netrashetty
Netra Shetty
Evergreen Solar is a vertically integrated solar panel manufacturer that uses String Ribbon technology to produce solar cells with 50% less silicon[1] than is needed by its competition. Growth in solar panel efficiency from less than 10% before 1980 to more than 40% in 2009[2] has made the sun an increasingly appealing source of power; but the global recession of 2008 and 2009 has put the industry, and Evergreen into a slump. Germany and Spain, where the company earns almost one-third of its revenues,[3] have cut their solar subsidies by 10%[4] and 30%,[5] respectively, with plans to cut even more in the future. With subsidies on the decline, electricity prices falling because of the drop-off in demand for natural gas and coal,[6] and the price of CO2 emissions allowances in Europe falling by almost two-thirds from mid 2008 to February of 2009,[7] demand for solar power has been falling. Worse, the financial crisis has cut Evergreen's access to capital, forcing it to close its Marlboro plant and delay construction of its $800 million plant in Asia in 2008.[8] However, in 2008 Evergreen Solar entered into seven multi-year solar panel supply agreements and as of the third quarter of 2009 the company had a backlog of 851 MW remaining with deliveries scheduled through 2013.[9] At the end of the second quarter of 2009 the company announced that it had finalized agreements with Jiawei Solarchina Co., Ltd. and Hubei Science & Technology Investment Co., Ltd. to expand manufacturing operations into China.[10] While the expansion into China is slated to begin production in 2011, the Devon, Massachusetts plant which currently manufactures all of ESLR's solar panels is not slated to close, but merely diminish production. Should solar panel spike or increase, the Devon plant would retain the ability to quickly add more production to meet demand. [11]
Within the solar industry, Evergreen Solar competes on the basis of cost-minimizing the cost of buying a solar system by lowering manufacturing costs, and minimizing the cost of running a system by increasing the conversion efficiency of its cells. During the end of 2009 the cost per wafer was $0.69 and the price for a panel had fallen to $2.05 in the fourth quarter from $3.19 in the first quarter of 2009. Looking forward to 2011 with the opening of its facility in Jiawei, China which is expected to be able to produce 25-30 MW, with prices at $0.40 as the cost for a wafer for a watt, and $1.25 for a panel, due to China's lower labor costs[12]. However, with the lower costs comes a solar market that has been depressed due to the recession with prices having fallen precipitously. The solar sector is becoming more and more competitive; among ESLR's competition are such powerhouses as SunPower, SunTech, BP Solar, Sharp, Kyocera, and Q-Cells.
Government incentives and grants are extremely important to promoting solar panels. In February 2010, Senator Bernie Sanders submitted a bill to congress titled "10 Million Solar Roofs and 10 Million Gallons of Solar Hot Water Act." The bill would cover half the cost of new systems. The purpose of the bill is to spur alternative energy growth and create green jobs. The generous rebates would further cut the price of solar panels for consumers, and most likely increase sales.[13]
Business Overview
Evergreen Solar is a vertically integrated company that operates through four stages of the solar power industry. The company produces multicrystalline ribbon silicon wafers from refined silicon. Evergreen's string ribbon PV technology lets the company form photovoltaic wafers with less silicon than the mono- and multicrystalline wafers made by other solar manufacturers - almost making them silicon versions of thin film. These wafers are then made into photovoltaic (PV) cells, that turn light energy (usually from the sun) into electricity. Evergreen's PV cells are put together into modules, which generate up to 190 watts of power.[14] Finally, Evergreen takes these modules and wires them together into solar power systems, which can generate thousands of watts of electricity. The company sells to installers in Europe, North America and Korea.
Third Quarter 2010 Summary
For the third quarter of 2010, Evergreen Solar earned revenue of $86 million, a 14% increase from the same quarter in 2009, mainly due to greater sales volume coming from the Devens facility. Compared to the third quarter of 2009, selling prices have declined on average by 16%, though this has been offset by higher production--the company shipped 42.6 MW during the quarter, a 36% increase year-over-year. 80% of total revenue during the quarter came from sales outside of the US, a 5% increase year-over-year. Despite declines in global subsidies, particularly those in Germany, declines in product pricing in addition to the development of the Devens facility has driven overall international growth.[15]
Second Quarter 2010 Summary
For the second quarter of 2010, product revenue increased by 29% year-over-year to $81.1 million. This increase is attributed to increasing sales volume, particularly from the Devens facility, offsetting lower selling prices which have declined by 24% on average, due to market environment. The company shipped 39.8 MW during the quarter, a 72% increase over the same quarter in 2009. Since international product revenues accounted for 74% of total product revenues for the quarter, the weakening of the US dollar over the quarter impacted the firm's revenues positively.
