PNOC Energy Development, a philippine geothermal company listed on the philippine stock exchange (sorry, no price data for this exchange yet) yesterday shed 1 percent at 4.75 pesos on profit-taking, after surging 9 percent last week.

PNOC by the way stands for Philippine National Oil Company - hardly a moniker I'd attach to geothermal power. Nevertheless, the company has a portfolio of 1145 megawatts of geothermal power making the Philippines, the world's second largest producer of geothermal in the world after the USA.

To truly understand the supply demand mismatch in the solar pv industry, I recommend you read this free report entitled "Polysilicon: Supply, Demand,& Implications for the PV Industry" , published by the Prometheus Institute for Sustainable Development.

As the report makes lucidly clear, see pages 13-14, in 2000, silicon production capacity produced 24,000 metric tons. In 2005, this had grown to just 31,280 metric tons. The central reason why polysilicon capacity was so slow to grow was because it was living off the silicon glut in the wake of the dot com bust of 2000. Meanwhile, solar pv started to boom - quadrupling from just under 400 MW in 2001 to 1727 MW in 2005. No wonder solar prices have not fallen, because silcon feedstock production (60 - 70% of final cost to the consumer) has not kept pace with demand.

The projection from this report though is that production will reach 72,000 mt in 2010.

So to see how this pans out keep any eye on the listed polycrystalline producers; REC and MEMC and pay attention to the silicon recyclers; Renesola and SolarWorld.

power units.

No question, this is a high profile sale for Plug Power. The fuel cell industry has noticed that the pockets of government are deep (see here for news of multi-million dollar grant awarded by the US Dept of Energy and the European Commission a couple of weeks ago) and so emergency services communications may turn out to be the emerging niche market for backup power from fuel cells.

The advantage of a fuel cell for backup power is that it is 99.9999% reliable whereas a typical diesel generator is 99.98% reliable. This is known as 6 nines reliability. The police contract comes two weeks after the appointment of a new CFO for PlugPower.

Excuse the long title, but I think it shows just how global the alternative energy industry is becoming.

The world's leading Wind turbine manufacturer, Vestas, a Danish company, has just sold 40 MW of wind turbines (worth approx $45m) to Renewable Energy Generation - a British company for a windfarm in Canada.

Obviously, in the grand scheme of things, for Vestas - a huge company, this is not a big deal, just a small one. But for REG, their global portfolio spread between Poland, Canada and the UK makes a lot of sense. Canada, I've long regarded as a great place to site wind, because hardly anyone lives there- so little popular opposition, there are voluminous high windspeed sites and if sited near to one of their ubiquitous hydropower plants, the installed cost per megawatt can be substantially reduced. Poland is an emerging wind market and the UK, if the planning could be sorted out (not very likely, very soon) could be huge.

REG's strategy reflects the trend of windfarm developers to diversify internationally to hedge risks against annual low windspeeds in any given country.

Expect to see plenty more of this.

Germany's Solarworld AG plans to double annual solar wafer output from 250 MW to 500 MW over the next 28 months. Of particular interest is that " . . . 50 per cent of the increased volume had already been sold until 2018 by way of long-term supply contracts with the international solar cell industry."

This would suggest that for those of us worrying about a slowdown in the German solar market our fears may be overdone. It's quite an achievement for any manufacturing firm to have orders in place that far into the future.

On the negative side, that Solarworld can sell that far forward on existing prices (silicon now sometimes touching $200 a kilo, average now $74 v. $15 in 2000), suggests to me that the longed-for around the corner drop in prices to $1-$2 a watt is anything but around the corner. The market - in terms of wafer buyers - is not anticipating greatly falling prices even out until 2018.

Not many companies would be optimisitic following a $84m loss - but Fuel Cell Energy is. They anticipate significant funding from the Connecticut Clean Energy Fund - see here and Elemental Power Corp who want to build a 30 megawatt fuel cell plant in Danbury.

Where there are clear grounds for optimism though are in the research and development contract backlog - worth $30.1 m as of Oct. 31, compared to $15.8 million 12 months earlier.

However, the cynic in me though suggests that this might be further evidence that fuel cells aren't about to go mainstream because there's still too much R&D to be done.

It's a curious twist of fate that many of Japan's largest companies - the Keiretsu - have become major players in a relatively tiny power industry - solar. As I wrote here a few years ago, the Keiretsu were responsible for 45% of global production. Since then, matters have changed and Germany is driving the demand for the global solar market.

