LDK Solar: The Brightest Opportunity?

LDK Solar (LDK) has recently fallen about 26% in the past week due to the speculated cut of solar subsidies in Spain. Ironically LDK has released not one, but two press releases highlighting favorable developments. One of these is a billion dollar contract with Canadian Solar (CSIQ). The second was an update to the rapid completion of their 1000MT polysilicon plant.

click to enlarge images

One week chart of LDK:

Out of all alternative energy stocks, I have yet to see a more fundamentally favorable solar stock than LDK Solar. It’s quite peculiar because the analysts have been rather polarized on this stock. Out of some of the major analysts covering this stock, we have the following opinions:

• Piper Jeffray: Sell, $34PT
• CIBC World Markets: Sector Perform
• Morgan Stanley: Equal Weight
• Lazard Capital Management: Hold
• Goldman Sachs: Hold
• Oppenheimer: Perform
• UBS: Buy, $71PT
• Needham & Co: Strong Buy, $95PT

That’s quite a range, considering the highest price target is over 275% greater than the lowest. I never base my investments on analyst opinions. However, as an aspiring analyst, I always read their opinions and arguments to evaluate my own opinion. It seems as if most of the analysts have a hold rating on the stock until further clarification of LDK Solar’s aggressive growth strategies to become one of the world’s largest polysilicon manufacturers.

The history of LDK is quite interesting. With allegations of accounting fraud and disgruntled employees seeking revenge, it sounds like something more from Hollywood than Wall Street. However, LDK was cleared of all allegations through a third party audit and was given a clean bill of health by the SEC. For the sake of length, I will forego the episode.

Prospects

LDK is currently building 2 polysilicon plants in JiangXi, China under very favorable conditions. The first 1,000MT polysilicon plant is very close to mechanical completion (2nd quarter 2008) and will deliver 100-350MT of polysilicon this year. The second plant will be a much larger scale 15,000MT polysilicon plant. The second plant is expected to be mechanically complete by the end of 2008. LDK Solar expects "to achieve an aggregate installed annual production capacity of approximately 7,000 metric tons of polysilicon by the end of 2008 and approximately 16,000 metric tons by the end of 2009" [emphasis added].

The two plants being built by Fluor, a world-class American infrastructure and engineering company with unparalleled experience in the polysilicon production field. They have had previous experience in this field through a similar project contracted by REC. Thus making Fluor the perfect candidate for the project. The $1.2 billion dollar project is under fast track specification and will be completed quite rapidly as stated by Alan Boeckmann, CEO of Fluor. Upon completion of the second plant in 2008, LDK Solar will be one of the world’s largest polysilicon manufacturers. In addition, LDK Solar will have significant advantages over their competitors:

Number 1 Advantage: Significant cost savings

LDK Solar is based out of the Xinyu City of JiangXi province in the People’s Republic of China. This leads to a substantial cost savings over any of LDK Solar’s competitors, specifically Hemlock Semiconductor. Hemlock Semiconductor (based out of Hemlock, Michigan) is the world’s largest polysilicon manufacturer. LDK will incur a significant reduction in cost due to the cheap labor market in China. To make a general comparison of the cost of labor in each respective country, the per capita income in Hemlock, Michigan is $18,085 as of the last census. The per capita income in JiangXi, China is 10,679 RMB ($1,380 USD). This equates to a 1310% difference in labor costs. But this is just a rough generalization.

In addition, LDK Solar has secured a subsidized capped electric rate from the local government for wafer production and polysilicon production. The rate is capped at .40RMB ($.06) per kilowatt-hour for wafer production and .25RMB ($.04) per kilowatt-hour for polysilicon production. In a time of skyrocketing electric costs, these savings are very significant. In fact, in 2006-2007, LDK has saved a combined $3.9 million ($.8 million and $3.1 million respectively) dollars in utility expenses. These rates are secured until August 2009. In contrast, the price of coal has nearly tripled in the past year and is expected to increase further. I’m curious to see what savings this subsidized cap leads to.

One-year chart of coal:

Not only is the government subsidizing their energy costs, the government is also reducing their tax rate. LDK will also have full support of the Chinese government.

Jiangxi LDK Solar, as a foreign invested manufacturing enterprise was entitled to a two-year exemption from the national enterprise income tax for 2006 and 2007 and would be subject to a reduced national enterprise income tax rate of 15% from 2008 through 2010. Likewise, Jiangxi LDK Solar was entitled to a five-year exemption from the local enterprise income tax beginning in 2006 and would be subject to a reduced local enterprise income tax rate of 1.5% from 2011 through 2015 [emphasis added].

