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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Solar Installations, Farms Catching On with Investors Big and Small

Don’t feel too badly if you are having trouble understanding the ups and downs of the solar industry. Take the Dec. 15 Business section of the Los Angeles Times, for instance. Right above to the headline “Grand Jury Investigating Solyndra,” and yet another story outlining the high-profile bankruptcy of the Fremont, CA solar panel maker despite $535 million in federal aid and $1.1 billion in venture capital backing, was another headline “Record Gains for Solar Industry” and a story noting that “solar power is a booming business in the U.S. ” along with statistics demonstrating the truly staggering growth of solar installations across the U.S. (http://www.latimes.com/business/la-fi-solar-growth-20111215,0,5390004.story).

But then you flip forward a few pages and there’s another report about solar panel maker First Solar, which fell 21.4 percent to $33.45 on Dec. 15, its lowest level in four years, after announcing its second restructuring in six weeks. First Solar, long considered a solar success story and the world’s largest solar company based on market cap (although its market cap has fallen almost 75 percent this year), released an earnings warning Dec. 14 suggesting that “downward pressure on solar panel prices and profit margins will continue ‘indefinitely,” according to the Financial Times.  The company’s basic problem is that there are too many solar panels on the market and countries in Europe, where solar is very popular, are cutting subsidies and will continue to do so.

“If you’re making solar modules, it’s very dicey out there. The prices keep going down, down, down,” said Philip Lawes, chief executive of Laguna Beach, CA-based Insoltech Solar.

But just go back a few weeks and you can read the reports about Google investing millions in solar power, and then there was last week’s news about Warren Buffett getting into the solar business for the first time. MidAmerican Energy Holdings, a unit of Buffett’s Berkshire Hathaway Inc., purchased the Topaz solar farm in California’s San Luis Obispo County from First Solar. Terms were not disclosed but the Wall Street Journal suggested Topaz was worth “more than $2 billion. If you scan the news further, you’ll see that Buffett isn’t the only one jumping into the solar farm business. First Solar and SunPower Corp. have been unloading their solar farms to some of the U.S.’s biggest utilities, including NextEra Energy, NRG Energy and Exelon Corp.

Lawes said the big investors like Buffett see long term income in the large solar farms.

“These solar farms, they aren’t glamorous, they aren’t going to be a home run, but they create a steady cash flow over the long term,” said Lawes, adding that Buffett’s company will enjoy that steady cash flow by selling the energy produced in the farms to a utility. “The utility companies aren’t going anywhere.”

Google and KKR must agree, since they recently announced a joint investment in four solar farms south of Sacramento, CA. The deal allows the solar farm developer and operator, Recurrent Energy, to raise cash and fund future solar farms. Recurrent has a 20-year contract with Sacramento Municipal Utility District to supply electricity to power 13,000 homes, according to a story in the Wall Street Journal.

There’s also opportunities for small investors, Lawes added. Entrepreneurs are approaching owners of commercial buildings offering in some cases to pay 15 cents a square foot for the use of their roofs. The entrepreneurs then install solar and sell the power to utility, just like the big guys with the big farms. “Typically, they just need a flat roof,” he said.

So, other than the big guys like First Solar, how are the smaller solar companies faring? Not that well if you are in the solar panel business.

China-based Suntech Power Holdings (NYSE: STP, http://www.suntech-power.com/), a smallcap that has boosted its market cap up to $423 million market cap in recent weeks, makes photovoltaic products and provides construction services. This stock closed on Oct. 20 at $2.07. By mid-day Dec. 23 it was trading at $2.34.

Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/), which sells a variety of solar products, continues to decline. Back in late August it was trading for $6.74. At mid-day Dec. 23 it was trading for $2.85.

China-based LDK Solar Co. (NYSE: LDK, http://www.ldksolar.com/)) manufactures solar products and silicon materials. It, too, has bounced back from lows in late October of around $3. At mid-day Dec. 23 it was trading for $4.91, much closer to the highs of nearly $6 in late August.

China-based Trina Solar Ltd. (NYSE: TSL, http://www.trinasolar.com/)) designs, manufactures and sells photovoltaic modules worldwide. It’s now trading for less than half its Aug. 31 close of $15.88. By Oct. 20 it had declined to $7.15. It’s up from there, but not much. At mid-day Dec. 23 TSL stock was trading for $7.39.

Shanghai-based JA Solar Holdings Co. (Nasdaq: JASO, http://www.jasolar.com) makes solar cells and other solar

 

products and has hit by the downturn. On Aug. 31 its stock closed at $3.66; by Oct. 20 it closed at $2.14; at mid-day Dec. 23 it was trading for $1.39.