Evergreen Solar also earned royalty revenue of $3.4 million this quarter, as opposed to $1.1 million in the same quarter in 2009, this was due to a newly negotiated license agreement associated with the sale of the firm's investment in Sovello. Evergreen Solar recognized $1.0 million of royalty revenue during the quarter, in addition to recognizing $2.4 million of royalty payments associated with the fourth quarter of 2009. These payments were not initially recognized because of the doubt regarding Sovello's ability to settle these payments.[16]
Evergreen Financials ($ thousands)
2007[17] 2008[17] 2Q 2009[18] 3Q 2009[9] 4Q 2009[19] 1Q 2010[20] 2Q 2010[21]
Total Revenue $69,866 $111,959 $63,838 $77,658 $74,546 $78,500 $84,528
Product Revenues $58,334 $95,245 $62,697 $75,450 $74,526 $78,473 $81,117
Royalty and Fee Revenues $11,532 $16,714 $1,141 $2,200 $20 $-- $3,411
Net Income (loss) $(16,602) $(84,935) $(20,338) $(82,445) $8,904 $6,049 $(3,338)
First Quarter 2010 Summary
For the first quarter of 2010, product revenue was $78.5 million, a 44% increase from the same period in 2009. The rise in revenue can be attributed to the continually increasing sales volume, as the company shipped 35.4 MW during the first quarter of 2010 in comparison to 17.3 MW shipped during the same quarter in 2009. The Devens facility established in 2008 contributed to a large portion of the increasing sales volume.[22] The increase in revenue was despite the $2.2 million of net foreign exchange losses due to the strengthening of the dollar over the Euro and the increasing proportion of product revenues coming from international product sales, which has risen from 79% in the first quarter of 2009 to 86% in the first quarter of 2010.[23]
Fourth Quarter 2009 Summary
For the 4th quarter of 2009 Evergreen Solar experienced a loss of 13 cents per share. Manufacturing costs were cut from $2.24 to $2.05, however a 3.7% lower average price for its products resulted in a loss. Revenues for the quarter were $74.5 million which held steady in comparison to 3rd quarter product revenue of 75.5 million. Evergreen Solar also increased production during the quarter to 34 megawatts, but only shipped 31.9 megawatts which is up slightly from the 31.3 megawatts that it shipped in the previous quarter. Approximately 68% of its production was sold in Europe [24].
Third Quarter 2009 Summary
For the third quarter of 2009 product revenue was $75.5 million up 324%, as compared to the same quarter of 2008. The rise in revenue was due primarily to increased sales volume generated from its new Devens facility, which began shipping product in the third quarter of 2008. The company shipped 31.3 MW, which was offset by continued price declines in the market of up to 33.6%. 57% of revenue was from the United States, 27% from Germany and 16% were from the rest of the world.[9]
The company has six active solar panel supply agreements and approximately 851 MW of backlog remaining with deliveries scheduled through 2013. Wafer cost at its Devens facility was $0.75 per watt in the third quarter of 2009.[9]
In 2009 Evergreen Solar, Q-Cells and REC were one-third partners in a Sovello joint venture. The companies have since agreed to have Sovello market and sell products under its own brand. With an independent sales and marketing team in place Evergreen's involvement in selling Sovello products will decrease.[9]
Second Quarter 2009 Summary
Revenue for the second quarter of 2009 increased by 246% to $62.7 million, as compared to the same quarter in 2008. This was primarily due to increased sales volume generated from its new facility in Devens, Massachusetts, which started shipping product in the third quarter of 2008. However, the increase in volume was offset by lower average selling prices and a 75% drop in royalty revenue and marketing selling fees to $1.1 million, as compared to the same period in 2008.[25]
