AstroPower's Day in the Sun
Published: Wednesday, November 01, 2000
are touting the company and its stock, which is now trading in the mid-$50-
a-share range—twice what it was a mere four months ago. If investors are “feeling green,” to use Business Week's term, they should take a look at the solar-panel maker, analysts say. Three currently rate the stock at Strong Buy and six are rating it at Moderate Buy.
The buzz is not without merit. No pun intended, but solar is hot. The renewable energy sector is seeing more interest today than it has since the 1970s oil crisis. Thirty years ago, however, the renewable energy technology industry self-destructed, at least in investors' minds, because many companies intent on meeting market demand pushed shoddy product out the door and lost customers in the bargain.
Today, a coalescence of factors has put solar back in Wall Street's good graces. Not the least of them is the price of oil. From December 1998 through this fall, the price of oil has more than tripled, from less than $11 a barrel to a recent height of $37.80 in futures trading on the New York Mercantile Exchange. Then there's electricity demand.
“Right now it's projected that by 2020, worldwide demand for electricity will be 50 percent greater than it was in 1997,” says Namrita Kapur, analyst of emerging energy with the Boston-based investment bank Adams, Harkness & Hill.
Beyond demand is deregulation. Attempts to create a more competitive marketplace in the electric power industry have been a boon to renewable-
energy companies, most observers agree. So have state and federal laws that give businesses and consumers tax breaks for using renewable energy.
For example, the federal government alone has poured some $1.5 billion of research money into the solar industry over the past three decades. In addition, the Clinton administration introduced the “Million Solar Roofs Initiative” in 1997 as part of the U.S. effort to slow the increase of greenhouse gases. Arizona now requires at least 1 percent of its new electrical generation to come from the sun. And in Europe, Kapur says, Germany has adopted some of the most comprehensive renewable-energy laws in the world, creating international opportunities for solar and other renewable-energy products.
The crucial piece that has heretofore been missing from an otherwise sunny solar energy outlook, this year has finally fallen into place. At the same time oil prices have gone stratospheric, the price of solar has come down. In 1975, photovoltaic solar cost $100/peak watt. Now it's $5/peak watt, according to the Solar Energy Industry Association in Washington. That makes it competitive in the energy market, says Kapur.
Price is one of AstroPower's competitive advantages. “It has a production process that's two-thirds the cost of its nearest competitor,” Kapur says. “It is the only public player in this space that is making money right now. The others aren't expecting to make money until 2004.”
AstroPower's second-quarter sales were $11 million, up more than 50 percent from the same quarter in 1999, and net income grew 115 percent to $957,000 or $.08/share. The company posted $34.6 million in total sales in 1999.
The solar-panel maker is well-positioned to take advantage of the changing energy market, according to Kapur. “It has excellent management, great patent protection and high demand,” she says.
So how did an 11-year-old company in a niche market come to garner such kudos? CEO Allen Barnett, electrical engineer and entrepreneur, shares his insights about Wall Street, the renewable-energy marketplace and the way his company works in the following conversation with LOHAS Journal.
LOHAS Journal: Why are you so attractive to Wall Street now?
Barnett: Our product solves an important problem—how to deliver premium power. We have a sustained history of rapid revenue growth and sustained profits. Wall Street's beginning to know us better. Deregulation has opened that door. We are on most everybody's list of energy technology companies and we're the only profitable one. We have 11 investment banks writing research on us right now—so many that we're going to have to hire an investor-relations person.
LJ: How does Wall Street receive the solar-power industry in general?
Barnett: It lumps us in with other energy technologies like fuel cells and turbines. Wall Street doesn't see solar alone as attractive. Remember, in the beginning solar was long on promises and short on delivery. There was too much hype 20 years ago. It's still a problem. If we weren't a solar company our stock would be substantially higher.
LJ: Why did you start AstroPower?
Barnett: We started it to make a better solar cell. And we did. It's crystalline silicon based. Almost 93 percent of solar cells are based on crystalline silicon. They are the only ones used for power applications. The [crystalline silicon] wafer is made by casting or growing an ingot and slicing it up, like bread. But we make it in sheet form. That reduces the costs substantially—by more than 30 percent. It also gives us lots of flexibility in size, and the market prefers size.
LJ: You have said you want to expand your manufacturing capacity to about 25 megawatts by the end of 2000 and to about 75 megawatts over the next four years. Where are you in that process?
Barnett: Twenty-five megawatts is enough power for about 12,500 houses. But we're not going to expand to 25 megawatts by the end of the year; we're going to expand to 35. We are faced with overwhelming demand.
LJ: Where's the demand coming from?
Barnett: Half of our business is in Europe. About 25 percent is in the United States, and the rest is split—probably 10 percent in Asia and 5 percent in Africa. Why Europe? Because the environmental sensitivity among the electorate and among the elected officials there is so great. The coupling between the electorate and the officials in Europe also is greater than it is in the United States. For example, there was a referendum in Switzerland that asked voters, “Would you pay a tax on electricity?”—a very small tax, less than 1 percent [to fund renewable energy], and it passed overwhelmingly. Germany has had even more aggressive acceptance.