German ‘Feed-In Tariff’ Could Spark Solar Growth, Jobs — If . . .

Why is Germany among the world leaders in solar power, with five times more photovoltaic panels installed than the US? A big reason is what they call a “feed-in tariff,” which requires utilities to pay above-market rates for (cleaner) alternative energy, according to solar experts and a recent article in the New York Times (http://www.nytimes.com/2009/03/13/business/energy-environment/13solar.html?ref=business).  We reported about 6 weeks ago that the US recently surpassed Germany (finally) in wind-turbine power (with maybe 8 times the land mass, shame on us). 

In Germany, as in Spain and other parts of the EU, businesses and homeowners who generate renewable power and feed it onto the grid get paid up to four times more to produce electricity than the rate paid to a power plant.   We are told that Italy has awarded hundreds of solar and wind-energy licenses to companies such as Zug, Switzerland-based EnergyMixx AG, which trades on the unregulated Frankfurt exchange as EM2. 

After studying the German system, Gainesville, FL (not typically a climate-change leader, but who’s counting?) has recently adopted a similar incentive system and Los Angeles, Hawaii, Oregon and Washington are discussing following the European lead.  It sounds like the perfect triangular cooperation scheme for a recession-plagued world: government incentivizes industry, which profitably creates jobs and a way for individuals and small business to green up AND make a buck.

A key to the European success is that the incentive plans have long horizons — between 10 and 20 years — said Phil Lawes, owner of Laguna Beach, CA-based Insoltech Solar (http://www.insoltechsolar.com), a 30-year-old, privately-held energy systems design and installation firm. “You need to have at least a 10-year incentive program to give businesses and homeowners a nice, steady, stable return on their investment,” Lawes said.

If this new financing system catches on in the U.S., and the evidence shows it very well may, many small solar stocks could benefit, such as Los Gatos, CA-based Akeena Solar Inc. (Nasdaq: AKNS, http://www.akeena.net), which has been struggling of late but is focused largely on the residential market. Trading at only 67 cents, Akeena is way off its high of $8.90 from last spring.

Or how about Roseville, CA-based Solar Power Inc. (EBB: SOPW.OB, http://www.solarpowerinc.net), which develops and manufactures solar panels but also does business and residential installations. SOPW.OB was trading at 53 cents, down from $1 as recently as the start of 2009.

Then there’s Santa Clara, CA-based DayStar Technologies (Nasdaq: DSTI, http://www.daystartech.com), which makes solar products for commercial and residential markets and trades at $1.38. DayStar’s 2008 year-end results conference call is scheduled for 5 p.m. EDT Monday, March 16.  Worth a listen.

The problem with our crystal ball is that there is little clarity at this point in the federal incentive-cum-jobs-creation programs, even though we have been told over and over by the old and new administrations that Jobs are Job One and Green is the Theme.  You can’t tell where the bailout will strike first, though logic would have it that alt-energy could be the mother lode. 

As Earth2Tech reported Friday, Sunnyvale, CA-based privately held Serious Materials (http://www.seriousmaterials.com) is one of the first US “green” employers to hang out a major “Help Wanted” sign, prepared to hire and train people for a green career (in this case, making what used to be Kensington and/or Republic windows, http://earth2tech.com/2009/03/13/green-jobs-whos-hiring/).  And DOE announced Friday that it is releasing the first tranche of $780 million from $8 billion earmarked for “weatherizing,” which would tend to support the Serious Materials approach (http://www.greenbiz.com/blog/2009/03/13/doe-weatherization-efficiency-funds).

It’s hard to imagine a green industry sector that has more potential jobs than solar energy — look at manufacturers like Bedford, MA-based Spire Corp (Nasdaq: SPIR, http://www.spirecorp.com/), trading at $4.67 vs a year-high of $18.75 for a current market cap of about $39 million, with about $49 million in revenues for its 9 months ended Sept 30, 2008, and a solar sector that is growing more than 100% a year (http://phx.corporate-ir.net/phoenix.zhtml?c=76421&p=irol-newsArticle&ID=1229774&highlight) .

Or look at First Solar (Nasdaq: FSLR) , the paragon of solar investors, out of our league with a market cap of $10.5 billion, but surging a bit in last week’s rally.  Or the crowded field of solar installers, thin-film manufacturers, solar concentrator designers and builders.  We have reported on all of those areas, and very few of them have yet to feel the twin tickle of incentives like the German-inspired Gainesville experiment and the adrenalin-rush of federal job-oriented subsidies. 

We are a-settin’ and a-waitin’ to find out where the trickle-down will, well,  trickle down.