Cleantech & Renewable Energy

[snowcloud]

But, on the other hand, here's a Solar bull --

http://seekingalpha.com/article/108303-why-i-m-bullish-on-the-solar-sector?source=email

A few weeks ago in preparation for Suntech Power’s (STP) third quarter earnings call on November 20th, I presented three points to consider as a framework for analysis.

Since that article on November 9th, Suntech is down about 40% with six downgrades. Investors responded negatively to third quarter results that missed earnings and reduced guidance on production in 2008 and 2009 owing to a depreciating Euro and the credit crunch.

Now that the analyst community has weighed in, let’s take a second look at some non-financial milestones that may have been overlooked in prior commentary. Review the transcript here on Seeking Alpha.

Increased conversion efficiency

Conversion efficiency, a key industry metric, is the percentage of sunlight converted into power. Improved conversion efficiency leads to reduced costs and, eventually, grid parity. Suntech is making progress on this front since the second quarter. According to the earnings call, their Pluto technology is achieving efficiencies of 18.5% to 19% compared to 18% in the second quarter. Compare that with the industry average of around 15%.

In a strange twist, the credit crisis might even be good for Suntech in its bid to become the lowest cost per watt provider. Capital expenditures will be reduced from $300 million in 2008 to $80 million in 2009 with most of that going toward upgrading existing production capacity rather than building new capacity. CapEx to fund improving Suntech’s Pluto technology will lead to further efficiency improvements and lowered costs.

Expansion in the U.S. market

Counting the United States as one of its key markets in 2009 along with Germany and Italy, Suntech plans to hit its U.S. sales target of 120 megawatts by ramping up both its residential and utility-scale segments.

Suntech will increase its 25 company dealer network for the residential rooftop market. The increase should be facilitated by the eight year extension of the 30% Investment Tax Credit to residential solar property.

At the opposite end on large utility scale projects, Suntech has established a 50/50 joint venture with MMA Renewable Ventures to develop projects greater than 10 megawatts.

Production capacity ramp up at Shanghai thin film plant

Fending off competitive threats by thin-film solar module manufacturers like First Solar (FSLR), Suntech is on track to complete its own 50 megawatt thin-film production facility by year end 2008 and expects to ship product by the second half of 2009. Suntech’s Chief Technology Officer weighs in: “(Suntech’s) strategy is to use thin-film to complement (its) panel based products as part of the diversified solar offering.”

What’s the call?

While some Seeking Alpha bloggers are bearish on STP and the solar sector, I’m bullish and I’m not alone. Trading around $8 before Thanksgiving with a forward P/E of six, it looks cheap relative to an average forward P/E of eight for a five peer group - Evergreen Solar (ESLR), Canadian Solar (CSIQ), JA Solar (JASO), SunPower (SPWRA) and First Solar.

While the Wall St. analyst community is gloomy on solar over the next few quarters, Merrill Lynch, even in the midst of downgrades, is more upbeat on the future.

So, for the long-term investor who can weather the storm, Suntech’s no turkey.

Happy Thanksgiving.

Disclosure: Contributor Chris Cather owns shares in the Claymore/MAC Global Solar Energy Index ETF (TAN), which has holdings in FSLR, STP, and SPWRA.