Solar market blows mostly hot, sometimes cold

Financiers who track the solar industry are showing very different views on the near-term potential of solar power.

Venture capitalists are poised to lavish $1 billion on solar-related start-ups this year, according to Eric Wesoff, an analyst at GreenTech Media, who presented at the company's Solar Market Outlook conference on Monday in Waltham, Mass.

At the same time, some financial analysts who track public solar companies are concerned that valuations are too high and that changes in government policies could dampen future growth.

On Monday, the stock prices of several public solar companies took a hit after the Solar Energy Industries Association issued an alert because Congress is currently considering energy legislation that eliminates an important tax credit for solar projects.

The prices of many of those stocks went up again on Tuesday, but that hasn't dispelled all the concerns in the solar market, which many investors have considered frothy for several months.

Jeff Osborne, a solar industry analyst at Thomas Weisel Partners, said that even with strong demand for solar electricity, public companies could have a tough go of it.

The industry demands large capital investments to build manufacturing capacity and is very price-sensitive, he noted during a presentation at the GreenTech Media conference.

"My view is that the solar cell is a straight commodity--it's like DRAM chips and disk drives," Osborne said.

As more Chinese companies enter the field, there will likely be more price pressure on manufacturers. Demand, which is driven largely outside the United States, could take a dip from analysts' projections if there are significant changes in policy in the large markets of Germany and Spain, he added.

"I agree that First Solar is a great company," he said in reference to the spectacular rise of First Solar's stock since going public last year. "I just question who will be 'Second Solar.'"

Venture capitalists not hearing it
Despite any choppiness in the public markets, private equity investors see a lot to like in solar start-ups.

About half of the venture capital being sunk into new solar companies is in the area of thin film, said Wesoff. Thin-film technologies use different materials, including CIGS (copper indium gallium selenide) and cadmium telluride, to make solar cells.

They typically are not as efficient as polysilicon, which is used in more than 90 percent of solar panels, but new companies are betting they can outperform on overall price per watt.

"This is the standard VC play," said Wesoff. "They're betting on a disruptive technology--thin film--getting rid of silicon."

Other solar technology areas getting VC attention include concentrated solar power, solar thermal, and services companies that provide financing or installation services.

Thin-film solar companies have the potential to have a deep impact on the overall solar industry, said Travis Bradford, CEO of the Prometheus Institute, who also presented on Monday. He noted that there are more than 80 thin-film companies competing in the market now.

First Solar's thin-film manufacturing process creates modules at less than $1.25 per watt, which "has changed the economic game for the solar PV (photovoltaic) industry," he said.

He projected that thin-films will make up 20 percent of solar cell production by 2010.