That leads to a significant advantage against LDK's counterparts. Imagine if the US government cut the tax rate in half for energy companies....

Furthermore, LDK Solar has also acquired a 33.5% minority interest in a local crucible manufacturer JiangXi Sinoma New Material Co. These crucibles are crucial to ingot formation and are not reusable. LDK used to import these crucibles from France which means substantial savings in the crucible department. This investment "provides that not less than 80% of Jiangxi Sinoma’s production capacity will be used to satisfy [LDK's polysilicon production] requirements." Jiangxi Sinoma is also based in the same city as LDK Solar. This is quite significant because it assures that LDK Solar will be given priority, timely delivery, and competitive cost savings in securing crucibles for ingot production. LDK Solar has also secured 100% of the TCS gas required for production upon completion of the first polysilicon plant.

Number 2 Advantage: $9+ billion in revenue backlogged through long term contracts

In 2007, LDK signed 16 long-term contracts with various customers, including one contract worth >$5 billion with Q-Cells of Germany. Q-Cells is the world's largest Photovoltaic module manufacturer. “LDK has been a highly reliable partner and we are pleased to deepen our business relationship with the company,” stated Anton Milner, CEO of Q-Cells AG.

In the first half of 2008, LDK has already signed 8 long term supply contracts. LDK has also announced that it is nearly completely sold out of its wafer capacity in 2008 and 2009. This is a great indication of a healthy company, especially in a turbulent economy such as now. It's nearly impossible to find a company that has close to $10 billion dollars in revenue secured through long term contracts in this down economy.

Number 3 Advantage: Globally diverse customer base

LDK's customer base ranges across the world.

The following chart is from the May 15th Business Update:

This is in contrast to First Solar (FSLR), whose customer base is 90% from Germany. This is a huge advantage in the probable likelihood of policy changes in terms of crucial government subsidies. This can be witnessed firsthand in the recent speculation of subsidy cuts in Spain. Solar stocks all across the board dropped significantly.

Risks

Risk 1: Ramp up/delay in polysilicon production

The biggest headwind for LDK Solar is one put forth by Analyst Jesse Pichel of Piper Jeffray. Pichel is the only analyst with a sell rating on LDK. His $34 price target is based on his thesis that it will take LDK Solar an additional half a year or more to "ramp up" production to full capacity. This assumption is based on the fact that LDK does not have experience in polysilicon production and will need time to ramp up LDK's production plan:

We currently expect to achieve an aggregate installed annual production capacity of approximately 7,000 metric tons of polysilicon by the end of 2008 and approximately 16,000 metric tons by the end of 2009.

Mr. Pichel stated:

If our thesis is correct, LDK's gross margin for 2009 would be less than half its guidance. In conclusion; the press release (from LDK, January 2, 2008) does not increase our confidence in LDK's ability to source poly or make its own poly.

My take on it this thesis is that this may just be a miscommunication/assumption error. I think Mr.Pichel doesn't think that LDK will start ramping until the installed capacity is fully complete. I believe the mechanical completion of the polysilicon plant will be already completed by Q2 of 2008. LDK will be ramping up production during the next 2 quarters (coincidentally half a year as industry experts projected) until complete installed capacity. Therefore, installed capacity will be already "ramped" by Q1 2009. This is just my assumption, but I wish LDK would clarify this in a conference call.

The same goes with the 15,000 MT plant. My belief is that the 6,000 MT of the 15,0000MT installed capacity will be mechanically complete soon (by Q2 2008), and therefore the installed capacity of the completed portion will be ready to use by Q1-09. This brings the installed capacity of the completed and semi-complete plants to the projected 7,000 MT installed capacity as stated by the company. The fact is that you dont need to wait until the 100% completion of the plant to begin production. As long as you have all the parts needed to produce poly on a smaller scale, you can scale your production up as mechanical production progresses.

The company has generally been conservative on its figures and CEO Peng is known to be very attentive to details, so I doubt that Peng would over-project goals by as much 50% as Pichel theorized. Peng is known as "the human calculator" by his old business associates according to an interview with his former employer.

