Cloud Cover For Solar Energy

Reuters Online
13 Sep 2006
Marc H. Gerstein

Falling oil is cooling the appeal of solar energy for now, but advocates continue to believe in its long-term appeal.

With oil prices down about 20 percent from the mid-July peak, this hardly seems like the time to be thinking about alternative energy. On the other side of the coin, these stocks may be priced more favorably than they would be if oil were closer to $80 per barrel. Indeed, solar cell makers Suntech Power Holdings Co. Ltd. , SunPower Corp. , Energy Conversion Devices Inc. , and Evergreen Solar Inc. are now priced about 40, 35, 43, and 48 percent respectively below their 2006 highs.

For the time being, it would seem that the last thing in the world solar investors need is lower oil prices.

While observers laud the cleanliness and easy availability of sunlight as a power source, producing electricity from this source remains about 10 times as expensive as power generated from fossil fuels. Even solar bulls acknowledge that the industry today depends heavily on the fact that governments in some countries heavily subsidize this otherwise uneconomic energy source.

Adding fuel to the fire, so to speak, is the shortage of polysilicon, a key raw material used to produce photovoltaic (PV) cells that convert sunlight into electricity. This results from too much of a good thing, powerful growth in demand based on increasing use of solar energy. The downside is the increase in prices, something that inhibits solar from reaching cost efficiencies needed to flourish in a subsidy-free world and which exerts margin pressure on PV producers.

That said, advocates are keeping the faith.

For one thing, polysilicon capacity is on the rise and the current shortage is expected to be alleviated by 2008.

Moreover, while there is concern that subsidies will diminish in some places, such as Japan, the heaviest user of solar, incentive programs are holding or expanding elsewhere, such as in the United States, Germany, Italy, Spain and China, based on a reluctance to bet the farm on the indefinite sustainability of the recent oil price retreat.

No government is likely to subsidize solar forever, but industry observers expect further cost progress to occur, through more efficient production processes and innovations that increase the yield of PV cells (the amount of electricity that comes from a particular quantity of polysilicon). The aim is for solar to become more competitive with fossil fuels by about 2015.

Because solar energy caught on earlier in Japan, it comes as no surprise that the leading manufacturers of PV cells are based there: Sharp Corporation <6753.T>, Kyocera Corporation , Sanyo Electric Co. Ltd., and Mitsubishi Corp. <8058.T>. The other major provider is Q-Cells , a German manufacturer.

U.S. investors seeking domestic plays will, likely, have to think small, not necessarily in terms of market capitalization — Suntech, SunPower, Energy Conversion Devices and Evergreen Solar all have market capitalizations above $1 billion while Evergreen Solar is just above $600 million — but in terms of market shares which, for each of these firm, is at low single-digit percentage levels. Table A summarizes revenue and earnings per share estimates for these firms.

Table A

Consensus Estimates
EPS ($) Revenue ($ mill.)
Current Yr. Next Yr. Current Yr. Next Yr.
Energy Conversion Devices (0.13) 1.11 164.76 325.61
Evergreen Solar (0.38) (0.10) 101.07 212.77
SunPower 0.45 0.79 228.21 366.95
Suntech Power Holdings 0.68 1.13 619.76 1201.48

The largest among these firms, Suntech, is well positioned in growth areas of Europe and in China, and it recently acquired its way into Japan. On the cost side, it counts on a sizable manufacturing capacity in China to keep operating costs under control and to enable it to use more manual effort than might be feasible elsewhere, thus keeping capital costs in check. It should comfortably cope with polysilicon supply issues as a result of its having signed a 10-year arrangement with producer MEMC Electronic Materials Inc. .

Suntech and SunPower both make conventional PV cells. But the smaller SunPower may be of particular interest based on what Pierre Maccagno of Needham described in a July 19 research report as a conversion ratio, the amount of electricity that its the silicon on its panels yields, that is "the highest in the industry."

Meanwhile, estimates for Energy Conversion Devices may change, for the better. The stock was up more than 10 percent on Wednesday in response to the company's having reported a narrower-than-expected loss of $0.02 per share.

