Q/A with Philip Lawes, Founder and President of Insoltech Solar

Philip Lawes, founder and president of Laguna Beach, CA-based Insoltech Solar, has been in the solar power business for 34 years. He is a designer and consultant for renewable power systems such as solar photovoltaic systems. Although based in Southern California, Lawes has installed renewable energy systems in various parts of the world including the Caribbean, Mexico and the South Pacific, as well as in the California desert areas.

Smallcapworld: How did you get into the solar business way back in the 1970s and what was your first solar job?

Solar farm photo courtesy KCOY.comChannel 12

Lawes: It was a solar hot water system. That’s all there was back then in the late 1970s that was financially viable. Solar power has been around for a long time. The photovoltaic cell was developed by Bell Labs and the first applications were for space and to power communications satellites. But it really kicked off during the second energy crisis in 1978. Saudi Arabia basically cut off all our oil and gas prices skyrocketed. Remember the long lines and high gas prices? There was an “energy crisis” and everyone started looking for alternative energy sources. President Carter helped boost the solar business by creating large financial incentives through generous tax breaks.

Q: Which companies were making the solar panels back then?

A: A lot of companies got into it, but they were mostly small companies, many based in Europe, making solar thermal collectors. It was mostly about heating water to reduce natural gas bills and in some cases electric bills, if you had electric heating.

Q: When did you get into photovoltaics?

That would be in the 1980s. I did a lot of work in Baja California, in and around Cabo San Lucas. I worked for expats in the area, for their small palapas and for pumping water on their ranches, for their cattle or other needs. The idea was to generate electricity in remote areas where utility power was not available and the cost to run diesel-powered generators was prohibitive.

Q: Tell us about some of your other projects.

A: I built a solar electric system for a small resort called Papageno in Fiji. Just a few years ago I also designed and built a solar electric system for Johnny Depp for his private island in the Bahamas. I was also a subcontractor for a 1.3 million watt system for the Twenty-Nine Palms Marine Corps base in the California desert. And I built a small solar energy water pumping system for the Irvine Company here in Southern California to provide water for an endangered species. We are working on a custom home in Shady Canyon now, an exclusive area of the Irvine Ranch.

Q: There are many different types of solar arrays now available. Which are best for the average homeowner?

A: The typicial, flat-plate, mono- or poly-crystalline solar modules are still the workhorses of the industry. They are scalable, maintenance free and offer excellent warantees and still the best route for average homeowners. Thin film modules are not as efficient so they require more area. And companies are still having problems getting the manufacturing process down. People got into thin film because they thought they could manufacture them cheaply but that hasn’t really happened yet. And no one anticipated that the standard modules would come down in price so much.

Q: Are there American companies that are able to compete with the Chinese in the manufacture of solar modules?

A: Oh sure. FirstSolar is a thin film manufactuer, the only really successful thin film manufacturer. SunPower is an American company and has a very efficient module built with great technology but they manufacture offshore, primarily in the Phillipines. Helios is based in Wisconsin and has been successful making solar modules. But there has been, and will continue to be, lots of attrition. Some companies are even selling their modules at a loss.

Q: Why do some companies like Helios succeed, while others like Evergreen Solar and Solyndra fail?

A: Solyndra stepped out of the box and tried a very different approach and ultimately had too many problems. Their idea was to build little glass cylinders with thin film cells inside. They were light weight and didn’t require ballasting, but I believe they had a lot of breakage and lots of other problems in production. Ultimately, they didn’t anticipate the dramatic decrease in price of today’s standard workhorse mono- and poly-crystalline modules. Evergreen had a different approach, called ribbon technology. My take is that they couldn’t approve on the efficiency of the modules enough, couldn’t get enough volume going and couldn’t compete with the big guys from China and Germany. Helios is successful so far, but who knows, we could read tomorrow that they are in trouble. But they do provide the old standard modules people want and a lot of people just want to buy American only, which helps them. I think SunPower makes the highest efficiency module of all.

Q: You say you helped do an installation at a Marine base. Why is the military getting into solar?

A: There have been mandates from the Department of Defense, one of the largest if not the largest user of electricity in the country, and they are looking for ways to do things cheaper.  In many cases these military installations are out in the middle of nowhere and it’s a cheaper alternative than using diesel generators. They also want to be autonomous, and have security. That’s why they are also looking at biofuels. They want to use stuff we grow ourselves instead of relying on outside sources. 

Q: How is solar power progressing in other countries, like the emerging parts of the world?

