With the Bali climate talks days away, the end of the legislative session quickly approaching, and the Iowa caucuses just weeks away, it’s do or die for energy legislation.
All bets are on that by December 5, the House could pass a bill that would require electric utilities to produce more power from renewable sources, favor income-tax credit for renewable energy, including solar, require that vehicles meet a 25-miles per gallon standard by 2020, and mandate that 20.5 billion gallons of ethanol and other biofuels be used by 2015.
But bill or no bill, the future may be an uphill battle for solar companies, especially those paying $200 spot prices for polysilicon.
Like I said on November 14, the party may be short-lived for solar companies, as a polysilicon shortage continues to be a problem. Thanks to the insane increase in demand, the polysilicon market is in the midst of a veritable feeding frenzy, all the while cutting into solar company margins.
Seven years ago, you could get a kilogram of polysilicon for $9. Today, you’re lucky to get it for $80 a kilogram on a long-term contract. And those companies without such contracts pay $200 per kilogram on the spot market, as compared to $150 in 2006.
So I’m sure you can imagine how badly this chews away at solar company margins.
And it’ll only get worse. According to MEMC Electronics, people assumed that more supply would be on line by the tail end of 2007. That hasn’t happened, and companies are paying higher prices just to get supply lined up for 2008.
Long story short, anyone with polysilcon supply has a license to print money.
Polysilicon: Why Hoku is a buy
Hoku Scientific (HOKU:NASDAQ) could very well stage the next MEMC Electronics run.
On Monday, Hoku was up close to 40%, or $2.30, after inking a new $306 million supply deal with Solarfun Power Holdings. That’s after signing contracts worth more than $1.5 billion through 2019, including ones with Suntech Power (STP:NYSE), valued at about $678 million, Solar-Fabrik and Sanyo Electric.
And they’re likely to see more long-term contracts as solar companies struggle to get their hands on the lifeblood of the solar industry. The supply-demand gap is forcing solar companies to enter long-term contracts as a hedge against further price hikes.
In the end, Hoku is one of those companies that can’t help but benefit. Still, the real catalyst will come once it secures financing for its polysilicon plant in Pocatello, Idaho, designed to produce 2,500 metric tons of polysilicon per year.
To date, we’re up about 24% on shares of Hoku Scientitic (HOKU:NASDAQ) in SCTradingPit.com. We have a medium-term price target of $15 on any news of financing.
Keep an eye on LDK Solar (LDK:NYSE), too. The company just secured an additional 344 tons of polysilicon supply for 2008, and started construction on its plant.
Ian L. Cooper
http://www.energyandcapital.com
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