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A new First Solar in the making?

April 24th, 2008 · No Comments

A company that hardly sells anything (with some luck they’ll have $2M in revenues this year), will only seriously start producing in 2010, but nevertheless has a grown-up market capitalization of close to 200M. Cool! Wat is it? Biotech? No, a solar company. It’s called Ascent Solar (ASTI).
It’s an interesting solar. Most solars rely on polysilicon, which is in short supply (and therefore terribly expensive). Apart from that, silicon based technologies have other disadvantages. The resulting solar cells (the end product which change sunlight into electricity), is rather inflexible in its use.

Here comes the advantage. Ascent Solar uses a proprietary technology to get a thin layer of its active material onto a plastic substrate. That active material is “copper-indium-gallium-diselinde” or CIGS. Cool stuff, you might conclude, but where is the meat.

First, although it seem to use a bewildering array of exotic materials, there is no polysilicon in CIGS. Since there is a huge shortage in polysilicon, that’s a crucial advantage. Or so it seems. Polysilicon is expected to become bountiful by the end of next year, it’s price (on the spot market anyway) will likely collapse, wiping out one advantage of players like Ascent (and giant First Solar) that do not use it.

This is important, because in terms of efficiency, the silicon based players hold an advantage (their cells convert relatively more sunlight into energy, on average). Today, that efficiency advantage is more than compensated by a cost disadvantage, hence the enormous run in First Solar (FSLR) shares.

It’s also important because Ascent will only produce in anything that can be considered remotely serious volumes from 2010 onwards, when we’ll have moved from scarcity to bounty in the silicon world. Too bad.

But there is a second advantage. That film of CIGS on the plastic substrate turns out to be rather flexible, so flexible that it can directly be used in building materials. A giant Norwegian builder called Hydro (NHY) was quick to realize that and bought a substantial stake (23%) with an option for more last year.

We generally do not like take-overs (the economic literature shows rather distressing results, and also points to motives that have little to do with efficiency gains), but this one seems rather clever, if it’s properly managed (which would mean letting the tech boys get on with it).

There are plenty of obvious synergies. Hydro gives Ascent a guaranteed outlet, and Hydro itself can offer some innovative building stuff, which the green world will embrace, giving it a leg up against other builders.

This was not lost on investors, as Ascent’s share price jumped on the news, to a higth that makes us a little dizzy. And we really should ask the following question:

Do we have any metrics for a company that hardly has any earnings?
Is Ascent overvalued? Is it undervalued? Well, this is very difficult to calculate. You basically buy a promise. That promise did become a lot more real when Hydro took a stake, hence the big jump in the share price.

But, they say that they will have a 25MW production facility ready by 2010. That could deliver something in the order of $75M in revenues by the end of that year (using a $3/w price). We do not know about profits (we guess the production process might be simpler in principle than what silicon based solars use, but it will also depend on volumes, learning economics, and the like, and we have no clue as to the value or scarcity of ‘diselinde’).

So, what drives it share price? News, emotion and chart readers. You might just as well throw darts at a graph. We like the technology, we also like the word ‘proprietary’ in front of that process that gets it’s alphabet of funny materials onto the plastic.

Investors hope of a repeat of another play that didn’t rely on polysilicon, First Solar, the king of solars.

And doesn’t FSLR’s graph look mighty! But the jury will be out on Ascent for a long time to come, we’re afraid. But we’ll keep following it. It’s an interesting story.

Tags: ASTI · Solar sector