Risk 2: Polysilicon supply outstrips demand

There has been a forecast of oversupply of polysilicon beyond 2008. The polysilicon supply shortage is expected to ease by the end of 2008. Other analysts disagree and believe that if prices drop due to an increase in supply, any significant drop in price will be offset by a rise in demand. With energy prices breaking new highs every week, I think the latter will be true. With numerous places already reaching grid parity including Italy, Japan, and parts of California; solar panels will be much more attractive as energy prices continue to increase. Grid parity, the holy grail of the solar industry, is occurring in more and more places everyday.

With the completion of the polysilicon factory, LDK will be near the top of the food chain in terms of production size. It will also be able benefit from the aforementioned cost savings and advantages against large integrated polysilicon/wafer rivals such as MEMC and REC, which have plants located in the United States. This will make LDK more competitive and likely to survive the "solar shakeout". It will be able to achieve further economies of scale and save significantly more than their counterparts.

Valuation

The fundamentals of LDK Solar are phenomenal. They pull in a greater net income than First Solar, the solar darling of Wall Street, and also project a far wider profit margin over the next 3 years. LDK's net sales have increased 218% YOY, while gross profit has increased 127.5% YOY.

First Solar ($20B Mkt Cap) trades at current year P/E of 100+, while LDK Solar ($3.5B Mkt Cap) trades at a P/E of 21. What is more impressive is that LDK trades at a 2009 Forward P/E of 8.3 and a 5-year P/EG of 0.85, while FSLR trades at a 2009 Forward P/E of 43 and a 5 year P/EG of 2.03. I think the investors of FSLR are just being rational investors (investing not on fundamentals but on hopes that someone will pay a higher price.. i.e. Gambling), but we shall see. I think the CdTe technology that FSLR uses is inferior to silicon technology but time will tell. Cadmium is highly toxic and Tellurium is one of the rarest elements in the world. I doubt that is a recipe for long term success.

The most similar companies to LDK are Renewable Energy Corporation (REC) and MEMC Electronic Materials (WFR), which trade at double the forward P/E of LDK. This is a highly undervalued company. Especially for a promising growth stock with $9B+ in revenues backlogged through long term contracts.

LDK Solar turned a profit their 1st year in the industry. Their remarkably brilliant CEO, Peng XiaoFeng, is a mere 33 years old and has landed among the Forbes list of billionaires. In his previous company, he turned a small safety gear manufacturing business into a multi-million dollar business. Under his leadership, he has led LDK Solar to become a formidable player in the solar panel industry.

Peng has been accurate in his projections thus far. The plants are being completed as planned, so I have no reason to doubt Peng. Therefore, I believe LDK Solar will accomplish what they say they will. Being Asian myself, I know the culture. I know the ethics of working as hard as you can to complete a task for just the sake of pride and honor. LDK Solar will complete the plants on time.

At a price just a little north of $30, LDK is a steal. It has been in a free fall the past couple of days due to the Spanish solar subsidy cut, but this is merely a temporary obstacle. LDK is pretty volatile, but is now near IPO-levels. The object of investing is to buy low and sell high. This is definitely an opportunity to buy LDK cheap.

Also, the short interest in quite interest. LDK Solar has been on the Reg-SHO short sale restricted list for 177 consecutive days, yet the short interest is miraculously bigger and bigger every month. It has now ballooned up to 14 million+ shares. I think this stock could see a huge short covering if the future goes according to LDK's plan. In addition, the company is buying back shares so that should put some pressure on the shorts. 

A stock being on the Reg-SHO list for more than half a year is not a good sign (naked shorts), but I believe there will come a time to be very very bullish on LDK. I believe the institutions are just pummeling this stock down to make retail investors panic and sell, buy their shares on the low, and then sell them back at higher prices. This is why I believe LDK is rather volatile and can be downright scary to own sometimes. but time will soon come when everybody hops aboard the LDK express.

Even Jesse Pichel believes in a bright future for LDK after 2009:

LDK will be in much better shape; a vertically integrated wafer supplier producing their own poly. And I think polysilicon will remain scarce; and that the industry will continue to sell out of it.... The industry could eventually need 80 to a 100 Polysilicon plants to keep up with demand.

It is time to buy LDK. The institutions haven't jumped on yet, but they will. They just hate uncertainty. Once the plants are complete and LDK is dominating the market, the institutions will jump aboard. But the object is to jump aboard before they do, not after. Theres only one sell rating left and i think that will soon change as well.