I believe that if the electorate in the United States were allowed to vote on the renewable energy issue, it would absolutely vote for us. The people love us. I spend a lot of time in Washington, and in our negotiations on the Hill our lobbyists always say when they run into disagreement, “We're going to ask for a floor vote.” Even a dyed-in-the-wool Republican won't vote against [renewable energy] in a floor vote.
LJ: Will the November election results make a difference to the industry?
Barnett: The United States will catch up with Europe no matter who wins. For example, we're beginning to roll out a roof-top system in the United States and we've already sold 400 at $1,500 apiece. We're planning to roll out the system in more markets because our tests have shown substantial demand. We can guarantee electricity for important home circuits such as computer, TV and lighting. The system can run the pump for well water and the fan for a home-heating system. It's a very popular product. Consumers come to us for the environmental value, but they also come to us for lifestyle.
[AstroPower began test-marketing its “Sun Choice” solar systems last summer in California and New York. The systems provide power to homes and businesses that are receiving traditional utility electric service. The company has installed larger versions of the system at convention centers in Los Angeles and Anaheim. The Los Angeles Convention Center now is the largest solar-powered facility in North America, according to AstroPower.]
LJ: What are your gross margins right now, and how do they compare with your competitors?
Barnett: Our margins run about 30 percent. We think we are the most profitable company in the industry. We're growing faster than 50 percent a year.
LJ: Who do you consider your competitors?
Barnett: BP Solar, which is the result of the merger between British Petroleum and Amoco, is our largest competitor. Then Solec in Japan [a joint venture of Sanyo Electric and Sumitomo Corp.], followed by Siemens Solar, which has its headquarters in Munich [Germany] but its production in California. We are No. 5., but we have the strongest technology in our industry. We have more scientists and engineers and technologists, and we have the strongest marketing and sales team in the industry. Our dealings are relationship based. We have partners all over the world. We can partner and share brands better than the huge companies do. We are willing to share our brands instead of protecting them.
LJ: Is the current regulatory climate for electricity in the United States a boon or a problem for AstroPower?
Barnett: Deregulation is great. It's why the market is taking off in this country. Regulated utilities have all sorts of measures to keep consumers from buying this stuff. The gate is open now. Thirty-three states now have net meters; consumers can sell excess electricity at retail during the day and buy it back at night. Almost every state has a renewable
energy set-aside. Deregulation really has been very important for our industry worldwide.
LJ: What do you see as the biggest challenge your company will face in the next three to five years?
Barnett: We are going to try to double our manufacturing capability next year and double it again the next year. We're adding manufacturing resources at an unprecedented rate. And, even though here in Delaware the unemployment rate is less than 2 percent, we're having no problem hiring good people. People are attracted to this industry. We do very well recruiting senior staff. We're also family friendly, and we're competitive on the pay scale—but on the low end of it. Unlike some of our competitors, we walk the talk. We have all sorts of environmental safeguards in place that we're not required to have. Our human resources director's No. 1 assignment is to con-tinue to make this a better place to work. That's the overriding thing in her job description. We have a culture of helping each other and it's very effective.
LJ: Is that your leadership style?
Barnett: It's more than style. It's in our vision statement. It's the rule. We don't abuse it. In fact, we tend to err on the side of being too helpful. We tolerate a wide range of personal styles. If people like to work in teams, they can. If they like to work alone, they can. And there is a hierarchy of how we call for help. If a piece of equipment is down for more than an hour, for example, the first-level manager is called. If it's down for more than a shift, the vice presidents of manufacturing are called. If it's down for more than a day, I'm called. And I've never been called.
LJ: Is there any benefit to being lumped into a larger marketplace, such as Lifestyles of Health and Sustainability [LOHAS]?
Barnett: We're in a pretty big marketplace all by ourselves. [Renewable energy technology is a more than $30 billion market, according to the U.S. Department of Energy.] But, with respect to LOHAS, virtually all of our customers start with a personal environmental drive. That is the door-opener for us. When they find out the value equation, that closes the deal. I actually think the latent LOHAS market is bigger than the real market. People do care.
LJ: Why did you, personally, get into this business?
Barnett: I had sold my company, Xciton—the name is a take-off on a phenomenon in physics that converts electrical energy into light—and I didn't really have to work again for awhile. I was invited to join the University of Delaware and turn around their solar program. After I did that, it was agreed that I would go back into industry, but
I had a faculty appointment, so I could take my time. I had concluded that the solar technology that existed wasn't sufficient and that the world needed improved technology. I went to a bunch of companies with my idea and didn't get a lot of response. So I decided I would do it on my own. That was the beginning of AstroPower.
One thing I always used to tell students, “If you're good, you can pick your problem.” Twenty years ago I made the decision that this is the one
I wanted to solve.