SUDDENLY, THOSE SOLAR PANELS DON'T LOOK SO 1970'S

By Tim Gray, New York Times, USA, September 11, 2005

As prices for coal, natural gas and oil have soared, solar power has been getting perhaps its most serious look from investors since President Jimmy Carter pulled on a cardigan and asked Americans to damp their furnaces. The new interest means that the handful of domestic solar stocks has been surging, too.

Over the last year, the shares of Evergreen Solar, DayStar Technologies, Energy Conversion Devices and Spire - all small domestic companies that make equipment for converting solar power into electricity - have more than doubled in price. In August, Cypress Semiconductor said it would try to raise as much as $100 million in an initial public offering for its SunPower subsidiary.

"The solar market is projected to grow 35 percent a year for the next three to five years," said Walter V. Nasdeo, managing director of Ardour Capital, an investment bank in New York that specializes in energy companies. "As these technologies get better, we're seeing things being developed like solar panels integrated into roofing tiles. That way, they don't look like a science project hanging on your roof."

Back in the days of President Carter's cardigan, the country was mired in an energy crisis, with an oil embargo and long lines at gas stations. Today, tumult in oil-producing places like the Middle East and Venezuela is roiling markets. Strong demand for electricity has contributed to increases in the prices of coal and natural gas. And Hurricane Katrina, of course, has worsened the situation. Yet these dire developments have been a boon for companies that make devices such as silicon wafers and rooftop panels that convert solar energy.

Until recently, the economics of the solar business did not tempt many consumers or investors. Without government or utility subsidies, the $20,000 to $25,000 that it costs to buy and install a typical home solar system may be too much to be recouped in the time it takes to pay off a 30-year mortgage.

But government help, combined with the recent climb in energy prices, has made solar systems more appealing. Some states offer big subsidies, helping to defray much of the initial cost of a home system.

Some electric utilities also offer incentives. In theory, solar systems free them from having to invest in additional power-generation capacity. Homeowners typically connect their systems to the power grid and buy electricity when their panels don't produce enough power and sell it to their utility when they have a surplus.

Federal law requires utilities to buy excess power generated by consumers' solar power systems - though rates vary from state to state, said Joseph E. Schwartz, chief executive and technical editor of Home Power magazine. And the new federal energy law, signed by President Bush last month, includes a tax credit of as much as $2,000 for the purchase and installation of a residential solar power system.

"Despite all of the concerns about imported oil and climate change, most people make their decision to install solar based on whether they're going to save money," said Steven C. Taub, director of emerging-generation technologies at Cambridge Energy Research Associates. In states with generous subsidies, he said, solar power systems may be attractive for many consumers. In New Jersey, for example, subsidies can cover up to about 70 percent of the cost - leaving consumers with a net cost of about $6,000 on a typical home system.

Though the four little domestic solar power companies stand to benefit from new demand for power, they account for only a small fraction of the world's solar-device production. The biggest of the four, Energy Conversion Devices, has a market capitalization of only about $1.1 billion.

Giants like BP and Royal Dutch Shell in the energy industry, or Sharp and Kyocera in electronics, make most solar gear. Last year, the solar industry produced 1,195 megawatts of new electricity-generation capacity - about the equivalent of one large power plant, Mr. Taub said. Sharp alone accounted for about 325 megawatts, he said.

Yet solar energy conversion is a tiny part of these hefty companies' sales, so the little independents are a purer play. The business lines of Evergreen and DayStar are almost entirely related to solar power (as are those of Cypress's SunPower). Energy Conversion Devices has other products, but its largest subsidiary, United Solar Ovonics, also known as Uni-Solar, is a solar power business. And Spire's solar division accounted for an average of 40 percent of the company's sales in 2003 and 2004.

Of course, investing in small-capitalization stocks can be risky. Besides being microbes in an industry dominated by giants, none of the four independents were profitable last year. Two have short histories as public companies: Evergreen went public in 2002, and DayStar did so last year. All but Spire are developing new solar technologies, and there is no guarantee that customers will embrace their innovations.

The most popular means of converting the sun's energy into electricity - silicon-based solar panels - has progressed over the last three decades but hasn't changed radically. Silicon is used to make wafers, which are wired to create solar cells. These form the building blocks for solar panels, which look like big storm windows, sit atop roofs and soak up the sun.

A silicon shortage has driven up the cost of solar-grade silicon by more than 60 percent over the last two years, said Michael Rogol, an analyst at Credit Lyonnais Securities Asia. That offers an opportunity to companies like Evergreen and SunPower that have devised more efficient ways to use silicon, he said.

Evergreen's wafer-making method consumes about a third less silicon than usual, said Richard M. Feldt, its president and chief executive. Many competitors saw blocks of silicon into wafers; that creates waste in the same way a lumberyard spits out sawdust. Evergreen's method, which draws out long ribbons of silicon and slices them with lasers, produces less waste.

EXECUTIVES at Cypress Semiconductor in Sunnyvale, Calif., declined to be interviewed because of the impending stock offering. But Mr. Rogol says its SunPower unit makes the industry's most efficient cells, yielding 210 watts of power a square meter, versus 180 for a typical cell.

DayStar, for its part, ditches silicon entirely, while Uni-Solar uses far less than average. DayStar, based in Halfmoon, N.Y., applies a thin film of several elements, including copper, to backings such as titanium foil to create flexible solar cells.

Uni-Solar marries the thin-film method with silicon. "Our panels are typically 18 feet long with an adhesive on the back," said Subhendu Guha, its president. "You can stick it directly onto the roof. With the traditional product, you have to have a support structure."

Spire, in Bedford, Mass., produces neither silicon wafers nor solar cells. It makes machinery for building and testing solar panels. In 1999, that enabled it to team up with the city of Chicago to equip and run a panel factory there. Roger G. Little, Spire's chairman and chief executive, says he sees the Chicago venture as a harbinger of Spire's future; he aims to increase panel production over the next two years.

That would return Spire to its roots. The company started in 1969; early on, it concentrated on solar power conversion. It diversified into biomedical equipment and electronics after energy crisis of the late 1970's abated and enthusiasm for solar power cooled. "The market tanked," Mr. Little recalled. Even so, he remained confident.

"I've always believed that solar is a freight train that can't be stopped," he said. "It started small, but the compound annual growth rate for the last 10 years has been 20 percent. This year, there's a $10 billion worldwide market for systems."

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