investment of approximately $8,000 US per kilowatt(kW) installed.^[27] This dwarves the installation costs of natural gas at $1200 - $1600 per kW installed^[28] and even an emissions controlled coal plant that costs $2,200 - $3,700 per kW installed.^[29] Another renewable source, wind, has installation costs that can vary from $800/kW for large installations^[30] to $3500/kW for small installations.^[31] The larger initial installation costs and uncertainty about the panels’ longevity deter most electric generators from investing in solar power plants. Other, more conventional electric sources, such as coal and natural gas, have proven to be more predictable and cost effective as companies have much greater control over their power output. As a result, commercial and private PV systems are reliant on subsidies and other government incentives to make them economical. These incentives have been spurred by rising energy prices, fears of climate change, and desires for energy independence.

In Germany, SolarWorld’s largest market, the Feed-In-Law provides subsidies for solar generated electricity that began in 2004 at 45.7 euro cents/kWh for ground and 57.4 euro cents/kWh for building installations, set to decrease at a rate of 6.5% and 5% per year, respectively.^[32] In early June of 2008, the German government changed the 2004 law to have a 10% decrease in 2009, and a 7 and 8 percent decrease the following years. This sets the subsidy levels for 2009 installations at about 34.2 and 48.8 euro cents/kWh.^[33] Spain, another significant player in Europe’s solar market, has seen similar cuts in its Feed-In-Law, suggesting other countries may follow suit.^[34] Although the lower subsidies will do less to encourage growth, the decreases have been less than anticipated, and the subsidies will continue to make solar more competitive in the energy market.^[33]

Competition and Market Share

Solar Modules

The following companies compete with SolarWorld in the sale of solar panels, along with their relative market share as of the end of 2005. As of the end of 2007, SolarWorld had an annual production capacity of up to 185 MW of solar modules.^[2]

• Suntech had a market share of 4% in 2005^[35] and has rapidly expanded since, hoping to sell 550 MW of solar panels in 2008.^[36]
• SunPower (SPWR) (insignificant in 2005) - One of the fastest growing solar companies, with one of the most efficient solar cells available at 23.4%.^[37]
• Sharp Electronics (24%) - It was the largest photovoltaic cell manufacturer in the world in 2005, and remains strong in the world's solar market despite its primary focus on consumer electronics.
• JA Solar Holdings, (insignificant in 2005) - A Chinese PV company that only sells monocrystalline solar cells; it lets its customers take care of building the modules and systems.
• Solarfun Power Holdings (insignificant in 2005) - Another Chinese PV company that operates primarily in Europe and makes most of its money by selling modules, rather than individual cells.
• Evergreen Solar (insignificant in 2005) - A solar company that produces string ribbon PV cells and operates at all production levels from silicon wafer to power system.
• Kyocera (8%) - A Japanese electronics company that is also a major manufacturer of solar cells despite its primary focus in consumer electronics.
• Q-Cells (9%) - A privately owned, German solar manufacturer
• First Solar (insignificant in 2005) - A thin-film solar panel manufacturer that uses cadmium telluride instead of silicon for its cells.
• BP (5%), Mitsubishi (6%), and Sanyo (7%) - Not primarily photovoltaic cell manufacturers, but heavy market competitors nonetheless.
• EMCORE (insignificant in 2005) - A Concentrated Photovoltaic System manufacturer that uses Gallium arsenide PV cells and got its start in the solar business making power cells for satellites.
• Energy Conversion Devices - This company uses amorphous thin-film silicon in its ultra-thin, albeit low-efficiency solar cells.
• Ascent Solar Technologies (ASTI) - A growing CIGS thin film manufacturer of solar panels, had a production capacity of only 1.5MW in 2008, planning to expand to 30MW by the end of 2009.^[38]
• DayStar Technologies (DSTI) - Another CIGS thin film PV manufacturer that plans to complete its first 25MW production facility by the end of 2009.^[39]

Solar Wafers

SolarWorld AG - The company had a multicrystalline wafer market share of 19% in 2006.^[51] Deutsche Solar AG, a division of Solar World AG, had an annual production capacity of 350MW of silicon wafers at the end of 2007, and is expanding rapidly. By 2009, Deutsche Solar expects to have over 750 MW of annual capacity, with other divisions of Solar World adding an additional 320 MW annually.^[52]

• In 2006, PV Crystalox held 17% of the multicrystalline market.^[51] The company had an annual production capacity of 290 MW as of April 2008^[53]

• Kyocera (KYO) - A large electronics and semiconductor corporation, whose silicon wafer division held 13% of the multicrystalline market share in 2006.^[51] The company also produces solar panels, consumer electronics products, and telecommunications equipment.

• LDK Solar had a production capacity of 420 MW of polycrystalline silicon wafers at the end of 2007 and sold $501 million worth of solar wafers.^[54] LDK held 8% of the multicrystalline wafer market in 2006.^[51]

• M. SETEK is one of the world's largest suppliers of monocrystalline silicon wafers and entered into the polycrystalline market in 2007. It predicts production of 2800 tons of polysilicon in 2008^[55] and is involved in significant longterm contracts with JA Solar Holdings, (JASO), Suntech Power Holdings (STP) and SunPower (SPWR), among other leading solar panel manufacturers.^[56]

• ReneSola entered the monocrystalline solar wafer market in 2005, and the polycrystalline market in 2007.^[57] The company did not hold a significant portion of the market in 2006, but expanded its production capacity in 2007 and has established itself as a global supplier of silicon wafers.