In 2008 Evergreen Solar entered into seven multi-year solar panel supply agreements and as of the second quarter of 2009 the company had a backlog of 935 MW remaining with deliveries scheduled through 2013. Also, at the end of the quarter the company announced that it had finalized agreements with Jiawei Solarchina Co., Ltd. and Hubei Science & Technology Investment Co., Ltd. to expand manufacturing operations into China.[10] During an investor conference in December 2009, Evergreen executives commented that they expected to expand other parts of their business beyond manufacturing into China, citing the 65% subsidy they received from the Chinese government. While the Devens, Massachusetts plant will remain open, the labor cost savings between the two locations is huge, with labor costing 90% less in China. Their expansion of business operations into China is an attempt to keep up with the competition which has already been following similar practices [26] At the beginning of September 2009 the companies began construction of a 100MW manufacturing plant in Wuhan, China.[27] Evergreen Solar expects manufacturing costs of its panels in China to be in the range of $1.40-$1.50 per watt.[28] Additionally, the company expects manufacturing costs to drop to $1.00 per watt by the end of 2012 by further expanding production in China to 500MW.[27] From 2007 to 2008 product sales increased by 63%, as new production from the companies Devens facility boosted sales by 61%.[29] At the same time, costs in setting up the new facility brought down net income from -$16 million, to -$85 million.[17]
Sovello
Sovello is a German solar company that produces 30 megawatts of power per year and has a stated goal of increasing production to 300 megawatts by 2010.[30] In 2007 Evergreen reduced its ownership from two thirds to one third. Per accounting rules it is no longer consolidated on Evergreen's financial statements. In October 2007 Evergreen announced a plan for Sovello's IPO. In December of 2008 Evergreen re-affirmed it's intention for Sovello to have an IPO, at which point the company would generate much needed capital but lose primary access to the fast-growing German solar market.[30]
Evergreen Has Been Using Equity To Finance Expansion
Evergreen has lost 33% of its equity to stay competitive in 2007 and 2008. In order to lower costs the company has to create economies of scale by enlarging its manufacturing capacity. To raise and save money in order to do that, Evergreen has done two things. First, the company paid for its silicon contract with DC Chemical with a 13% equity stake in April of 2007.[31] Second, the company lent Lehman Brothers 30.9 million shares in order to raise capital.[32] When Lehman went bankrupt, it did not return the shares as it was supposed to, and so is facing legal action. If Lehman were to return the shares, Evergreen would have essentially completed a free buyback of 30.9 million shares. In absence of that, Evergreen's shares have been diluted approximately 20%, in addition to the 13% it gave to DC. These are not the first times the company has used equity to raise capital, and given its projected continued operating losses, will likely not be its last.[33] As long as Evergreen gets something of equal value in return that doesn't matter, but with both DC Chemical and Lehman the company lost out. The company's silicon contract with DC Chemical has lost value, as the price of silicon fell in late 2008 and early 2009, and Lehman went bankrupt before its transaction with Evergreen could be completed
Within the solar industry, Evergreen Solar competes on the basis of cost-minimizing the cost of buying a solar system by lowering manufacturing costs, and minimizing the cost of running a system by increasing the conversion efficiency of its cells. During the end of 2009 the cost per wafer was $0.69 and the price for a panel had fallen to $2.05 in the fourth quarter from $3.19 in the first quarter of 2009. Looking forward to 2011 with the opening of its facility in Jiawei, China which is expected to be able to produce 25-30 MW, with prices at $0.40 as the cost for a wafer for a watt, and $1.25 for a panel, due to China's lower labor costs[12]. However, with the lower costs comes a solar market that has been depressed due to the recession with prices having fallen precipitously. The solar sector is becoming more and more competitive; among ESLR's competition are such powerhouses as SunPower, SunTech, BP Solar, Sharp, Kyocera, and Q-Cells.