So news that Sanyo, which competes with Sharp and Germany's Q-Cells will spend about 9 billion yen in the business year starting next April and 10 billion yen in the following year to boost its annual capacity to 350 megawatts from the current 165 megawatts could be seen as a solar fightback by the Japanese.

Looked at in very crude terms; Germany, China and Japan - these 3 countries are the current and future driving forces behind solar production. Germany is where the demand is, Japan is where a large part of the silicon will come from and China will eventually become the production hub for the world. In a few short years, the solar industry has changed completely. I expect this to happen again over the next few years too.

Beacon Power, a flywheel manufacturer has just extended the amount of power flywheels can store to 20 megawatts.

The benchmark for flywheels though - on power storage - has to be measured in watt hours per kilo. According to this wiki, they are at a still low 130 watt hours per kilo which compares to 160 for a lithium ion battery.

Flywheels then although they don't have the energy density of lithium ion batteries, do have much greater scaleability.

SunTechnics, the solar engineering and engineering subsidiary of Conergy AG has just announced a tie-up in India. The deal is with Cauvery Kalpatharu Grameena Bank (CKGB), for retail funding of environmental friendly energy solutions. CKGB is a regional rural bank, with over 200 branches spread across the six districts of Mysore, Chamarajnagar, Hassan, Tumkur, Bangalore urban and Bangalore rural.

A lot of people have ignored India and concentrated on China when looking at the future impact of alternative energy. This is a huge mistake. India is growing almost as fast as China at around 9% p.a. rather than the Chinese 10% and the demographics suggest that India will be bigger than China in the not too distant future.

Conergy AG meanwhile appears to have had a positive response to its plans to enter the wafer module and cells production in the near future. Many think that the associated costs of solar power are so high, only vertical integration of production through to retail to installation can make it a truly viable business. Let's see . . .

Repower Systems AG has just been upgraded to a buy by Deutsche Bank. This is because they anticipate a margin recovery to approximately 3% this year and to 5%-6% in 2007 and approximately 8% in 2008.

Excuse me if I don't think that's particularly impressive - not least in a booming industry. Nevertheless, the growth continues to be impressive, if not hugely profitable. And they are going to be the first wind company to mass produce the world's biggest turbine - a 5 MW model.

If you think that stage 2 of Europe's wind power development is going offshore, then large wind turbines made by Repower are going to have an outsize role. That's because offshore farms are very expensive to set up (say $2m an installed megawatt v. $1.3m for an onshore installed megawatt) but the larger turbine size makes it easier to recoup that investment.

In other words . . .

The bigger the turbine, the lower the maintenance costs per installed MW, the higher the ouput, the faster the payback.

There was a school of thought - which yours truly subscribed to - that believed large wind turbines could not be exported. They were simply too large, heavy and cumbersome to merit journeys over long distances. So manufacturing ideally took place as near to the actual windfarm as possible.

Suzlon has very clearly bucked this concept. Over the next 6 months, they will be importing turbines and machinery via the port of Baltimore including blades and generators made in India.

But it's not all one way - Suzlon's US subsidiary recently started producing blades and nose cones, creating up to 275 jobs.

As I've alluded to here before - see not yet archived blog from 4th Dec - Two views on forward solar prices - boom or bust? - I have long suspected that the good news story about thin-film solar is at least a little overdone.

So I was intrigued to read this piece on Red Herring which echoed my prejudices at much higher volume !

To quote;

". . . researchers have been working on thin films for years. Thin-film solar has a long history of disappointments, due to manufacturing difficulties and reliability problems, among other things."

It seems that the source of this renewed interest in thin-film solar was nanosolar - a newish thin film company getting extensive pr at least partly because Sergey Brin and Larry Page of google invest in it.

Anyway, the thin-film sceptical article continues . . .

"Nanosolar is one of a number of thin-film startups that claim new materials and manufacturing technologies could solve the problems. The facilities are a chance for Nanosolar to prove itself, and the viability of thin films. So far only a few thin-film companies have begun manufacturing, including First Solar, Energy Conversion Devices’ Uni-Solar, and Global Solar Energy, and they are still at low levels."

