Energy crisis is heating up solar stocks still in the red


NEW YORK -- The price of oil remains high, and with it shares of solar energy stocks.

In the nine months since it became apparent that Hurricane Katrina would pummel the Gulf Coast, solar energy stocks have soared on expectations that alternative energy would attract more business.

Since Aug. 22, a week before Katrina touched land, shares in solar panel-maker Energy Conversion Devices Inc. are up 68 percent. Evergreen Solar Inc., another solar panel manufacturer, has increased more than 90 percent, even after its shares slid in March when its main silicon provider terminated a supply contract.

A third panel-maker, SunPower Corp., is up 86 percent since Cypress Semiconductor Corp. sold off a stake in November at an offering price of $18 a share.

The PowerShares WilderHill Clean Energy exchange-traded fund, which includes a range of alternative-energy-related names, including the three solar power firms, has gained 32 percent since Aug. 22.

The problem for investors is determining a value for companies with comparatively small revenues that typically operate in the red. And then there's the factor of a severe worldwide shortage of poly silicon, the key ingredient in solar panels.

Kevin Landis, chief investment officer at Firsthand Funds in San Jose, Calif., is an industry fan but warns that solar energy stocks move in large part on growth expectations three to five years into the future.

Typical of the industry's outlook, a consensus of 11 Wall Street analysts, compiled by Thomson Financial, expects SunPower's revenue to grow 270 percent in 2006, to $220 million, and 60 percent next year, to $353 million.

"Every company in that industry is shipping all they can make and growing as fast as they can manage. That's clearly a sign things are going well," said Landis, whose funds manage about $900 million.

Of these three solar energy companies, only SunPower, which is 85 percent owned by Cypress, operates in the black.

Jesse Pichel, a Piper Jaffray & Co. analyst, estimates that solar panel production will increase a modest 10 percent in 2006 and 20 percent in 2007, because manufacturers won't have enough poly silicon until a new generation of plants are built.

"In our lifetime, the solar industry is likely to be larger than the semiconductor market, but they'll need a lot of silicon first," he said.

For that reason, Pichel likes Energy Conversion of Rochester Hills, Mich., because it uses "thin-film" technology, a process that doesn't need poly silicon. Pichel predicts its share price should hit $57 in a year, roughly a $14 gain from current levels.

Most solar business is commercial rather than residential. But if solar energy companies succeed in eliminating about 10 percent of their costs per year, as Pichel predicts, U.S. corporations may find that solar panels are cheaper to power their businesses than oil or gas.

Leon Lazaroff writes for the Chicago Tribune.

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