As for the recent panic, one country lowering subsidies will not mean the end to solar. Skyrocketing fossil fuel costs on the other hand, will only bring grid parity closer and closer to more places. LDK is fundamentally safe, and could possibly be one of the biggest players in the future solar industry. With close to $10 billion (GE)  today.

While crude oil is closing at new highs every week, I think the solar industry is looking brighter everyday. I see a future where homes are connected to the grid and draw power at night but power their own homes during day through solar panels, the cleanest of clean energy. Fact is, that every hour enough energy hits the earth to power our needs for an entire year. The sun is not biased to any one group or subject to geopolitics. The sun will always come out and there are no harmful effects. The sun is the ultimate clean energy.I am going to make a post solely on the promising technology of solar power in general but rest assured, LDK Solar is in a great position. I will also post a follow up article taking an in-depth look at LDK's financial statements.

Until next time, Have a great 4th of July weekend.

Some Links/References:

• LDK May15th Business Update
• LDK 2007 Annual Report
• LDK Key Statistics on Yahoo! Finance

Disclosure: Author holds a long position in LDK

Comments

[CPST1]

This is an excellent view of fundamentals yet, it measures demand before the locality in which the production is acquired. As stated the mechanical outlay is built only it would now seem imperative for the product to be measured and accepted in the province where it is manufactured. Its cost can only be measured by its utility and if it is not made to be useful where only proported cheap labor can be exploited then it will serve no other purposeful value.

[canbj88]

I have read many articles about LDK and this is the best fundamental analysis. Peng seems to have delivered everything he promised. I trust the polysilicon plants will be on schedule as LDK have said and that the company will reap huge benefits from it especially now that polysilicon is in such a short supply recently hitting USD400+ per kg in the spot market. Their production cost estimates, as I have read in many different places, indicate at USD80 to start and to go down to circa USD30 per kg. As to quality, I am sure the big buyers, like Q-Cell and Hyundai, that signed multi-billion dollar contracts are professional and smart people and I don't want to pretend to be qualified to try to out-guess them. The contracts talk louder than guesses or speculations. Time is on the side of LDK. Michael, thanks for sharing your analysis.

[xmplary]

Excellent analysis. I'm glad alternative energy is becoming more important, least we become slaves to oil indulgence.

xmplary.blogspot.com/2...

[asd]

It's really just an excellent summary ofwhat we already know. What I'd like is someone familiar with the industry's take on LDK.

[wallawallabingbang]

Too bad NOBODY trusts the management and the BOOKS.

[User 51292]

Great and thorough analysis, I'm convinced to buy even more stock. I believe in alternative energy.

[greeton]

Wish the estimated price per Kilowatt hour was included in the analysis because that is the best way to compare products and what is going to happen to the polysilicon solar cells when the new nanotechnology thin filmed cells like those being produce by Nanosolar come on line?

[David White]

I like a lot of your analysis. However, I think your views on the large polysilicone plant are misguided. My impression is that only part of the larger plant will be finished by the end of 2008. They will start using this beginning in 2009. I believe more of the plant will be completed in the first half of 2009.
Further I did not see the news as quite so good. LDK had formerly said they would be done with the small plant by the end of June this year. They apparently are not, although they are close. I interpret this as meaning LDK is slightly behind schedule. Over the next 1-3 months LDK should complete the small polysilicone plant. Then we will be able to get a little bit more visibility into how long this process is actually going to take. Jesse Pichel seems bitter about being so wrong about LDK's accounting. No doubt some of his negative comments, ratings, adn predictions are due to his embarassment. Still what he says is not totally without merit. I think you need to review exactly what LDK's former statements have been about the polysilicone plants.
I believe LDK should do quite well, but I think you are presenting a perhaps overly rosy picture. You need to bring more of your comments back down to earth. That's where the stock market operates. Only for a short time will investors accept "pie in the sky". That time has passed for LDK. It still needs to battle back from the negative rumors and accusations of the recent past.

[gaudmp]

The last time I read the constitution congress writes the laws in this country. Politicians not outlawing and putting teeth against the naked shorting going on with LDK will be voted out of office. The sec isn't doing its job congressman wake up!

[ari5000]

volatility is the name of the game.

When/if the plant is operational -- and going smoothly... this stock will turn around in a hurry and likely achieve those higher targets of 70 - 95/share. So there's no rush to buy. Shorts can control it down here. Eventually the chart will show that the shorts are losing control and investors can climb aboard for the big move.