A: The emerging nations are finally beginning to grasp the value of renewable energy. Cuba has lots of solar, so do the Virgin Islands, and Hawaii as well because they have to import their fuel. Many parts of the world don’t have coal, natural gas or hyro power. It’s all about diesel-fired generators. It’s all about what they call grid parity. That’s the holy grail. If you can product power at a lesser cost than what they charge. Grid parity is now in places like the Bahamas, but it all depends on the particular area.

Q: How long does it take the average residential installation to pay for itself in terms of decreased or eliminating energy bills?

That really depends on your location. There are so many variables like which utility is in the area and what the rates are and what rebate programs they offer. In Southern California, with large homes and large usage like the tier 4 and tier 5 users, it’s about 5-7 years. But in places like Hawaii that doesn’t have coal-powered plants or hydro and electricity is very expensive, but there’s plenty of sun, the payback can be quicker.

Q: What are the chief maintenance problems with a home system? Do you need to have special insurance to cover the installation on the roof?

My main expertise here is California, which doesn’t have extra insurance, in fact they make it mandatory to not charge extra insurance. But as California goes, so goes the rest of the country, typically. The chief maintenance problem is keeping the modules clean. Again, that depends on where you live. Actually, it’s easier on the East Coast where they get more rain. In California, where it can go months without rain, it can be difficult to keep them clean, particularly if you live near a construction area that is generating lots of dust. It’s good to wash them every few months. Have a window washer do it if you can.

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Bipartisan Support in Senate Points to Bull Market for Wind Power

Thanks to high-profile bankruptcies like Solyndra and Evergreen Solar, good news has been in short supply this year for companies in alternative energy. But the wind energy industry bucked that tide earlier this month.

On Aug. 2, the Senate Finance Committee voted to renew a tax credit for wind power for one more year, according to

Photo courtesy of Knowledge-Allianz.com

the New York Times (http://www.nytimes.com/2012/08/03/business/wind-industry-wins-senate-panels-support-for-a-tax-break.html). The provision to renew the tax break is part of a $200 billion package that still must be passed by Congress when it returns from summer break. Furthermore, the vote was bipartisan (19-5) with several Republicans from key wind power states joining the Democrats in favor.

While still not a done deal, it is clear that “the wind industry convinced a key Senate committee that green can be good politics in red states as well as blue states,” the Times noted.

A week after the vote, the American Wind Energy Association announced that the U.S. “hit 50 gigawatts of wind-powered electric capacity in the second quarter of this year.” Energy and Capital noted that so far in 2012, “the nation has had 2,800 megawatts and 1,400 wind turbines installed countrywide, chiefly across Nevada, Idaho, Iowa, Hawaii, Oklahoma and California.” A total of 39 states now have “utility-scale wind facilities” with most of the growth in the industry is coming from domestically manufactured turbines and materials, according to Energy and Capital.

Let’s take a look at a few randomly chosen small cap companies that are involved in wind turbines and wind power.

Newbury Park, CA-based Sauer Energy (OTC: SENY, http://www.sauerenergy.com/) is a development stage company developing vertical axis wind turbines for commercial and residential uses. Formerly BCO Hydrocarbon Ltd., the company disposed of its oil and gas interests and in July 2010 purchased Sauer Energy and in May 2012 purchased Helix Wind Corp. SENY currently has a market cap of $20.6 million and a 52-week trading range o $0.10-$0.95. It closed trading Aug. 27 at $0.26, up 2 cents on the day.

China-based China Ming Yang Wind Power Group (NYSE: MY, http://www.mywind.com.cn/) is a wind turbine manufacturer focused on designing, manufacturing, selling and servicing megawatt-class wind turbines. In July, MY announced it was considering a joint venture with China-based Huaneng Renewables Corp. to develop wind power and solar power projects in China and overseas markets. MY’s market cap is $147.5 million and 52-week trading range is $1.10-$3.73. It closed Aug. 27 at $1.21, down 4 cents for the day.

Chatsworth, CA-based Capstone Turbine Co. (Nasdaq: CPST, http://www.capstoneturbine.com/) develops and markets microturbine technologies, including technologies used to provide on-site power generation for wind power. On Aug. 23, CPST shares crossed their 50-day moving average and closed the day at $1.05 with 2.8 million shares sold. Its market cap is $302.6 million and 52-week trading range is $0.85-$1.53. It closed Aug. 27 at $1.01, down 1 cent for the day.

