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March 21, 2006
Cost of Clean Energy Decreases to Compete with Its Dirtier Counterparts, According to Report
    by Bill Baue

The Clean Edge report surveys clean energy, documenting market growth, strong stock performance, and expansion of venture capital investment, as well as projecting future trends.

The drive toward "peak" oil production and climate change is fueling the emergence of clean energy as an economically viable and environmentally necessary alternative to oil addiction, according to the Clean Energy Trends 2006 report from Clean Edge. The report tracks the growth of the four primary clean energy sectors (wind, solar, biofuels, and hydrogen) as well as that of venture capital (VC) investment in clean energy. The report also maps five trends shaping the future of clean energy, complete with profiles of specific companies, top headlines from 2005, and organizations to contact for more information.

"For the first time in modern history, clean-energy technologies are becoming cost-competitive with their 'dirtier' counterparts," state report authors Joel Makower, Ron Pernick, and Clint Wilder of Clean Edge, a research and publishing firm covering clean technologies. "That's the result of prices for oil and natural gas increasing from global supply and demand dynamics, and clean-energy costs falling due to market growth, economies of scale, and technology advances."

"Suddenly, so-called 'alternative' energy technologies are looking pretty mainstream," states the report.

The report documents significant growth to date for clean energy, and projects even more significant growth in the future. For example, global solar markets rose 55 percent from 2004 to reach $11.2 billion in 2005, and global wind markets rose 47 percent to reach $11.8 billion in 2005. Going forward, Clean Edge predicts that the solar market will reach $51.1 billion in 2015, with projections for wind only slightly flatter at $48.5 billion. While biofuels (both ethanol and biodiesel) rose only 15 percent from 2004 to reach $15.7 billion in 2005, the report forecasts a $52.5 billion market a decade from now.

"In total, we project these four clean-energy technologies, which equaled $40 billion in 2005, to grow fourfold to $167 billion within the coming decade," states the report.

Constraining growth for wind right now is the rising cost of steel, and hampering prospects for solar is the global shortage of polysilicon, the primary raw ingredient of solar cells (which is projected to surpass semiconductors as the main consumers of raw silicon by 2008.)

"We believe many such obstacles are surmountable through a combination of incremental and breakthrough technology developments, the continued scale-up of manufacturing, and smart investments by corporations, investors, and governments," write the authors.

The report covers the investment angle on clean energy, noting that a number of clean energy stocks are trading at or near their 52-week highs. As of March 3, 2006, four companies were trading at about twice what they were a year ago. Energy Conversion Devices (ticker: ENER) was trading at $46.91 (down slightly from its 52-week high of $57.84); Evergreen Solar (ESLR) at $16.20, just seven cents off its one-year high; Itron (ITRI) at $60.55 ($62.75); and Spire Corp. (SPIR) at $9.75 ($13.37).

Rodrigo Prudencio, principal of energy-tech venture firm and Clean Edge sponsor Nth Power, reports on VC activity in the clean energy market, noting an investment increase of 28 percent, from $716 million in 2004 to $917 million in 80 private companies in 2005.

"These investments, primarily in distributed energy, energy intelligence, power reliability, advanced materials and nanotechnology and related services, represented more than 4 percent of the $21.7 billion US venture capital market, up from 3.3 percent in 2004," wrote Mr. Prudencio in the report. "The Silicon Valley venture firms that financed the Internet and wireless telecom revolutions--among them Draper Fisher Jurvetson; Kleiner Perkins Caufield & Byers; Mohr, Davidow Ventures; and VantagePoint Venture Partners--have begun placing increasingly bigger bets on clean-energy."

As with the recent solar report from Piper Jaffray (PJC), this Clean Edge report highlights the short-term shortage of polysilicon feedstock impacting the solar market as one of five major clean energy trends. In addition to spotlighting Evergreen Solar's "string ribbon" process, which yields twice as many solar cells per pound of silicon than conventional methods, the report also notes a number of firms developing thin-film solar technologies that replace silicon altogether with copper, gallium, indium, and selenium, amongst other materials. These companies include Miasolé, HelioVolt, Nanosolar, and even Honda (HMC).

"It's far from a sure thing: thin film has yet to match the efficiency, reliability, or durability of silicon-based cells," the report notes.

The four other trends the report covers include clean energy as a US security issue; renewables crossing the cost-efficiency tipping point; and the emergence of flex-fuel vehicles (FFVs) using biodiesel and ethanol; and the influence of China and India. The report devotes a short section to each trend, including a profile of a company exemplifying the trend. In the case of silicon shortages impacting solar, it spotlights former Dow Corning subsidiary Hemlock Semiconductor, which is acting to reverse polysilicon shortage problems by investing $400 million to increase capacity from 8,000 to 14,500 tons per year.

"Hemlock got burned in 1998 by ramping up production just ahead of a severe economic downturn in Japan, but that's not likely to happen this time," states the profile. "Talk about pent-up demand: global solar giants like BP, Kyocera, and Sharp can't wait to crank out more solar products for voracious markets in California, China, and Germany--not to mention the fast-ramping demand in the rest of the world."

"The faster that Hemlock and other silicon suppliers can meet that demand, the better," it adds.


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