Naked shorting will never be enforced by the SEC. The ultra-rich control the U.S. and U.S. markets. Whenever you pit the wealthy few versus the welfare of the many -- the ultra-rich win every time -- it's the American way of life.

Just wait until the shorts decide to pump this long. Then join the ultra-rich in the pump. No other way to win.

[ENNRP]

Lu seems to miss many points. Solar power can operate during sunlight hours. Wind energy can operate when wind is available. Wind energy is cheaper than solar. The large consumers like utilities are going with wind energy instead of solar. For homeowners it is costly to install solar but their will be some demand. Seems like the market is saying something that we need to listen.

[Lizardsleap]

Question: You stated they should have "the first plant completed by Q2 2008", we are now in the third quarter of 2008, or did I miss something? You made other references to Q2 as well. When ws this article written?

[kkin365]

Excellent analysis; keep up the good work. To fellow commentators: come on, be kind to a 20-yr old senior. If you cannot offer words of encouragement, at least try to refrain from making sly remarks, which are uncalled for.

[Michael Lu]

I know a lot of people said I missed some points but I did consider the point that you guys have mentioned. However, for the sake of brevity, I chose to pick out the point I thought we're most significant. For example, shrinking margins due to high Poly prices are just temporary. I like how analysts point out that high poly prices are bad for LDK when in reality, LDK will benefit from high poly prices because they will change from a buyer to a producer. It would simply be too long of an article if I were to include every aspect of this company that I have studied.

Also, in the press release from last week. Mechanical completion of the plant is done or nearly finished. Since they expect to be commissioning the plant for production over the next 3 months, my guess is that any mechanical completion left is insignificant. and yes, we are now in the third quarter as of July 1st. LDK will be reporting Q2 results near the end of this month.

Any criticism is welcomed. Criticism is the key to debate and sharing of ideas (knowledge). Im open to all opinions.

I'd like to thank you guys for reading my article. I hope it is a major milestone to my future career as a young financial analyst. Please let me know what you guys think. I appreciate your time.

[Michael Lu]

I know a lot of people said I missed some points but I did consider the point that you guys have mentioned. However, for the sake of brevity, I chose to pick out the point I thought we're most significant. For example, shrinking margins due to high Poly prices are just temporary. I like how analysts point out that high poly prices are bad for LDK when in reality, LDK will benefit from high poly prices because they will change from a buyer to a producer. It would simply be too long of an article if I were to include every aspect of this company that I have studied.

Also, in the press release from last week. Mechanical completion of the plant is done or nearly finished. Since they expect to be commissioning the plant for production over the next 3 months, my guess is that any mechanical completion left is insignificant. and yes, we are now in the third quarter as of July 1st. LDK will be reporting Q2 results near the end of this month.

Any criticism is welcomed. Criticism is the key to debate and sharing of ideas (knowledge). Im open to all opinions.

I'd like to thank you guys for reading my article. I hope it is a major milestone to my future career as a young financial analyst. Please let me know what you guys think. I appreciate your time.

[1machoduck]

Excellent analysis; keep up the good work. To fellow commentators: come on, be kind to a 20-yr old senior. If you cannot offer words of encouragement, at least try to refrain from making sly remarks, which are uncalled for.
============
Time reading well spent.........I agree wholeheartedly, the indepth perception based on fact shows that you indeed are laying a strong foundation and will be a fine future analyst, if for no other reason than getting your facts presented in a concise down to earth readable report that even this old Tennessee Hillbilly can understand. I have managed to buy in and out of LDK at a good profit based on my original research and still hold a nice position, with earnings and guidence coming up this month looking to add more....
Thanx Michael keep up the good work!!

[ART005]

The last info I found was Polychrystaline PV still uses more than 2 times more energy making the panels as is delivered over their 25 year life. At some point subsidies of the negative return will fade away and then what will be the value of the PV industry? Wind and Solar Heat have positive lifetime energy values. Solar Heat to elec. I'm not sure.

[ytterbius]

ART005, you are incorrect.

www.oilcrisis.com/NetE...

[ART005]

ytterbius, thanks for the link.
This link bottom of page 33 lists my original number and I've seen it other places. I'm not sure if that is important at this point.
www.peakoilassociates....

But this link (from 2003) suggests PV is very far from justified without big subsidies. This link seems quite neutral in support of energy options.
www.solarbuzz.com/Stat...