• Renewable Energy Corporation - The largest multicrystalline wafer producer, this vertically organized solar company had a 2006 market share of 24%.^[51] In 2007 the company had an annual monocrystalline wafer production capacity of 38 MW and a polycrystalline production capacity of 468 MW.^[58]

• Sumco Corporation - A Japanese silicon company that produces wafers for semiconductors and solar panels, and held 6% of the multicrystalline solar market in 2006.^[51] As of December 2007, the company was able to produce 900,000 wafers per month and plans to reach a monthly production capacity of 1,660,000 wafers by March of 2010.^[59]

References

1. ↑ ^{1.0 1.1 1.2 1.3} SolarWorld 2007 Annual Report Pg 132
2. ↑ ^{2.0 2.1 2.2 2.3 2.4} SolarWorld 2007 Annual Report Pg 43
3. ↑ FedEx Breaks Ground on Solar Project in Germany
4. ↑ ^{4.0 4.1 4.2 4.3} Germany's SolarWorld springs surprise bid for GM's Opel, Yahoo News Nov 19, 2008
5. ↑ Fast Solar Energy Facts German PV Market
6. ↑ TSL 20-F 2007 Pg. 7
7. ↑ SolarWorld Financial Report 3Q 2008 Pg 10
8. ↑ SolarWorld 2007 Annual Report Pg 115
9. ↑ SolarWorld 2007 Annual Report Pg 60
10. ↑ ^{10.0 10.1 10.2} SolarWorld 2007 Annual Report Pg 58
11. ↑ ^{11.0 11.1 11.2 11.3} SolarWorld 2007 Annual Report Pg 59
12. ↑ SolarWorld's Billion-Euro Bid Turned Down by GM
13. ↑ ^{13.0 13.1 13.2 13.3} SolarWorld 2007 Annual Report Pg 130
14. ↑ SolarWorld 2007 Annual Report Pg 23
15. ↑ SolarWorld 2007 Annual Report Pg 118
16. ↑ ^{16.0 16.1} SolarWorld Solar Cell Product Data
17. ↑ ^{17.0 17.1} Industry Growth and Policy Progress on the Agenda at Solar 2008
18. ↑ Clean Tech ‘What silicon shortage, asks Hemlock’ June 3, 2008
19. ↑ Solar Buzz: Fast Solar Energy Facts
20. ↑ TSL 20-F 2007 Pg. 7
21. ↑ SolarWorld 2007 Annual Report Pg 24
22. ↑ ^{22.0 22.1 22.2 22.3} AFX News Limited IEA forecasts for Indian, Chinese energy demand 11.07.07
23. ↑ China Aims to Clean up in Solar Power. Business Week
24. ↑ Solar Buzz: Fast Solar Energy Facts
25. ↑ Solar Buzz: Fast Solar Energy Facts
26. ↑ DOE’s Solar America Initiative Draft Pg 5
27. ↑ http://www.wind-works.org/Solar/SolarPVCurrentInstalledPricesperkWinCaliforniaElsewhere.html
28. ↑ http://www.memagazine.org/mepower03/bbuster/bbuster.html
29. ↑ Gristmill Post by GreyFlcn, July 19th 2007
30. ↑ http://www.telosnet.com/wind/future.html
31. ↑ California Energy Commission: Economics of Owning and Operating DER Technologies"
32. ↑ Fast Solar Energy Facts German PV Market
33. ↑ ^{33.0 33.1} German Solar Subsidies to Fall Less Than Forecast, GreenTechMedia
34. ↑ Spain Could Reduce Solar Subsidies by 35%: GreenTechMedia
35. ↑ CIBC Initiating Coverage, SOLF, January 29th, 2007
36. ↑ SeekingAlpha: "Suntech Power Holdings Co., Ltd. Q2 2008 Earnings Call Transcript"
37. ↑ ^{37.0 37.1 37.2} [http://www.renewableenergyaccess.com/rea/news/story?id=46286
38. ↑ Ascent Solar, 10K, December 31, 2007 Item 1. P.5
39. ↑ DSTI 10-k 2007 Pg. 8
40. ↑ Forbes - Sun King; SunPower's New Solar Panel Is 22% Efficient
41. ↑ SharpUSA Product Brochure
42. ↑ Kyocera - Solar Timeline
43. ↑ Solarfun Website
44. ↑ http://jasolar.com/Web/products-en.asp
45. ↑ TSL 20-F 2007 Pg. 7
46. ↑ ESLR 2007 Earnings Call Transcript, Page 1
47. ↑ EMCORE.com: Terrestrial Solar Cells and Receivers"
48. ↑ ENER F1Q08 Earnings Call Transcript, Page 5
49. ↑ DSTI 10-k 2007 Pg 1
50. ↑ Ascent First Quarter 2008 10-Q Pg 23
51. ↑ ^{51.0 51.1 51.2 51.3 51.4 51.5} CIBC Initiating Coverage on LDK, July 18th, 2007
52. ↑ Solar World Annual Report 2007
53. ↑ PV Crystalox Company Presentation
54. ↑ LDK Solar 20-F 2007
55. ↑ Investing in Silicon Suppliers
56. ↑ M Setek Company Profile
57. ↑ SOL 20-F 2007 Pg. 1
58. ↑ REC Website Monocrystalline and Polycrystalline
59. ↑ SUMCO to Strengthen 300mm Wafer Production Capacity Jan 30, 2008