I don't think there's much doubt that thin film is no magic bullet. It is as yet only 5 - 10% of the global solar pv market and there are two main reasons for that;

i) the trade off in reduced costs from a reduced input of silcon is offset by lower efficiencies - perhaps 6 - 9% v. 15% for hard solar panels and customers like power.
ii) demand still isn't great enough for a continuous manufacturing run of thin film.

Thomas L. Friedman's recent article in the NY Times lionising the CEO of Suntech Power [TimesSelect subscription required] was a wake-up call to America to the potential of Chinese alternative energy companies. China — the most population rich country in the world — is energy poor and it wants to catch up — fast. Other than dirty coal, China has next to no natural resources. And this nation of 1.3 billion people is going to require vast amounts of oil to fuel its vehicles and huge increases in electricity generation to power its new industries. It is my view that over the next 25 years, it just can't all be done without a substantial input of clean alternative energy.

Fifteen years ago, the streets of China's cities were empty — bar the constant stream of bicycles. Today there are 30 million motor vehicles. Yet they only contribute to consuming just four percent of the world's daily oil output. By 2020, China's roads are forecast to be holding a staggering 140 million vehicles — a nearly fivefold increase — but still only 11% of world oil demand, and this with a fifth of the world's population.

Canadian Solar - a company incorporated in Canada which does all of its manufacturing in China - has not been having a great time since going public a month ago and it has been noticed. It has basically fallen ever since - even 5.76% today.

Nevertheless, today they predicted for Q4 revenues of $24.5 million to $26 million.

There appears to be some concern about the slowing demand for solar in Germany - the world's largest market. Of AEI's 41 listed solar stocks, a full 17 of them are in Germany. So a downward shift in demand in Germany is a very, very big deal.

How is it that Philadelphia, Pennsylvania's largest city, has become a location of choice for 2 leading listed european alternative energy companies?

We're talking about Gamesa Corp and Conergy AG.

Said Governor Rendell of Penn State;

"Pennsylvania has aggressively pursued a leadership role in advancing the technology and deployment of alternative fuels in order to build a dynamic new commercial sector that diversifies our energy supplies and puts people to work . . . these strategic investments will move us further down the road to true energy security for the people and businesses of Pennsylvania."

What this really means is that they are offering a lot of government support - so be it. But the bigger story is that European alternative companies are becoming increasingly aware that they have got to have a presence in the American market and manufacturing facilities in the Far East.

Relying on the European market for sales and production is anything but a good bet for the future.

America's Production Tax Credit - equal to about 1.8 cents per kilowatt hour - stands out in the renewable subsidy world because it is so short term. Each year, it goes through an annual renewal vote by the US Congress - typically after the 12 month period has expired. As such it is a very difficult calculation to make for investors with no long term pricing support. It expires at the end of this year.

So news that Gamesa Energy USA, a subsidiary of Gamesa Corp - a big player in the wind world - has sold the rights to its Allegheny Ridge wind farm to an Australian firm, Babcock & Brown deserves attention. Clearly a company who accounts in Euros may not be too thrilled to have dollar assets over the next year or so. The dollar does seem set to go south. But it is also symptomatic of something much bigger.

Earlier this week, Goldman Sachs announced that it was putting up for sale Horizon Wind Energy. Many view this as Goldman (and they won't comment) predicting the top of the market and some concern that the PTC will not renewed.

As a rule, I'm against subsidies. But if you're going to have them in place to achieve long-term changes, then they themselves have to be long-term. 1 year just isn't enough for an investment in wind turbines which when installed, may take 10 years to pay for themselves. Viewed from afar, the state programmes of Renewables Portfolio Standards appear to be far more effective than the federal PTC.

It appears we have only just got started with flywheels. Beacon Power, a maker of flywheels is venturing further into - storing and streamlining power from renewable energy sources and returning excess load back into the grid at the kilowatt level.

I have thought (and many others before me) for some time that wind power's impact is ulitimately hampered by energy storage and that inexpensive enough energy storage for power generated at night was the future for wind, which could then be sold back into the spot market at high margin during the day.

Far more eye-catching though within this American Scientist article is the idea that next generation flywheels are a much better bet for absorbing lost energy from large bursts of kinetic energy from e.g. hitting the brakes in your car compared to a chemical lithium ion battery - i.e. a Toyota Prius with a flywheel, not a set of lithium ion batteries. As there are no major improvements in battery technology on the horizon this is potentially a very exciting development.