This link is current to 2007 and it shows PV about 3X more costly/kWhr than the grid:
www.solarbuzz.com/Sola...

So my simple point is maybe at least PV is not a net energy loss but at 3X times the cost of alternatives why should people be lining up for truely valuable investment? Maybe the Bigger Fool Stock Market Bubble of PV is bursting due to a little stimulas from Spain.

And I think it's important to notice that the $/kWhr has not really come down much in the last 7 years! Economy of scale in production does not help much when such a large part of the cost is energy. I don't see polychrystaline PV ever being a serious contender to the grid...... Thank goodness there's hope in Wind, Solar Heat, maybe Solar Heat Elec, and who knows what else. And if R&D of PV via thin film or something cuts the price by more than 50% great, so subsidize R&D, not inefficient world wide full scale installation.

[stockbull]

what i dont understand why jesse gives his own commentary with every news about the company??? hes so desperate about this stock!!! lol like monkey is for a banana!!!!

[stockbull]

art you seem to be a short!! losing your sleep now????? i think intel or ge has better research dept than you!!! thts y they are entering this business!!! did you know even oil has subsidies???

[stockbull]

lets say no to jesse!!! i challenge him to come out in open and discuss with investors why hes after this company while his targets on other companies::
yge 60
sol 40
ldk 34
what a joke you are jesse !!! jesse joke pichel!!!

[TraderMark]

Michael, great job on your analysis. While I don't agree 100% I agree with a lot of it. What you wrote is superior to 75% of what is on the site so very good for your first piece.

As for Pitchel there is a personal beef there so take the "analysis" with a grain of salt.

My only sadness is you are aspiring to be an analyst - you seem much brighter than that part of the business :) aim higher. Good luck.

[osolemio]

Michael,
What about the German (Schott Solar) and the Japanese heavyweights(Sharp) entering the polysilicon market?
And would a softening chip industry be soon retooling for solar? (intel, National Semi,etc..)

[oatleaksbeans]

I believe that the refined polysilicon LDK will be making has a seriously large future.

I do not see a huge near term future for thinfilm because is it less efficient, requires more racking, more installation labor, more balance of system and is bulkier to ship. It makes the most sense in large open field arrays.

Also the open sunny land for large field arrays - is only available in some areas. Siting it will increasingly be a challange. Simply look at what the BLM recent tried in the SW U.S. by attempting to put a halt to solar development for two years. That story is not over.

Concentrated solar only makes sense where there is significant direct been radiation (i.e., dry deserts)... which is not where people live. Instead we tend to live in areas with clouds and rain.

Crystalline Si solar electric technology looks to maintain it edge over other technologies due largely to it proven high efficiency that can work under direct and diffuse beam radiation. The modules deserve their 25 year warrantee.

But their price needs to come down - as all solar analysts, CEOs and consultants predict.

Crystalline modules make sense on rooftops because they are more efficient. But also because they compete against the retail price of power (and can reduce the building's demand charges) not the wholesale price of power (unlike an open field array).

Upgraded Metallurigcal Grade silicon is already playing a roll in the Crystalline SI market (note CSIQ and Timmenco). It will be mixed with Poly and help drive down module prices toward grid parity sooner. It is grid parity that will exponently grow markets for poly. I predict that UMG will only help grow polysilicon sales.

Today when a Kohl's department store in CA is covered in crystalline solar electric modules it meets about 20% of the building's energy needs. Put on thinfilm and it will meet 10% of the building's needs.

Roof space is limited - so efficiency really matters.

Now think of electric cars and plug-in hybrids charging up and the world's space heating needs moving from natural gas to electric heat pumps. There will be an explosion of electric demand... every sunny roof will want to be covered with the most efficient modules available.

And those modules, for the foreseeable future, are polysilicon.

[secmaven]

When the Democrat congress gets through with its alternative energy subsidies the Spanish caper will be long forgotten and LDK, in anticipation of this certainty, will have doubled.

[ART005]

Stockbull, I'm not long or short solar stocks. I hope to be long on Earth if we can all get a plan going that works...
Check out this site with a nice chart of different PV installation costs:
www.dovetailsolar.com/...
My efficient home uses around 8 kWhr/day and I pay $25/month.
On the chart I need the Cottage system: $23K for 2.6 kWp system.
Look at the payback for me: $300/yr = 1.5%/yr with infinite equip. life and no maintenance. Not too good.

