Monday, July 23, 2012

Highlights From Intersolar North America And SEMICON West 2012

I attended this year's Intersolar North America trade show at Moscone Center here in San Francisco.  I never turn down free entertainment and I figured I could score some free swag of some sort.  I also figured I might learn something about how to make money investing in this sector.

Mayor Ed Lee gave his keynote speech and talked up the number of solar-related companies doing business in The City.  Another guy talked about DOE's SunShot initiative to cut the industry's costs.  See, that's the kind of thing Uncle Sam can do right.  I say yes to basic technology research and regulatory sanity, but a big fat no to crony subsidies to well-connected companies like Solyndra that later go bankrupt.

My initial impression of the exhibitors' breakdown was that the major developers were mainly Chinese, the hardware vendors were mainly German, and the control system vendors were mainly American.  The SEMICON floor was pretty cool, with lots of companies showing off the precision moves of their programmable robotic arms.  I wish the hot chicks manning those booths had some programmable moves.

I caught part of the morning panel on supply chain security while I was cruising the booths for free chocolate candy.  One speaker claimed that thin-film solar manufacturing uses less raw material than PV and requires 1/3 fewer production steps.  I didn't stick around to ask the panel's representative from First Solar (FSLR) about the security of their tellurium supplies because I'm pretty sure I already know the answer (hint: First Solar probably won't find enough tellurium on this planet to meet their growth expectations out to 2020).

The "Policy 3.0" panel held forth many random insights.  Here's my stream-of-consciousness rendering.  Solar Tech and Solar 3.0 do a lot of important advocacy for solar sector policy; Solar Tech in particular has a working relationship with the White House OSTP.  The weighted average cost of capital (WACC) for renewables is still higher than hydrocarbons due to perceived additional risks, but business that commit to a "total cost of ownership" strategy can take soft costs (back office, etc.) out of renewables.  The future requires standardized approaches to project costs (analogous to the Kelly Blue Book for cars and Zillow for real estate) that can reduce project risks and make financing cheaper.  The U.S. military already uses microgrids on bases (I already knew that).  The solar industry's growth projections (in GW to be produced) demands an investment in a future workforce.

Another panel I made time to attend was run by TeamCalifornia and the State of California's GO-Biz office. There are tons of government-funded subsidies available for California-based businesses.  The state's Go Solar California program subsidizes the installation of solar energy systems.  Entrepreneurs can get help with marketing and placement in foreign trade missions through California STEP.  The California Infrastructure and Economic Development Bank is state-sponsored entity that helps fund new development. People who say California has an anti-business climate because of its regulatory burdens should take a look at the "buy-side" strength of the above entities.  Things still work in the Golden State and sometimes even Sacramento can help.

The final panel I attended was run by Joint Forces for Solar, an industry marketing initiative supported by Intersolar.  Here's another stream-of-consciousness summary.  The U.S. solar market has had compound annual growth (CAG) of 73.9% since 2008 and most of that growth has been outside California, so California is no longer a majority of the U.S. solar market.  The declining cost of PV makes converting plants from concentrated solar power (CSP) to PV more attractive.  Nota Bene:  I disagree with that insight, because that kind of tech conversion is exactly what drove Solar Trust of America into bankruptcy.  I do agree with the panel's consensus that reducing project financing costs will have significant benefits:  accelerating installation; cheaper and simpler components; large-run batches of standardized components; and more long term certainty in the price of power a solar installation delivers.  Incentive policies are still needed but they won't be around forever.  I thought one panelist's support for continued favorable policies was tantamount to an admission that solar is only viable with policy supports.  Later-stage projects have less risk and thus more predictable ROIs for developers, but investing at a late stage usually means a single-digit ROI.  Pension funds typically invest late stage in solar projects and expect a 6-8% ROI.  "Solar integrators" doing design, logistics, servicing and other functions seems to be a declining business model.

One great idea I heard mentioned at more than one panel was the ongoing development of REITs and MLPs that could attract investment in solar projects.  The intellectual groundwork for this innovation resides in an academic paper and an ongoing proxy fight for control of an older REIT may determine whether it can convert to a solar REIT.  I think the solar industry would be better off getting an investment bank to launch a brand new REIT once the IRS rules in favor of such a move.  Solar MLPs won't have to wait for the IRS if a piece of proposed legislation becomes law.

The technically-oriented vendors' booths were fun to watch with product demonstrations but I had to find things relevant to my work as a finance dude.  I was more interested in learning about the structure of this industry and methods of financing projects.  I got to meet exhibitors like Clean Power Finance and Main Street Power that arrange financing for solar projects and design power purchase agreements (PPAs) for utilities.  I also got an introduction to insurance services offered by Assurant, GCube's One Point Solar, and Energi.  The structure of the solar sector is starting to remind me a little of the shipping industry, with some specialized insurance carriers and investment banks focusing all of their expertise on a niche.  I also discovered some very insightful media sources for industry data, namely Greentech Media's GTM ResearchRenewable Energy World, and Solar Server.  The article feeds I can get from those sites should satisfy my need for blogging subject matter.

I would be remiss if I didn't note the heavy amount of candy, booze, and hot chicks all around this convention.  I snagged free chocolates at pretty much every vendor booth that offered them.  It seemed like at least 15% of the vendors had some mini-bar or afternoon happy hour with free beer and mixed drinks.  I have never seen so much free booze at a trade show, so I had to pace myself and not get wasted.  I had to write this article sober.  Many of the vendors had figured out the importance of staffing their booths with hot chicks.  The folks at Schletter Inc. went so far as to style their booth like a German beer garden and hire local models to portray frauleins.  I got my picture taken with these models, as you can see above.

Intersolar and SEMICON were fun and I'd definitely go again.  I can now try to finagle my way onto the speaking platform for next year.

Full disclosure:  No positions in any companies mentioned.  No consideration received from Intersolar / SEMICON promoters in exchange for this blog article.