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Deep-Pocket Corporations Collaborate with Solar Firms to Invest in Growing Industry

published: 2011-07-01 9:56

Solar energy's contribution to the overall energy mix is minor - generating less than one percent of the global electricity output. However, rising oil prices, environmental concerns,  and competition  for fossil fuel resources have resulted in many nations adopting aggressive polices, programs, and government incentives to support small and large-scale solar projects. The vehicles used for stimulating solar development depends on the country, but include feed-in tariffs, renewable energy credits, and tax credits.

Many countries have regulatory requirements that  mandate  public and private entities to meet certain targets by specific deadlines related to power usage or generation involving solar or other clean energy solutions.

In the last few years, the cost of all solar systems - photovoltaic (PV), concentrated PV and concentrated solar power have fallen significantly. As the cost  of generating a kilowatt-hour (kWh)  of  electricity by solar generation plants moves closer to the lowest priced fossil fuel energy source -- coal at $0.06/kWh, corporate investors have circled the wagon to get their piece of the “solar pie.”

Solar energy industry experts predict a major acceleration in the use of solar power -- double-digit expansion through 2015 and beyond. The medium and long-term investment opportunities presented in the industry make for a perfect union of cash heavy corporations, including oil companies, with solar companies positioned to capture a significant share of the market, but short on cash.

These investors can get in on technology that has just begun to mature and earn a reasonable ROI. Solar companies that establish strategic partnerships with traditional companies solve a critical obstacle to growth – access to capital to finance R&D and new projects.

Total SA Invests in SunPower

When the French company Total (CAC: TOTF.PA) announced its $1.38 billion stock deal with U.S. based SunPower Corp. (NASDAQ: SPWRA, SPWRB), the transaction became one of the largest deals in the solar industry. The move gives Total a 60 percent majority interest in SunPower; SPWRA receives a $1 billion credit line over the next five years.

SunPower has headquarters in San Jose, California, and offices around the globe, including Asia, Europe and Australia. The photovoltaic firm states it has more than 650 installations worldwide, which includes more ground-mounted PV installations than any other solar company does. The company claims its solar cells have the highest efficiency in the industry at 22.4%; and, its solar modules generate up to 50% more energy than standard flat-plate panels on the market

Rated the fifth largest company in the oil sector, Total has 93,000 employees and operations in over 130 countries. Its core business includes exploration, production, and refining. In its press release, Total president Philippe Boisseau, who revealed the company, spent two years evaluating potential candidates, said: “To ensure the long-term viability of solar energy, the marketplace requires global integrated industrial players that are financially stable and committed to advancing cutting-edge technology. By combining the strengths of both groups, we have created a remarkable asset: SunPower will be the centrepiece of the solar activities of Total.”

Total intends to blend its other interests in solar companies under the SunPower brand. Tom Werner, SunPower's president states the company will now have the resources to conduct more research and increase manufacturing operations. The company currently has plant capacity of 580 MW, but plans to increase it to one GW by the end of the year and two GW by 2014. SunPower's access to low or no-interest rate capital enables it to market its panels toe-to-toe with Chinese competitors Trina Solar and JA Solar Holding.

Showa Shell and Solar Frontier

Another oil company, Showa Shell Sekiyu K.K. (5002: Tokyo), has made known its ambition to produce half of its annual revenues from renewable energy services and products, including solar energy. The company owns 100% ownership in subsidiary Solar Frontier --  a Japanese company that develops and manufactures thin film solar panels. In early February, Solar Frontier began operations at its brand new, highly automated $1 billion manufacturing plant in Miyazaki, Japan.

Solar Frontier employs an end-to-end manufacturing technique and expects to produce 900 megawatts of thin film solar panels a year. Panels consist of a copper, indium, gallium and selenium (CIGS) platform and compete directly with thin film leader First Solar (Nasdaq: FSLR) of Tempe, Arizona. First Solar's panels rely on a conventional cadmium telluride (CdTe) technology, which Solar Frontier believes, gives it a competitive edge, since its panels does not rely on toxic elements like lead or cadmium.

The National Energy Research Laboratory support this contention, and states CIGS will ultimately command a larger market share because of environmentally- friendly processes. Solar Frontier also has an edge in efficiency; its 150-watts panels record an efficiency rating of 12.2 %, in comparison; First Solar's panels have an efficiency of 11.6%.

Showa Shell has the intent of growing a market share of ten percent within the next seven years, according to Shigeya Kato, CEO of Showa Shell Sekiyu K.K.

Google's Solar Partnerships

Technology behemoth Google (NASDAQ:GOOG) has invested closed to $680 million in clean energy projects. Its latest venture -- a $280 million investment in SolarCity, funds the installation of solar panels on the rooftops of 10, 000 homes across the United States. The private company bases its marketing strategy on building a reputation as a one-stop source for solar power system design, financing, installation and monitoring. The company, which serves residential, commercial and governmental customers, offers zero-down financing options for it customers.

The no-money down feature allows customers the option of  transition to a solar powered home without  having to put up the front money necessary to have a system installed. Typical installation cost for a five kWh system can range from $25,000 to $30,000 (US). In exchange for the free equipment, homeowners enter into a Power Purchase Agreement (PPA), which obligates them to purchase electricity from SolarCity. Of the 15,000 projects installed, 75% or 12,000 customers have a PPA with the company. The other 3,000 customers paid for their systems outright.

Google will charge SolarCity a low interest rate on the investment. In addition, Google becomes eligible to receive numerous financial incentives, including 30 percent federal tax credits, accelerated depreciation write-offs of the equipment used in the systems and a multitude of  state and local tax credits. Google's investment brings to 15 the number of agreements SolarCity has secured for funding its projects. The money has come from seven different partners, including the U.S. Bancorp Community Development Corporation.

According to Rick Needham, Google's Director of Green Business Operations: “Now, through this partnership with SolarCity, we're excited to be making our first investment in distributed residential solar, making it easier and more affordable for consumers across the country, including our own employees, to use renewable energy at their own homes.”

In April of this year, Google  invested $168 million with BrightSource, Inc., a company skilled in the design, development and installation of solar thermal power systems. BrightSource began construction of the 3,600-acre Ivanpah Solar Electric Generating System (ISEGS) plant, located in the Mojave Desert in late 2010. The  project consists of  power tower technology that deploys 173,000 heliostats, which focus the rays of the sun onto a receiver positioned on top of a 450-foot tower.

Heated liquid produces the steam necessary to power a turbine, which generates electricity. BrightSource officials state the system will provide power for 140,000 homes during peak operation hours and 392 megawatts of electricity over the 25-year life of the project.

Google  has also invested $5 million (US) in a solar power plant near Berlin, Germany. The 18 .7 MW plant covers 116 acres, and will  generate electricity for 5,000 homes.

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