Just the equip. ammortisized over 30 years is $65/mo!!! 2.5 times the value of the electricity!!!!! With no interest on capital and no maintenance costs!

I'm all for alternative energy, I own some and it's working great but the enthusiasm for PV is a mystery to me. I'm just visiting to try and understand how it's gotten to this point. My solar water heater would be rated at 2.5 kW and it could be installed professionally for about $6K. I did it myself for summer only use for less than $2K. For full all year use, less than 1/3 the cost of PV.

Oatleak, I think your vision of a future using electricity for more applications shifting the load off oil/gas is right on target but Solar Heat Elec. is more efficient than PV according to solarbuzz.com. (a twist on the most efficient module available?)

[ART005]

That $6K solar water heater would be 5 to 7 kW. I just priced one for my neighbors and forgot how much bigger than mine it is. Full year 2.5 kW would be around $3K to $4K.

[Karl Glazier]

It looks like Nanosolar will make all present PV and thin film producers obsolete.
According to the link below, they have developed a machine than can produce 1 Gigawatt of solar cells a year, and this machine costs only $1.5 million.
See
www.nanosolar.com/blog.../

[buysolar]

Finally an Analyst that talks sense: Michael Lu I congratulate you on speaking truth.

I have been following and have owned shares in LDK since IPO.

If I stretch my gut feeling on the fact that a small percentage of LDK product goes to US directly and these US Oil centric analysts like to use this ill thought out sentiment.

As an American I understand most of the products we buy are from China.

As an American I understand that we must move away from Oil and into Solar and wind charging of our electric vehicles.

If we want to have anything we can pay for I think supporting these Analyst for their hedge fund buddies is shooting ourself in the foot.

What have Hedge funds done?

They are nice people who care about the majority of Americans?
They care about the companies they buy and sell?
They never lie and are totally honest about the PPS strike.

[johnboy]

What an excellent article and review of LDK Solar. Thank you Mr. Lu for your objective insights.

[ART005]

I would love to hear from somone that can justify the value of PV at present productivity level ($4/watt) compared to options.

I massaged the numbers one last time and this time I put an inflation factor into the future value of electic kWhr. Starting with $0.10 and allowing for 40 year non degrading performance of panels and not using any cost for capital (%0 loan) I calculated that the inflation rate for electricity would have to be 3.37%/yr for a $23,500 payback of the 250 kWhr/mo system described in the link below.

So I would say PV needs to make about a 50% price reduction and then accounting for future inflated elec. costs things will look good. The problem as mentioned above is the kWhr costs of PV has been flat, not decreasing for almost 7 years.

Hopefully bigger than the residential scale things look better.

www.dovetailsolar.com/...

[Michael Lu]

Hey ART005, the thing is that the biggest cost of PV was the polysilicon for the wafers. This problem is being solved as we speak. Imagine the oil boom from history, Imagine if all of the oil in the world was available but nobody had the technology or the capability to drill for/refine the oil. Oil was plentiful but extracting/refining it for use was the obstacle. Whoever were among the first to successfully achieve this feat, would be handsomely rewarded. Thats the similar case for the solar industry.

Polysilicon shouldn't be the most expensive component of a solar panel. Its 40-45% of the cost of good per solar cell. Its quite ironic because silicon is the 2nd most abundant element in the earth. Its practically just sand. The problem was that there were no facilities/needs of refining this silicon into PolySilicon on large scale because there wasnt a great enough demand. Now that energy prices are at record prices, many people are turning to the future of solar. The demand is being established as energy prices rise, and polysilicon prices (and in effect, solar panels) drop. Theres PLENTY of silicon in this world, we just need to be able to refine it on a large scale. This is already happening (i.e. LDK's polysilicon plant). Its essentially dropping the cost of the most expensive component of a solar cell.

Those pioneers into the PV industry that are helping drop the price of silicon to affordable levels will help lead the transition to a less fossil fuel dependent world. I personally believe there will also be a handsome profit and future for them in the future as well.

[dedacive]

Thanks for the great analysis. And I was sure to check out some of your sponsors when on your page after getting the link from yahoo board. ONE QUESTION? can you give a brief explaination of how you came up with the 9 billion revenue number for long term contracts. I've been reading 20 billion plus. I'm inclined to believe you, but would love some clarification.