One company in the news lately is Italy-based Enel Green Power, which trades on the Milan Exchange (EGPW.MI) and is Italy’s biggest renewable energy company (http://www.enelgreenpower.com/) . EGPW announced in early August that it will partner with GE Capital to build the Prairie Rose wind farm in Minnesota, expected to have a total installed capacity of 200 megawatts. The farm is scheduled to commercially operational  in this year’s fourth quarter. This follows earlier announcements of other investments in wind farms in Oklahoma, Mexico, Denmark and Croatia.

Finally, Naperville, IL-based Broadwind Energy (Nasdaq: BWEN, http://www.bwen.com/) announced Aug. 23 that it was reducing its manufacturing footprint and shifting its “capacity and marketing focus to non-wind sectors.” In early August the company reported a $4.2 million loss for the fourth quarter. It also made a 1-10 reverse split of its common stock. BWEN closed Aug. 27 at $2, down 26 cents for the day.

Solar Stocks Soar on Success of German Green Party

The surpising success of the Green Party in a German election March 27 sparked an across-the-board jolt for solar stocks March 28, some moving up more than 5 percent. Even smallcap Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com/), which has slumped for nearly the entire past 12 months, traded up nearly 4 percent to $1.34.

The Green Party’s success was attributed to the country’s “deep-seated aversion to nuclear power” and the recent earthquake and ensuing tsunami that damaged the Fukushima Daiichi plant has galvanized opposition,” according to the New York Times. Germany is one of the world leaders in solar power innovation and construction and investors apparently saw the advance of the Green Party as evidence that the country would renew its subsidies for the solar industry.

Other smallcap solar stocks on the move March 28 included China-based Renesola Ltd. (NYSE:SOL, http://www.renesola.com/) up 4.2 percent to $9.38; Canada-based Canadian Solar (Nasdaq:CSIQ, http://www.canadian-solar.com/) up 2.34 percent to $11.38; China-based Hanwha SolarOne Co, formerly known as Solarfun Power Holdings, (Nasdaq: HSOL, http://www.hanwha-solarone.com/) up 4.36 percent to $7.54; and China-based JinkoSolar Holding Co (NYSE:JKS, http://www.jinkosolar.com/) up 5.3 percent to $26.75.

The midcap and largecap solar stocks enjoyed the day’s trading as well. China-based Yingli Green Energy Holding (NYSE:YGE, http://www.yinglisolar.com/) was up 5.8 percent to $12.86; Tempe, AZ-based First Solar (Nasdaq:FSLR, http://www.firstsolar.com/) traded up 1.9 percent to $153.28; China-based LDK Solar (NYSE:LDK, http://www.ldksolar.com/) up 4.1 percent to $11.71; San Jose, CA-based Sun Power Corp. (Nasdaq:SPWRA, http://us.sunpowercorp.com/) up .8 percent to $16.53; China-based Trina Solar (NYSE:TSL, http://www.trinasolar.com/) up nearly 3 percent to $28.60

Is a Solar Shakeout on the Horizon?

Barron’s weighed in again March 14 on the outlook for solar stocks, and the news in most cases is not good. Under the headline “Should Solar Bulls Be Such Grumps?,” writer Tiernan Ray suggests that given the surging price of oil and the better-than-expected year-end results turned in by most solar companies, one might expect stock prices to be rising. But that’s not the case for the majority of the pack, other than the two best performers, First Solar and SunPower. With a $1.32 billion market cap, SunPower is just outside our $1 billion ceiling for smallcap stocks and of course First Solar is a solar giant with a more than $12 billion market cap.

For investors, the problems with solar stocks seem to be oversupply and the outlook for government subsidies in our current belt-tightening times. With governments all over the world ratcheting back, investors are concerned that those subsidies, which the young industry has relied on, will be among the cuts. Ray, however, suggests that might ultimately be a good thing. A global solar industry shakeout might help separate the good companies from the bad, he says.

Herb Greenberg of CNBC agrees. While solar stocks were “on fire” March 14 in the wake of the Japanese disaster and “headlines about nuclear uncertainties,” Greenberg and solar bear Gordon Johnson of Axiom Capital also warned about the expected cuts in solar subsidies. Japan had been expected to offset solar declines in Italy and France, but that may not occur given the serious issues related to the earthquake and tsunami.

Here are a few of the solar stocks we have been watching lately:

China-based JA Solar Holdings (Nasdaq:JASO, http://www.jasolar.com/) is a photovoltaic solar cell manufacturer that was up more than 6 percent March 14 on the Japan news to $6.69 but started to back off in after hours trading. JASO, with a market cap of about $1 billion, has been as high as $10.24 in the past 12 months but was one of several solar stocks downgraded by Piper-Jaffray, due in large part to concerns about future subsidies.