The next generation of alternative energy vehicles now comprises;

i) highly reduced vehicle weights due to the use of plastics . . . e.g. the Loremo
ii) plug-in hybrids with rechargeable lithium ion batteries - see calcars
iii) and now potentially, hybrids with flywheel storage devices

So it makes you think that those behind the set america free campaign will have technology on their side, in spades, in the not too distant future.

The benchmark for success - other than cost - for the next generation flywheel has to be watt hours per kilo. If it can get way above 200 then on that level, they are in business.

I haven't paid enough attention to flywheels before - this will now change.

Here's a first - a leading political columnist, Thomas L. Friedman of the NY Times, appears to have inadvertently lifted the price of Suntech stock by praising Suntech's CEO as China's leading green entrepreneur.

If you want more information about Suntech Power now - see our AEI page here.

I've got a lot of time for Friedman, having much enjoyed his book "The World is Flat" and like very much his "First Law of Petropolitics". It's absolutely right to be upbeat about what is happening in China and Suntech will certainly not be the last big chinese alternative energy company to succeed. Yet even if Suntech can uniquely get the price of solar down to $2 per watt in the next few years, would they want to sell it at that price?

Probably not if they want to be more profitable and one must always be cautious of the solar dawn story which I can now tell you has been around for 100 years. Today I received photocopies from a book called The Romance of Modern Invention published in 1907 with detailed images and descriptions of working concentrated solar power plants in California. It was amazing to see how much was known then about this technology.

A very interesting interview here with Stanford Ovshinsky, co-founder of Energy Conversion Devices although the comparison of him with Thomas Edison is a little over the top. But he is nonetheless clearly ambitious - when asked if he saw ECD as the GE of the 21st century, he replied ;

“Oh, ECD will be much more than that . . .Energy and information are the twin pillars of the global economy, after all.”

Talk about confidence. The man is 84 years old and he exudes life. Someone once said to me that there are 2 types of people - those who inject life into other people and those who suck it out of those around them. No doubt then about which category Ovshinsky is in.

Renesola closed up today by 106 pence to 394 - a massive jump. This comes on top of a jump from 229 p on the 30th November. So can it be justified?

The 2007 capacity expansion is not to be underrated - from an original target of 125 megawatts it has more than doubled to an anticipated 265 megawatts helped by purchases of additional mono and polycrystalline furnaces and wire saws. Doubling the turnover in one year is growth far in excess of the industry itself - see my previous blog where some optimistic forecasts see a doubling of global polysilicon capacity by 2008 earliest.

It all depend on what you think of polycrystalline silcon - will supply catch up with demand and when?

I'm a great advocate of balance. It's always worth looking at both sides of the argument, particularly if you are an investor when getting swept up with all the hype is the easiest path of all. So do look at this piece published a couple of weeks ago in the FT on solar prices.

The pessimistic scenario

It is easily the most pessimistic I have seen. To quote one analyst - Jeff Osbourne at CIBC - “Expectations that the polysilicon supply shortage will ease in 2008 are overly optimistic and we do not expect supply/demand equilibrium until after 2010”. Prices for silicon, now at up to $200 a kilo may go up another 30% over each of the next 3 years.

The optimistic scenario

Is outlined in this 26 page report here, which is full of very good information but misleadingly confuses solar thermal (flat plate collectors for the generation of hot water) with concentrated solar power (angled mirrors and turbines) and I would suggest a bit too optimistic about thin-film solar's chances. After all, if all thin film solar needed to succeed was higher silicon prices, then why have companies like Solar Integrated done so badly?

My conclusion

The vital statistic to watch is the global annual production of polysilicon in tons. In 2006, it is estimated to be around 35,000 tons. In 2008 it could be as much as 76,000. Straight mathematics suggests that for the solar industry to keep growing at a 30% clip over the next 5 years, 2010 will have to see a production of about 100,000 tons - a tripling of capacity which right now looks more unlikely than not. Forecasting any further out than the next year's production of polysilicon still looks a bit like guesswork. So on the balance of evidence, I'd suggest the growth of solar power over the next 5 years will not be a rerun of the last 5. Supply is not going to catch up with demand any time soon and demand growth will suffer. Without a major technological breakthrough which precludes the use of silicon, the next 5 years might see a growth rate therefore closer to 15% rather than 30%.