Government incentives and grants are extremely important to promoting solar panels. In February 2010, Senator Bernie Sanders submitted a bill to congress titled "10 Million Solar Roofs and 10 Million Gallons of Solar Hot Water Act." The bill would cover half the cost of new systems. The purpose of the bill is to spur alternative energy growth and create green jobs. The generous rebates would further cut the price of solar panels for consumers, and most likely increase sales.[13]
Business Overview
Evergreen Solar is a vertically integrated company that operates through four stages of the solar power industry. The company produces multicrystalline ribbon silicon wafers from refined silicon. Evergreen's string ribbon PV technology lets the company form photovoltaic wafers with less silicon than the mono- and multicrystalline wafers made by other solar manufacturers - almost making them silicon versions of thin film. These wafers are then made into photovoltaic (PV) cells, that turn light energy (usually from the sun) into electricity. Evergreen's PV cells are put together into modules, which generate up to 190 watts of power.[14] Finally, Evergreen takes these modules and wires them together into solar power systems, which can generate thousands of watts of electricity. The company sells to installers in Europe, North America and Korea.
Third Quarter 2010 Summary
For the third quarter of 2010, Evergreen Solar earned revenue of $86 million, a 14% increase from the same quarter in 2009, mainly due to greater sales volume coming from the Devens facility. Compared to the third quarter of 2009, selling prices have declined on average by 16%, though this has been offset by higher production--the company shipped 42.6 MW during the quarter, a 36% increase year-over-year. 80% of total revenue during the quarter came from sales outside of the US, a 5% increase year-over-year. Despite declines in global subsidies, particularly those in Germany, declines in product pricing in addition to the development of the Devens facility has driven overall international growth.[15]
Second Quarter 2010 Summary
For the second quarter of 2010, product revenue increased by 29% year-over-year to $81.1 million. This increase is attributed to increasing sales volume, particularly from the Devens facility, offsetting lower selling prices which have declined by 24% on average, due to market environment. The company shipped 39.8 MW during the quarter, a 72% increase over the same quarter in 2009. Since international product revenues accounted for 74% of total product revenues for the quarter, the weakening of the US dollar over the quarter impacted the firm's revenues positively.
Evergreen Solar also earned royalty revenue of $3.4 million this quarter, as opposed to $1.1 million in the same quarter in 2009, this was due to a newly negotiated license agreement associated with the sale of the firm's investment in Sovello. Evergreen Solar recognized $1.0 million of royalty revenue during the quarter, in addition to recognizing $2.4 million of royalty payments associated with the fourth quarter of 2009. These payments were not initially recognized because of the doubt regarding Sovello's ability to settle these payments.[16]
Evergreen Financials ($ thousands)
2007[17] 2008[17] 2Q 2009[18] 3Q 2009[9] 4Q 2009[19] 1Q 2010[20] 2Q 2010[21]
Total Revenue $69,866 $111,959 $63,838 $77,658 $74,546 $78,500 $84,528
Product Revenues $58,334 $95,245 $62,697 $75,450 $74,526 $78,473 $81,117
Royalty and Fee Revenues $11,532 $16,714 $1,141 $2,200 $20 $-- $3,411
Net Income (loss) $(16,602) $(84,935) $(20,338) $(82,445) $8,904 $6,049 $(3,338)
First Quarter 2010 Summary
For the first quarter of 2010, product revenue was $78.5 million, a 44% increase from the same period in 2009. The rise in revenue can be attributed to the continually increasing sales volume, as the company shipped 35.4 MW during the first quarter of 2010 in comparison to 17.3 MW shipped during the same quarter in 2009. The Devens facility established in 2008 contributed to a large portion of the increasing sales volume.[22] The increase in revenue was despite the $2.2 million of net foreign exchange losses due to the strengthening of the dollar over the Euro and the increasing proportion of product revenues coming from international product sales, which has risen from 79% in the first quarter of 2009 to 86% in the first quarter of 2010.[23]
Fourth Quarter 2009 Summary
For the 4th quarter of 2009 Evergreen Solar experienced a loss of 13 cents per share. Manufacturing costs were cut from $2.24 to $2.05, however a 3.7% lower average price for its products resulted in a loss. Revenues for the quarter were $74.5 million which held steady in comparison to 3rd quarter product revenue of 75.5 million. Evergreen Solar also increased production during the quarter to 34 megawatts, but only shipped 31.9 megawatts which is up slightly from the 31.3 megawatts that it shipped in the previous quarter. Approximately 68% of its production was sold in Europe [24].