Marlboro, MA-based Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com/) uses its proprietary wafer manufacturing technology in its String Ribbon solar panels. ESLR has been struggling and, as noted in Barron’s, it has never made a profit and is facing a cash crunch, which prompted a recent sell rating from JP Morgan. The stock traded for more than $7.50 a year ago but has been on a downward slide ever since, closing March 14 at $1.68 a share.

The MAC Solar Energy Index (NYSEarca:TAN) is made up of common stocks, ADRs and GDRs and on March 14 had net assets of $188 million. As Greenberg notes, it was one of the solar stocks enjoying a run March 14 on the Japanese news but had fallen nearly 20 percent in recent weeks.

Ontario-based Canadian Solar (Nasdaq:CSIQ, http://www.canadian-solar.com/) manufactures and markets solar cells and solar module products in Canada and interntionally. CSIQ, which has a market cap of $461 million, was one of the “downstream” solar stocks hit by the Piper-Jaffray downgrade and it dropped 2.7 percent to $10.75 March 14. The stock has traded for as high as $26.26 in the past 12 months but is off its 12-month low of $8.99.

Local Smallcap Solar Stocks ‘Light Up’ after Stellar Results from SolarWorld

The stellar results reported by SolarWorld last week acted as a catalyst to “light up” the solar industry sector in Europe, according to the Financial Times (http://www.ft.com/cms/s/0/1bf0834a-32ad-11e0-b323-00144feabdc0.html#axzz1DK6KY7ps). SolarWorld, a silicon wafer manufacturer based in Germany, combined a higher-than-expected profit with a dividend increase that together prompted a 6.7 percent increase in its stock price. SolarWorld stock peaked in early 2009 at nearly €25 but, until now, has been dropping ever since.

After the stellar earnings announcement SolarWorld closed at €8.34 and S&P Equity Research upgraded the stock from a sell to a buy, according to the FT. SMA Solar Technology, the leader in Germany’s solar sector, jumped up 7 percent to €78.10. Germany has long been considered a global leader in the promotion of the solar industry and the country as a whole purchased half of the world’s solar panels in 2010..

It appears that some of the better positioned smallcap solar stocks trading in the U.S. followed the SolarWorld lead. China-based Renesola Ltd. (NYSE: SOL, http://www.renesola.com/) has been on a tear since last week, jumping from $10.58 last Thursday, Feb. 10, to today’s close (Feb. 14) of $11.90, a 13 percent increase in three trading days. Renesola, with a $1 billion market cap, manufactures and sells solar wafers and other solar products.

Ontario-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/), an international designer and seller of solar products with a $647 million market cap, has also enjoyed a good few days. Starting at $13.61 Friday (Feb. 11), the stock closed Monday (Feb. 14) at $15.10.

China-based Solarfun Power Holdings (Nasdaq: SOLF, http://www.solarfun.cn/einfo.htm), which manufactures and sells photovoltaic cells and modules as well as silicon ingots and wafers, among other products, jumped up 3.95 percent Feb. 14 to $9.14. It didn’t hurt that a feature published on Seeking Alpha Feb. 14 picked SOLF as one of five leading solar energy stocks have bottomed out and “already begun long upward trends.”

Marlboro, MA-based Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com/), which makes solar cells, panels and wafers, announced Feb. 14 that it continues its stuggles to restructure its debt. The company announced that it was “disappointed” that bondholders committed to exchange only $45.4 million of the $200 million in debt it had hoped to restructure to “align the company’s capital structure with its evolving business model and better position the company for growth,” according to the  (http://www.bizjournals.com/boston/news/2011/02/14/evergreen-solar-debt-swap-falls-short.html?ana=yfcpc). The stock dropped 5 cents to $2.15, way down from its high of $7.92 it hit a year ago.

Solar Bear Tells Barron’s Outlook Is Cloudy

If you believe solar analyst Aaron Chew, the solar industry is in for a pretty major slowdown. At least that’s what he told Barron’s last week during a Q&A that ran under the headline: ‘Solar Outlook: Cloudy.’

Chew, who launched his solar coverage for Hapoalim Securities last July, lists oversupply and a retrenching of government programs as the culprits in the decline of the solar market and says Europe has been “the big driver of solar” for many years. He expects Germany’s solar installations to hit 6 gigawatts this year–more than Japan, the U.S., Italy and France have installed combined in all their histories. But during the next four months governement incentives will decline by double-digit percentages, taking the installation rates down with it.

