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AstroPower Rises with the Sun

By Heesun Wee Fearful of power blackouts this summer? Fed up with soaring electric bills? For many Californians, one obvious solution has been to slap solar panels on the roof and generate some power for themselves. Small wonder interest in solar energy systems is soaring in the Golden State.

Yet few of the "green" energy companies that sell such gear make much money. The biggest stumbling block: price. Outfitting a single-family home with a solar power system can cost up to $25,000 -- and that's for just a small home of 1,800 square feet. It's a huge upfront investment, especially considering energy prices have fluctuated so greatly over the past 25 years.

None of this has deterred AstroPower Inc. (APWR). Based in Newark, Del., the company has transformed itself from being primarily a research shop for solar cell technology at the University of Delaware into a fast-growing commercial venture. In 2000, revenues increased 48%, to $46.6 million, and the company posted a profit of $3.5 million, or $0.27 cents per share -- a 53% jump from 1999. Even better, the company projects revenues of $75 million for 2001, an increase of nearly 60%.

EURO GIANTS. The company says it's on track to meet analysts' expectations of a $0.53 per-share return this year, almost double its 2000 profit. Granted, AstroPower is still a tiny company compared to the solar subsidiaries of global energy giants, such as BP Solar, a subsidiary of British oil giant BP (BP) and Siemens AG's (SI) Siemens Solar. Those companies recorded worldwide revenues of $200 million and $150 million in 2000, respectively. Yet AstroPower has the ambitious goal of becoming a leading U.S.-based producer of low-cost, state-of-the-art solar technology.

Even before the latest energy crunch, AstroPower was gaining market share, especially in North America, where the company cornered roughly 24% of the market for solar power systems in 2000, according to Roberta Gamble, an energy markets analyst at Frost & Sullivan in San Jose, Calif. That's not far behind market leader Siemens Solar, with 37% market share in North America. Astro is just about neck-and-neck with BP, which has 25%.

DEMAND SURGE. Since the California crisis hit, AstroPower's biggest challenge has been keeping up with the boom in new orders. AstroPower claims it can only meet about 70% of the demand for its products, compared to around 90% a few years ago. "It will take at least two years to catch up with demand," says AstroPower founder and CEO Allen Barnett, a former University of Delaware engineering professor who started at the company as part of a research stint.

AstroPower thinks more gains are inevitable as the U.S. power grid comes under greater strain and increasing numbers of energy consumers look to solar as a form of guaranteed electricity. The bulk of solar power systems are in rural-area homes with shaky electricity connections, as well as in small industrial applications, such as cell-phone towers, traffic signals, and highway emergency call boxes. Yet AstroPower's fastest-growing business right now involves outfitting homes that are already connected to the nation's power grid.

With such growth kicking in, 11 analysts who follow the company like the overall picture for AstroPower. So do investors. The company's share price has tripled since last July, to around $45. That's off its recent peak of nearly $64 last October. Back then, investors were excited about a new technology for solar-powered cell phones that Astro was developing. But the technology has proven to be difficult to refine and is still in development. It's a sign of Astro's overall attractiveness that the market is watching the company so closely right now.

SOLAR SAVVY. Indeed, a key element of AstroPower's success lies in proprietary techniques. It has developed a new generation of solar panels, expected to hit the market soon, in which the solar cells are etched onto sheets of glass. This eliminates the time-consuming and costly task of making individual solar cells and later attaching them to panels. Meanwhile, the company is moving quickly to close a host of big deals with California homebuilders.

On June 26, AstroPower announced a deal with Pardee Homes Inc. to offer solar electric power systems as a standard feature in about 200 new single-family homes in Southern California. And on June 22, AstroPower announced a similar deal with U.S. Home, a division of Lennar Corp. (LEN), for at least 500 new single-family homes near Sacramento. In January, Shea Homes Inc. agreed to put AstroPower solar gear in 100 new homes in San Diego. "It really shows that the technology is migrating into the mainstream," Barnett contends.

There's a lot of room for more growth. Less than 1% of Americans get their power from solar energy systems, largely because of the hefty upfront investment needed to install the equipment in a home. But the economics of solar power have been changing, says Larry Kazmerski, director of photovoltaic research at the National Renewable Energy Lab in Golden, Colo.

GETTING CHEAPER. As electricity rates rise and the cost of solar technology drops, the cost of a solar panel system big enough to provide all the electricity needs of a family of four has already dropped from around $40,000 in 1990 to $25,000 today. Kazmerski figures the trend will continue, as technology developed by the likes of AstroPower becomes more cost-efficient, or as conventional electricity rates rise and make investing in solar energy an attractive alternative in many parts of the country.

There may be other catalysts as well. For one thing, governments are stepping in to give the technology a boost. In March, 1998, the California Energy Commission began offering a robust 50% rebate on the cost of qualified renewable-energy systems, including solar power systems, to customers of the three largest publicly owned utilities in the state -- Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric. Other states are now considering similar programs.

Also, the cost of the initial outlay for solar technology has already dropped below $25,000 in many cases. That figure is for customers who want all their power from solar. Customers who opt for solar power these days usually remain attached to the power grid. This allows many of them to benefit from "net meter" technology, in which meters run backwards as solar-powered energy is pumped into the grid during the daytime. Plus, some solar power systems not only convert sunlight into electricity but fuel boilers to provide winter heat, too.

TIPPING THE BALANCE. If AstroPower's solar power system is installed during construction, it typically adds only about $7,000 to the price of a home, or a net of about $25 to $30 more to the monthly mortgage payment, the company estimates. When homeowners are deciding among several similar homes in the same price range, the added benefit of going green at such a relatively low cost often tips the balance in favor of the solar-powered house, Barnett says.

To be sure, in America, solar development lags behind Europe and some other overseas markets, where subsidies for green power systems are often much higher. "California is a good lesson for all of us [about conservation and the cost of power] and is proving this technology's worth," Kazmerski says. "By year 2015, 2020, this is going to be big business for the energy industry." Small wonder CEO Barnett tools around town in a flashy Chrysler Sebring convertible with plates that read "SOLAR." Wee covers the markets for BusinessWeek Online in New York

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