[frflyer]

ENNRP You are wrong about solar and wind.
They compliment each other. On average wind is stronger at night, complimenting the daytime strength of solar. Solar thermal power plants, in the southwest U.S., using 1% of our deserts, could power the whole country, using less land than now used for coal mines. All three power companies in California are negotiating deals for solar thermal power plants, mostly in the Mojave desert. And solar thermal plants can store heat to generate electricity at night. Photovolaics on rooftops etc, will provide less centralized power generation. If solar and thermal are considered in terms of power to drive electric cars, wind can provide 180,000 miles per acre, while solar power plants can provide 1 million miles per acre. Besides, the "intermittency&qu... problem of wind and solar is a red herring. If it's such a problem, why has Denmark achieved 20% wind power, while the U.S. has less than 1% wind and solar combined. The difference is they don't have an oil company lobby calling the shots.

Greeton
I think the supposed competition between thin film and regular silicon cells is another red herring. Thin film is cheaper to produce, but is less efficient than traditional cells. Where square footage is not a big issue, thin film is the way to go. Where it is an big issue (you only have so much roof space for instance), regular silicon cells will get you more watts for your given area. Nanosolar for instance, is suggesting that towns in America dedicate 10-20 acres, on the outskirts of town, to their thin film solar panels. 10 acres would power about 1,000 homes.

ART005
Big subsidies to solar? You must be kidding. Our legislators are arguing about whether to give $6 billion in tax credits or subsidies for solar, wind, geothermal, etc combined.
Meanwhile, according to one estimate, oil companies get $84 billion annually in tax credits and subsidies, making them perhaps the lowest taxed industry in the U.S. at about 8%.
Coal gets about $3 billion, nuclear also gets billions.
And the subsidies are only a small fraction of the total hidden costs of oil in America.
If these cost were honestly considered, it would become painfully clear that oil is ruining our economy. It also accounts for over $300 billion of our annual trade deficit.

[Michael Lu]

dedacive: Its based on averages from research reports by the analysts based on projected prices for PolySilicon.

The problem is that it is nearly impossible to be very accurate on predicting the price of a commodity for 10 years into the future (how long some of the contracts are). So therefore it is nearly impossible to say if it is close to $9B or $20B. Based on the principle of conservatism, I used $9B which is a very reasonable estimate. I think $20B is a little extreme and is based on the price of Poly at current prices, which are most likely a lot more than what they will be in the future due to the current shortage. Its impossible to say who is correct though.

[ART005]

frflyer, I wish your post had been first and set the tone. Your direction of describing energy density, quantity, conversion to usable metrics is the focus I've been trying to help create here and other places. Next adding economic values will help bring options into focus.

I didn't mean solar subisidies are too high on absolute basis. My point is the build out of polysilicon PV via subsidizing an energy source that is 3X more expensive than other options is too early a waste of subsidy resources. And then from the perspective of this investing blog, How good is investing in possible profitability of the supply chain to a technology that is among the worst economic alternatives in its industry? If the subsidy spigot of PV build-out has a reality check what will happen to investments in the supply chain? GE's new position certainly challenges my question. I'm looking for answers as to how PV at $0.23/kWhr is encouraging compared to $0.06 to $0.12 alternatives. I'm all for subsidizing research and pilot manufacturing until productivity starts to come into view, and then start subsidizing commercial roll-out. I think it's way too early for PV. Your other energy suggestions offer more bang per subsidized dollar.

Small note, away from coastal areas I think you'll find the wind blows more from late morning until late evening. It comes from uneven solar heating of land formations. Coastal influenced by ocean temperatures and follows a differnt pattern.

Here's a quick vendor link to a solar water heater: 7.5 kWp w/o installation for $6,300. Having installed one, $1000 for installation would be very generous, maybe max $500 shipping. $8,000 installed for 7.5 kWp. Equivalent PV cost is $50,000 per dovetailsolar.com and I don't think that includes installation or shipping.
shop.solardirect.com/p...

[ART005]

frflyer, I meant to mention I think you're being too hard on U.S. wind industry. In fact I think the U.S. generates more kWhr by wind than any other country, I think Germany is number 2. The "%" spec you listed is misleading. A GE engineer told me they have a 4 year lead time for industrial turbines (~1.5 MW) so world wide that needs to be improved first.

[buystocks]

not as good as CSIQ....

[alpha24seven]

C'mon...

They are the tail and not the dog. The SOLAR INDUSTRY is rapidly changing and their product (Si) will be the Edsel of the energy industry within 36 months.

That and the fact that nobody trusts them anymore...