On the supply side, along with declining installations comes the entrance of three large new players in the global solar market: Samsung, LG and Hyundai, which will ultimately push down solar prices, according to Chew. That may be good for homeowners and commercial installations but perhaps not so good for the profit margins of smallcap solar companies. A good place to check on the progress of the U.S. solar business is the Solar Power International conference set for Los Angeles Oct. 12-14 (http://www.solarpowerinternational.com/sepa2010/public/enter.aspx). It’s considered the nation’s biggest and best conference each year.

We’ve been following the progress of several small cap solar firms for the past few years and, as is the case in most industries, some seem to be thriving while others struggle, based on the issues inside of each company.

Marlboro, MA-based Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com) is one of those continuing to struggle and their issues have been well documented (http://seekingalpha.com/article/226927-ceo-departs-troubled-evergreen-solar?source=yahoo), including the recent departure of their CEO. Evergreen’s stock, while trading relatively heavily (1.5 million shares a day on average) still languishes around 62 cents a share, not far from the 65 cents a share it was selling for when we last checked in early August.

China-based Renesola Ltd. (NYSE: SOL, http://www.renesola.com) also trades actively (nearly 2 million shares a day) and this week was selling for nearly $11.50 a share, just below its 52-week high of $12.10 (and way off 52-week low of $3.50), and nicely above our last check in early August. Back then SOL was selling in for about $7.35 range so perhaps, if you believe Chew, now might be the time to take some profits off the table.

Shanghai-based JA Solar (Nasdaq: JASO, http://www.jasolar.com) has also been enjoying a good run. Back in early August the company’s market cap was $897 million and the stock price was in the mid-$5 range. This week the stock is in the mid0$8 range and its market cap has ballooned to $1.37 billion.

China-based Solarfun Power Holdings (Nasdaq: SOLF, http://www.solarfun.cn/einfo.htm) is another solar company we are just beginning to watch. The company manufactures and sells photovoltaic cells and modules as well as silicon ingots and wafers, among other products. It’s relatively small (market cap $723 million) and currently trades at a bout $12.50 a share, right at the top of its 52-week range.

Solar Stock Growth Trajectory Slows Despite Upbeat Outlook

When we last took a look at smallcap solar power stocks in early 2009, they were in the dumps, the victims of a slumping global economy. Today, many of them have rebounded strongly in the second quarter in tune with the economy, at least for the moment. No doubt President Obama’s stimulus package, which included a 30 percent tax credit for utilities, helped bring the industry some life.

But some fear trouble ahead. Indeed, TheStreet.com posted an article Aug. 11 about the potential of a “Solar Pricing Squeeze ” (http://www.thestreet.com/_yahoo/story/10832669/1/is-the-solar-pricing-squeeze-just-ahead.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA) after investors sold off shares of Shanghai-based JA Solar (Nasdaq: JASO, http://www.jasolar.com) on Aug. 10 despite the fact that management was upbeat about the remainder of 2011 and raised its shipment guidance. The share price, which has been as high as $6.95 this year, dropped into the mid-$5 range this week.

Eric Rosenbaum, the author of TheStreet.com story, noted that for whatever reason, “solar stocks attract the most short-term minded of investors” who can trade in and out of the various solar companies and reap quick gains.

JA Solar is a true smallcap (about $897 million market cap) but the scare seemed to hit the bigs as well. Tempe, AZ-based First Solar (Nasdaq: FSLR, http://www.firstsolar.com), with a market cap of $10.7 billion, also was getting slammed mid-week, down $4.52 (3.5 percent) early Aug. 11 in the midst of a very down day overall throughout the market.

Merrimack, NH-based GT Solar International (Nasdaq: SOLR, http://www.gtsolar.com), which manufactures the equipment for making solar modules, was down mid-week also to about $7.85. But this stock traded at $4.45 when we last checked in the spring of 2009. It has been as high as $8.23 in the past 52 weeks.

China-based ReneSola Ltd (NYSE: SOL, http://www.renesola.com), with a market cap of $636 million, plunged more than 8 percent Aug. 11 to $737. Still, that is a much better price than the $2.56 per share when we last checked.

Marlboro, MA-based Evergreen Solar (Nasdaq: ESLR, http://www.evergreensolar.com), a pure solar play, continues to limp along at $0.65. The stock received a nice lift on Aug. 3 based on its second quarter results showing revenues of $84.5 million, up 7.7 percent over the first quarter. But issues with its Chinese manufacturing unit and foreign monetary exchange losses apparently continue to plague its bottom line.