Beyond that, the stock may have appeal as it increases the extent of the solar play by, possibly, moving other operations to joint ventures or partnerships, and through its atypical approach to PV cells. Its thin-film product is based, not on polysilicon, but on stainless steel and polymers. Jeff Osborne of CIBC world Markets explained, in a July 13 research report, that this is positive because lighter weight makes for easier shipping and installation. The disadvantage lies in lower efficiency, meaning they are suitable only for structures with large roof surfaces, such as commercial buildings.

Evergreen Solar may be the company that poses the most challenge to investors right now. Paul Clegg of Natexis Bleichroeder explains in an Aug. 28 research note that analysts are finding it especially hard to forecast results as the company makes changes in accounting practices.

With uncertainty as to the pace of improved cost efficiency relative to fossil fuels and the sustainability of government subsidies, not to mention shortages and resulting price spikes in polysilicon, it's especially hard to value solar stocks right now based on earnings per share.

We evaluated a hypothetical market capitalization weighted portfolio consisting of Suntech, SunPower and Energy Conversion Devices and estimate that it would take a five-year annual sales-per-share growth rate of 28-30 percent for an investor to break even on these stocks. That's in line with the long-term growth-rate projections we're seeing from analysts and industry observers. Our valuation assumes that price-to-sales ratios will fall from a weighted average of 11.89 now (versus 2.7 for the S&P 500) to 5.5 in the future.

Those seeking to play solar via more mature companies could consider MEMC Electronic Materials , a major supplier of polysilicon, Cypress Semiconductor Corp. , which owns about 87 percent of the equity of SunPower but also provides investors with exposure to conventional electronics businesses, or Applied Materials Inc. , which just announced its entry into the PV cell manufacturing equipment business.

At the time of publication, Marc H. Gerstein did not own shares of any of the aforementioned companies. He may be an owner, albeit indirectly, as an investor in a mutual fund or an Exchange Traded Fund.

Vegas Reaching For Rural Water

USA Today
October 19, 2006
By John Ritter, USA TODAY

BAKER, Nev. — Rancher Dean Baker picks his way through greasewood and sedge to a shallow dirt depression that was once a small pond fed by a natural spring. Both have been dry for years, casualties, he says, of pumping that draws underground water to the surface to irrigate fields and water livestock.
Over a half-century, agriculture's needs have lowered the water table, Baker says, but it's nothing compared to what may be in store for this arid, sparsely populated, mile-high desert near the Utah border.

The Southern Nevada Water Authority wants to pump vast quantities of groundwater from rural eastern Nevada valleys and pipe it 250 miles south to Las Vegas, the nation's fastest-growing major metro area, a tourist mecca with a limited water supply strained by population and prolonged drought.

After hearings last month, a decision rests with State Engineer Tracy Taylor. More hearings on plans in other valleys are pending. The water authority aims to build a pipeline by 2015 and pump nearly 30 million gallons a year from 19 wells in Spring Valley alone.

At stake, ranchers say, are livelihoods and a delicate ecological balance on a landscape cursed with at most 8 inches of rain and snow a year.

"If they pull the water table down enough, this will be a dust bowl," says Baker, 66, whose family has raised cattle in Spring Valley since the 1950s. "It will completely change the economics of agriculture. It will also change the life of the 40 head of antelope that stay in that alfalfa field."

Those concerns are unfounded, water authority officials say. Nevada law prohibits impinging on existing water rights, says general manager Pat Mulroy. "It's emotion," she says. "It's regionalism. It's rural vs. urban. It's fear-based. Protecting that environment will always be of tantamount importance to us."

Scarce resource

Since early settlers, water has been the West's scarcest and most valuable resource. Towns pumped water, just as ranchers did. Rivers, lakes and streams have been dammed, drained and diverted for decades and now offer little extra supply for expanding urban centers such as Salt Lake City, El Paso, Albuquerque, Phoenix and Tucson.

Now groundwater is the target, even if, as in Las Vegas' case, it'll cost $3 billion or more to get it and benefit one region at the expense of another.