Third Quarter 2009 Summary
For the third quarter of 2009 product revenue was $75.5 million up 324%, as compared to the same quarter of 2008. The rise in revenue was due primarily to increased sales volume generated from its new Devens facility, which began shipping product in the third quarter of 2008. The company shipped 31.3 MW, which was offset by continued price declines in the market of up to 33.6%. 57% of revenue was from the United States, 27% from Germany and 16% were from the rest of the world.[9]
The company has six active solar panel supply agreements and approximately 851 MW of backlog remaining with deliveries scheduled through 2013. Wafer cost at its Devens facility was $0.75 per watt in the third quarter of 2009.[9]
In 2009 Evergreen Solar, Q-Cells and REC were one-third partners in a Sovello joint venture. The companies have since agreed to have Sovello market and sell products under its own brand. With an independent sales and marketing team in place Evergreen's involvement in selling Sovello products will decrease.[9]
Second Quarter 2009 Summary
Revenue for the second quarter of 2009 increased by 246% to $62.7 million, as compared to the same quarter in 2008. This was primarily due to increased sales volume generated from its new facility in Devens, Massachusetts, which started shipping product in the third quarter of 2008. However, the increase in volume was offset by lower average selling prices and a 75% drop in royalty revenue and marketing selling fees to $1.1 million, as compared to the same period in 2008.[25]
In 2008 Evergreen Solar entered into seven multi-year solar panel supply agreements and as of the second quarter of 2009 the company had a backlog of 935 MW remaining with deliveries scheduled through 2013. Also, at the end of the quarter the company announced that it had finalized agreements with Jiawei Solarchina Co., Ltd. and Hubei Science & Technology Investment Co., Ltd. to expand manufacturing operations into China.[10] During an investor conference in December 2009, Evergreen executives commented that they expected to expand other parts of their business beyond manufacturing into China, citing the 65% subsidy they received from the Chinese government. While the Devens, Massachusetts plant will remain open, the labor cost savings between the two locations is huge, with labor costing 90% less in China. Their expansion of business operations into China is an attempt to keep up with the competition which has already been following similar practices [26] At the beginning of September 2009 the companies began construction of a 100MW manufacturing plant in Wuhan, China.[27] Evergreen Solar expects manufacturing costs of its panels in China to be in the range of $1.40-$1.50 per watt.[28] Additionally, the company expects manufacturing costs to drop to $1.00 per watt by the end of 2012 by further expanding production in China to 500MW.[27] From 2007 to 2008 product sales increased by 63%, as new production from the companies Devens facility boosted sales by 61%.[29] At the same time, costs in setting up the new facility brought down net income from -$16 million, to -$85 million.[17]
Sovello
Sovello is a German solar company that produces 30 megawatts of power per year and has a stated goal of increasing production to 300 megawatts by 2010.[30] In 2007 Evergreen reduced its ownership from two thirds to one third. Per accounting rules it is no longer consolidated on Evergreen's financial statements. In October 2007 Evergreen announced a plan for Sovello's IPO. In December of 2008 Evergreen re-affirmed it's intention for Sovello to have an IPO, at which point the company would generate much needed capital but lose primary access to the fast-growing German solar market.[30]
Evergreen Has Been Using Equity To Finance Expansion
Evergreen has lost 33% of its equity to stay competitive in 2007 and 2008. In order to lower costs the company has to create economies of scale by enlarging its manufacturing capacity. To raise and save money in order to do that, Evergreen has done two things. First, the company paid for its silicon contract with DC Chemical with a 13% equity stake in April of 2007.[31] Second, the company lent Lehman Brothers 30.9 million shares in order to raise capital.[32] When Lehman went bankrupt, it did not return the shares as it was supposed to, and so is facing legal action. If Lehman were to return the shares, Evergreen would have essentially completed a free buyback of 30.9 million shares. In absence of that, Evergreen's shares have been diluted approximately 20%, in addition to the 13% it gave to DC. These are not the first times the company has used equity to raise capital, and given its projected continued operating losses, will likely not be its last.[33] As long as Evergreen gets something of equal value in return that doesn't matter, but with both DC Chemical and Lehman the company lost out. The company's silicon contract with DC Chemical has lost value, as the price of silicon fell in late 2008 and early 2009, and Lehman went bankrupt before its transaction with Evergreen could be completed
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