Solar Energy Companies to Meet in Milan

NEW YORK (AP) -- Solar cells supply only a small portion of the world's energy demands, but scientists and analysts will gather next week in Milan, Italy to talk about the technologies that could encourage more people to turn to the Sun for their power needs.

The 22nd annual European Photovoltaic Solar Energy Conference and Exhibition, which begins Sept. 3 and ends Sept. 7, will focus on the future of solar-power technology and the industry.

"We anticipate the Milan PV conference will provide a near-term catalyst for solar stocks" and will show that the industry is in good shape, Banc of America analyst Eric Brown wrote in a recent client note.

Cowen & Co. analyst Rob Stone said in a telephone interview that there will be three major themes at the exposition: polysilicon supplies, cutting costs, and government regulations and subsidies.

More than 90 percent of solar cells are made with crystalline polysilicon, and producers do not have the facilities or the supplies to cope with growing demand, which means the price will remain high. Analysts give polysilicon supplies a great deal of consideration when forecasting a company's future, as a company that secures its supplies will know how much it has to pay for them.

Larger and more established companies, like SunPower Corp., are buying as much of the material as they can under multiyear contracts, forcing smaller competitors to make small "spot" orders at prices that can be two or three times higher, if not more.

Right now, Stone said, supplies are so tight that solar companies are essentially paying polysilicon producers to build factories to make the material. He doesn't see much evidence that prices will come down this year or early next year.

Reducing costs is a key issue for many solar cell makers as they increase production. When the cost of making solar power components comes down, the power itself will become less expensive and more consumers will use it.

"The overall goal is to get solar power down to the level where it can compete with grid-supplied electricity without the need for subsidies," Stone said.

The biggest gainer in the sector, however, has solved the cost problem by avoiding polysilicon altogether. First Solar Inc. uses "thin film" technology instead of polysilicon. While it is less efficient at converting solar energy into electricity, thin film modules -- which are groups of solar cells -- can produce power more cheaply than polysilicon modules can.

First Solar shares have more than quadrupled in value over the last year, in part, because analysts are not as concerned about its supply costs. Despite that growth, Deutsche Bank analyst Steve O'Rourke said in an interview that investors are still trying to get a handle on how to measure the company's potential, and the stock could keep rising because its revenue is not tied to polysilicon supplies.

O'Rourke and Stone estimate that thin film will supply 20 percent of all solar power within three to five years. O'Rourke estimates that solar-produced electricity will match the price of grid electricity in five to seven years, and in 15 years he thinks it will be significantly less expensive.

Until costs come down, though, most European countries are subsidizing solar power, requiring utilities to buy solar energy at above-market prices. Companies and analysts watch these laws and tariffs closely, and the two largest markets on the continent, Germany and Spain, are both reviewing their solar power rules.

U.S. energy laws are also a likely topic for discussion on Tuesday, when legislators in Congress are expected to discuss subsidies and tax incentives to encourage the use of alternative energy.

O'Rourke said the U.S. solar market could be worth hundreds of billions of dollars. Stone agreed, comparing it to Germany, which is currently the largest solar market.

"Germany right now is installing about a gigawatt of solar power a year, and they have something like 70 million citizens," Stone said. "We have four times the population, and consume more electricity per capita, and we have twice as much sunshine."