"This is symptomatic of issues going on all over, particularly the Southwest," says Jeff Mount, director of the Center for Watershed Sciences at the University of California, Davis. "When you look at it on a bigger, multigenerational scale, we're basically mining these groundwater basins at rates that can't be sustained. When the water's gone, it's gone."

Farms and ranches consume 80% of Western water supplies yet generate less than 1% of states' gross domestic product, says Hal Rothman, a history professor at the University of Nevada, Las Vegas.

"The real question isn't whether water will be transferred from rural to urban use," he says. "The debate is over the terms of the transfer, how rural communities that cede water will derive fair and valuable benefits from it."

Opponents of the water authority plan say it's one more instance of water flowing uphill toward money, like Los Angeles' notorious "water grab" from the Owens Valley in the early 1900s. That diversion — basis of the 1974 movie Chinatown— allowed L.A. to grow but dried up a productive farm region.

"The parallels are stark," says Greg James, former director of the Inyo County, Calif., water department in the Owens Valley. "They're looking to build a pipeline, pump groundwater, and they're already acquiring ranchland."

State water laws and federal environmental regulations wouldn't permit a repeat of Owens Valley, but ranchers want a guarantee that if the land suffers, the pumps would be shut down. Otherwise, "by the time we see the effects of pumping, it will be too late," says Gary Perea, a Democratic commissioner in White Pine County.

The Mormon Church, based in Salt Lake City, owns water rights in Spring Valley and has asked the engineer to withhold approval until a U.S. Geological Survey study is finished next year.

The authority built a computer model to predict effects on the water table but didn't run it. When it was run by a National Park Service hydrologist, it showed a 150-foot drop over 75 years. Mulroy calls those results "hypothetical." John Bredehoeft, a hydrogeologist who testified for opponents, says "it would have been detrimental" to the authority's case.

Time is short, Mulroy says. The Las Vegas metro area — population 1.7 million, 20,000 new homes a year — relies on a share of Colorado River water stored in Lake Mead for 90% of its supply. Seven years of drought have lowered the lake to half its capacity. A year like 2002, when the river ran about a quarter of normal, "would invoke a crisis," Mulroy says.

Reducing demand

The water authority is spending millions of dollars to entice homeowners to replace irrigated lawns with drought-tolerant plants — 70% of water consumption goes outdoors. A system captures, treats and returns water from indoor plumbing to Lake Mead.

Opponents say tougher conservation measures, including raising water rates as cities such as Tucson have done, could save as much as the authority plans to take from Spring Valley.

"That penalizes people who can't afford it," Mulroy says.

Ranchers may think Las Vegas should slow its growth, but that's a political non-starter in go-go southern Nevada. At the area's current growth rate, rural groundwater is a stopgap measure at best, says Matt Kenna, a lawyer with the Western Environmental Law Center representing opponents.

Many people believe that if the engineer rejects a water transfer or awards an amount too small to make the pipeline economical, the authority will ask Congress for a bigger share from the Colorado River.

When the river's flow was divided among seven states in 1922, Las Vegas was little more than a crossroads. Nearly a century later, 400 farmers in California's Imperial Valley still get 10 times more Colorado River water than Las Vegas does.

Bright Ideas In Bulbs

Orlando Sentinel
October 1, 2006

By Mary Beth Breckenridge

Even Thomas Edison would scratch his head over the choices in a typical home center's light bulb aisle.

The array seems endless -- compact fluorescent and incandescent, clear and frosted, Edison base and candelabra, round and funnel-shaped.

So many options, so little information.

We're here to help you sort out the myriad bulbs out there. For simplicity's sake, we'll stick to general-service bulbs (also called Edison-base bulbs), the screw-in types that fit most lamps and light fixtures in a typical home. That's where most of the decision-making comes in, anyway, because most other fixtures require highly specific bulbs.

Household bulbs fall primarily into three categories -- standard incandescent, halogen and compact fluorescent.

Standard incandescent is, of course, the bulb most of us know and use, essentially the kind Edison invented in 1879. It has a very thin tungsten filament, which heats and emits light as electrical current passes through it.

