North Coast Solar Stocks

November 25, 2009

A Competitive Boost For Solar Energy

Filed under: FSLR, KYO, SPWR — Tags: , , , , — Jason @ 5:43 pm

Christopher Helman, 11.25.09, 5:43 PM ET

HOUSTON – The dream of every green energy acolyte is that there will come a time when it is no stranger for homes to have solar panels than to have air conditioning units.

John Berger, chief executive of Standard Renewable Energy, thinks that in the next decade the U.S. could get well down the road to making that a reality.

Houston-based Standard Renewable got 75% of its $35 million in revenue this year from installing solar systems. Just 10 months ago it was buying solar panels from the likes of Kyocera (KYO), BP (BP), SunPower (SPWRA, SPWRB) and First Solar (FSLR) for $4 per watt. Today, prices have plunged to $1.90 a watt.

It’s not for lack of demand. What’s brought prices down is a surge in worldwide manufacturing capacity. New plants have opened across China. Factories are even coming to the U.S.

As a result, insists Berger, solar power is starting to look affordable and even competitive with grid power. To the educated observer, this may sound implausible. But Berger says Standard has installed residential solar systems for as little as $4 per watt.

Berger’s bean counters have extrapolated that price for 31 metropolitan areas, factoring in average sunshine and cloud cover, applying the federal government’s 30% investment tax credit, and assuming that a homeowner can finance a system at the going mortgage rate of around 5%. Amortized over 20 years, the effective rate that a homeowner would pay for electricity in the New York metro area is 12.7 cents per kilowatt/hour. In Dallas it’s 11 cents/kwh, and in Las Vegas, just 9.3 cents.

The nationwide average residential electricity price is 12.05 cents, according to the Energy Information Administration.

Add in generous subsidies on municipal and state levels and in some green utopias like Austin, Texas, and Berkeley, Calif., and the cost goes even lower.

“In some locations,” says Berger, “solar could achieve grid parity next year.”

Yeah, we’re skeptical, too. Berger is, after all, trying to sell solar panels. But it’s nice to think that this could be possible. And the stars are aligning to make panels even cheaper. All this new panel production online is squeezing margins of big players like First Solar, whose shares have fallen 40% since May. Berger thinks that panel makers’ profit margins, now around 15%, will fade closer to 7% in the years to come–in line with the makers of other kinds of silicon-based chips.

The case for solar would also be helped by any carbon emissions legislation that might pass Congress some day. Carbon cap-and-trade would inevitably add costs to power generated from coal and natural gas. Utilities will try to pass costs onto ratepayers.

“The utilities are getting nervous. We provide a real opportunity for people to change where they get their electricity from,” says Berger.

One beauty of solar is that it is a distributed source of power generation–it can go anywhere that needs electricity and gets good sunlight. No need to build new transmission lines.

But don’t think solar will let you get off the grid entirely. The average home system that Standard Renewable installs is a 3.5 kw system that will produce, on average, 4,900 kwh of electricity a year, or less than a third of the average home’s electricity usage. It’ll cost roughly $14,000 installed. Payback period? If your utility charges, say, 13 cents per kwh, the system will pay for itself in 22 years.

Berger has expanded Standard beyond Texas to Oklahoma, New York, Florida, Arizona, Colorado and Georgia. Revenues have tripled in the past year and profitability is in sight, he says. He’s hired 130 new employees since July (green jobs!), bringing his total staff to 330.

Predictably, Berger says now’s the time to buy solar, as many state and local rebates will run out over the next year or so. “It’s the gift that keeps on giving.”

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