That works pretty well, but there are drawbacks, said Steve Goldmacher, director of corporate communications for Philips Lighting Co., and Joe Rey-Barreau, educational consultant for the American Lighting Association and a member of the faculty of the University of Kentucky College of Design.

For one thing, the tungsten flakes off over time, causing the filament to fail. For another, tiny bits of evaporated tungsten end up adhering to the inside of the bulb as carbon, dulling the bulb. And the bulbs are highly inefficient: Only 5 percent of the energy produced goes into light, with the rest producing heat.

Halogen Effect

Since Edison's time, other technologies have come along to improve on the standard incandescent bulb. One is the halogen bulb, which is another form of incandescent bulb that contains a gas to improve the functioning. The gas, which contains a bit of halogen, does a couple of things, Goldmacher and Rey-Barreau said: It produces an interaction that prevents the carbon from settling on the inside of the bulb, and it causes the bits of evaporated tungsten to jump back onto the filament, essentially allowing the filament to regenerate.

For that process to happen, however, the bulb needs to get very hot. That's accomplished by making the bulb smaller, which puts the filament much closer to the glass and concentrates the heat, Rey-Barreau said.

That's why most halogen bulbs you see are considerably tinier than a regular light bulb, and why halogens are so hot to the touch. Nevertheless, some manufacturers are encasing that tiny bulb inside a larger glass housing and mounting it on a screw-on base, producing halogen bulbs that can be used in standard lamps and fixtures without jeopardizing your skin.

Fluorescent essence

A much bigger change, however, came with the advent of the fluorescent bulb. It relies on an entirely different process called arc discharge, in which an electrical arc travels between filaments at both ends of a tube and interacts with gases and a minute amount of mercury to create ultraviolet radiation. When the radiation hits the phosphorescent coating on the inside of the bulb, those phosphors start to glow, Goldmacher said.

Eventually, someone took a fluorescent tube and twisted it to fit in the space of a standard incandescent bulb. The compact fluorescent bulb was born.

Those early compact fluorescents were intended for industrial and commercial use, so no one paid much heed to aesthetics, Goldmacher said. Consequently, the bulbs cast that bluish office light that tends to make people look like they've eaten bad sushi -- a result of the type of phosphors used in the bulb's coating. Better manufacturers, however, have since started using different phosphors to produce a warmer, yellower light that's closer to that of standard incandescents, he said.

The big benefits of compact fluorescents are their longevity and energy-efficiency. Because fluorescent bulbs create light by means of a chemical reaction, very little heat is generated, Rey-Barreau said. That means most of the energy goes into making light -- as much as four times the light per watt of electricity used as that produced by standard incandescent bulbs.

Think of a light bulb like a car, Goldmacher suggested. But instead of measuring in miles per gallon, the efficiency of a light bulb is measured in lumens per watt. A lumen measures the amount of light produced; a watt, the amount electricity used.

A standard incandescent bulb might produce eight to 15 lumens per watt; a halogen, up to 25 lumens per watt; and a compact fluorescent, up to 70 lumens per watt. If the standard incandescent is the Hummer of the light bulb world, the compact fluorescent is the Prius.

What's more, a compact fluorescent bulb will last about 10,000 hours -- say, five to eight years of typical use -- compared with 750 to 1,000 hours (around three to six months) for a standard incandescent and 1,500 to 3,000 hours for a halogen. So that Prius will still be on the road years after the Hummer has been retired to the junkyard.

LED leads way

Rey-Barreau said manufacturers are starting to produce LEDs for household lighting use, and their longevity will far outstrip even that of compact fluorescents.

An LED, or light-emitting diode, works by means of a semiconductor chip through which electrons move to create energy and emit light. Most of us are familiar with the use of LEDs to light digital clocks and cell-phone screens, but manufacturers are combining a number of tiny LED bulbs to produce brighter lighting sources such as brake lights, traffic signals and now household light bulbs.

Know your needs

OK, those are the basic types of bulbs, but why are there so many variations lining the shelves?

For the most part, the differences are largely a matter of size and shape. Some bulbs are shorter so as not to extend beyond the shade (think, for example, of those stubby glass shades on ceiling fan lights). Some, such as floodlights, are shaped to cast a wider light beam. Others are round or flame-shaped so they'll look more attractive in fixtures where they're visible.

A few, however, have special functions. Shatterproof bulbs, for example, are designed with safety in mind. Rough-service bulbs stand up better to vibration and abuse. Full-spectrum bulbs create a light closer to sunlight, which some people believe elevates their mood.

The key to choosing, then, is thinking about where you're using the bulb and what you want to achieve. ``You have to decide what's important for that particular application,'' Goldmacher said, be it energy efficiency, ambience, long life or other reasons.

Then that seemingly overwhelming selection suddenly becomes a little more manageable.

Even for those of us who aren't exactly Edisons.

New University Program Teaches Organic Farming

GAINESVILLE -- Danielle Treadwell sees herself as both an artist and a scientist as she teaches University of Florida students in one of the nation's first organic-agriculture degree programs.

Treadwell became interested in plants while pursuing an art degree, climbing into the Carolina mountains to paint. Art gave way to a doctorate in horticultural sciences, and now she works in one of three new university programs tied to the multibillion-dollar organic produce industry. Washington State and Colorado State universities also began programs this fall.

"So, art to science. Not that much of a stretch," she said. "Intuition and creativity are good skills to have when you farm."

Organic agriculture involves little or no use of synthetic chemical fertilizer or pesticide. The U.S. Department of Agriculture has established strict guidelines for certifying organic farmers and ranchers and imposes stringent fines for those who violate its regulations.

In 2005, organic foods accounted for about $14 billion in U.S. consumer sales, about 2.5 percent of total food sales, according to a manufacturers' survey commissioned by the Organic Trade Association in Greenfield, Mass. Since 1998, revenues from U.S. consumer sales of organic foods have risen by an average of more than 18 percent per year.

Food categories with the greatest growth in 2005 included meat, 55.4 percent; condiments, 24.2 percent; and dairy products, 23.5 percent, according to the trade group.

"Organic farming is a better way," said student Michelle Bakowski, 23, of Tampa. "Commercial farmers use a lot of chemicals. Organic farmers use less harmful chemicals."

Dan Cantliffe, chairman of UF's horticultural sciences department, said the degree program has been long overdue.

"There's a big industry, a big demand and a lack of people who are qualified to do the work employers need," he said.

Marty Mesh, executive director of Florida Organic Growers Association, said no records are kept statewide on organic production. But he estimates about 12,000 acres of rice, citrus, watercress, blueberries, mixed vegetables, mangoes and avocados are grown on Florida organic farms.

Those farms could create jobs for UF graduates.

"There is employment when you get out," Cantliffe said.

UF offered a minor in organic agriculture last year and Cantliffe said he thought that would be enough to satisfy students, but demand from students and the industry changed his mind.

Though the new program was not announced until the start of the fall semester, nine students signed up right away, he said.

Eventually, he hopes to see 30 to 50 students studying organic agriculture, but "we may surpass that," he said.

The program is heavy on science and requires 120 credit hours, including chemistry, botany, genetics, entomology, soil science, several production agriculture classes and a semester-long internship.

"This gives you the skills and technical knowledge where if you needed to put 2,000 acres of organic crops into production, you could do it," said Mickie Swisher, a UF associate professor of family, youth and community sciences and director of UF's Center for Organic Agriculture.

Treadwell, an assistant professor of horticultural sciences, also sees the practical importance of the classes.

"There is a real need for trained students," she said. "What was evident to me is that we have a generation of young people who are committed to making the world a better place."

Florida's large grocery retailers, including Winn-Dixie, Wal-Mart and Publix, are devoting more shelf space to organic products, varying from those produced by small businesses to firms such as Kellogg's, which has released organic versions of popular breakfast cereals.

Organic milk is becoming more popular among families with youngsters because it doesn't contain the hormones found in other milk. Organic beef is being bought for the same reasons, Mesh said.

Jacksonville-based Winn-Dixie Stores Inc. has seen a customer interest in organics.

"We believe it is a trend that is here to stay," said Patrick McSweeney, a company spokesman.