Sunday, August 31, 2008

Windfall Taxes on Big Oil.

Obama supports them, as does Palin.

Just a note on Palin's support of Windfall Taxes on Oil Companies, remember that Alaska is a very Socialist State (believe it or not). Some factoids from Wikipedia point out that Alaska has the 5th largest per capita Gross State Product of all the US States, for which Oil and Gas accounted for 80%. There is an "Alaska Permanent Fund" controlled by the State Government which pays out a dividend to all eligible Alaskans, which amounted to $1963.86 in 2000. So, it's pretty easy to keep Alaskans happy, just try to increase Oil Revenues, and thus boost the yearly Socialist Incomes. See.

So, they are both in support of Redistribution of Wealth from Big Oil.

Ok, let's look at this in a completely different way.

Per Google, Exxon alone reported $38.968 Billion in Cash and Cash Equivalents, as of the end of Q2. Other companies include, Shell at $8.990 Billion, Chevron at $8.180 Billion, and BP at $3.593 Billion. This is what they have in CASH and CASH Equivalents. This money ($60 Billion Total in just the four listed Companies) isn't even tied up in Investments. It's what they've got in the sock drawer ready to move immediately as needed.

So yeah, as a bit of an Exxon Watcher, I can tell you that they've been building up this Warchest for quite some time. What are they going to do with it? Well, IMO they are going to invest it in Alternatives, but not yet. They will wait as long as possible before showing their hand to the public.

So, Obama and many others want to put a Windfall Tax on these big Oil companies. What affect would this have on the Investing Choices made by the Managers of this Big Money?

Well, it's entirely possible for Companies like Exxon to DECREASE their overall Profits, and AVOID a Windfall Tax. They'd do this by INVESTING more of that money into a foundation for Future Growth, like in Alternatives.

Sounds great to me. As it stands, they're just sitting around cashing in on the incredibly high prices that we're currently experiencing, and by delaying future production they are directly putting continued upward pressure on those prices, which is very much sapping the strength of the entire Economy.

The Windfall Profits Tax seems like a good way to put Pressure on these Companies to Invest those Profits. They need to decide sooner, rather than later, if they are going to End their Corporate Lives as Oil Companies, or whether they are going to Continue on as Energy Companies.


EDIT: In support of my claim that Palin Supports Oil Taxation, plus an additional thought on the subject:


http://www.adn.com/front/story/442702.html

http://seattletimes.nwsource.com/html/localnews/2008103325_alaskatax07.html


Her plan was to give every Alaskan $1,200 as energy cost relief, based on Oil Windfall Profits Taxes, and increased Oil Tax Increases that she supported as Governor. Geez, I wish my State had Oil.

Here's another weakness of Palin. Any Economics that she concieves of is based on a Socialist State, with a very very simple Economy. It's 80% based on Oil and Gas, and the Population is very very small. Does she understand the impacts of Presidential Decisions on Large metros, when the largest number of people that she's ever had to deal with is the Population of Alaska, which is only 670 Thousand People?

As Governor of Alaska, when has she had to closely deal with any one of the many Industries that make up the American Economy? There are no Auto Manufacturers, Major High Tech Companies, Huge and Troubled Financials; heck there isn't even very much Agriculture in Alaska.

So, expect no help for McCain on the Economic Front.

Saturday, August 30, 2008

Asensio is at it again.

Looks like Asensio is making allegations again, trying to start a new short attack on LDK.

If you haven't heard of him, Asensio is a low-life famous short seller, who had a hard on for LDK last year, using the same types of rumors that we see coming from him now. His arguments are crap, and he likely is a significant chunk of the Short Position that is currently trapped in LDK.

The article linked above suggests "LDK's most recent financial statements show questionable entries, including its "inventories to be processed beyond one year" numbers," as one of Asensio's "concerns." Well, the fact is that that classification of inventory relates to LDK's supply of Silicon Scrap, which is an integral part of their blending technologies, and it has been signed off on by not only the Accounting Firm KPMG, but also by a completely Independent Deloitte. This was all cleared up last year, and Asensio knows it.

As for other Accounting and Transparency issues, LDK has released equivalently detailed financial numbers as any of the other Solar Companies I've seen, including American Solar Companies, they've released a detailed Annual Report for 2007, have done detailed presentations of their Business Plans, Progress, and Technologies. In fact, we probably know more about the details of LDK's business than we do about any other Solar Company out there.

But apparently Asensio needs help from some new shorts to take the price back down for him.

He'll clearly even lie to make that happen. When he refers to the new deal with Hyundai Heavy Industries, he says "interestingly, there is no reference to the prior announcement and makes it look like a new contact." However, if you look at the actual release, you'll see that it does specifically refer to this as an "additional" agreement.


So, if I were a Short Seller following Asensio, I'd be thinking twice about whether he can be trusted, or whether he's just looking for a sucker to sell him some shares so he can get out of this action. Look at the Fundamentals of this Business and this Industry before you make a decision, and if you Really think that LDK is a sham, then go ahead and follow Asensio, but if you conclude that LDK really is what they say it is (which it is), then for your own sake, Don't Short. There comes a time in the market where Manipulation finally falls before the Truth of the matter, and that time is coming. I would suggest that you not be on the wrong side when it happens.

Friday, August 29, 2008

New LDK Contract - Hyundai Heavy Industries - 8/29/08

http://investor.ldksolar.com/phoenix.zhtml?c=196973&p=irol-newsArticle&ID=1191975&highlight=

"LDK Solar Co., Ltd, a leading manufacturer of solar wafers, today announced that it has signed a seven-year contract to supply multicrystalline solar wafers to Republic of Korea-based Hyundai Heavy Industries Co., Ltd (HHI).

Under the terms of the agreement, LDK Solar will deliver approximately 440 MW of multicrystalline silicon solar wafers to Hyundai Heavy Industries Co., Ltd over a seven-year period, commencing in 2009 and extending through 2015. Hyundai Heavy Industries Co., Ltd will make a down payment representing a portion of the contract value to LDK Solar."



Another Prepayment.

LDK Demonstrates how they will finance their growth without turning to Dilution.

LDK Demonstrates that they will not play the Short games.

Thursday, August 28, 2008

LDK - Notes on Options - 8/28/08

This idea has been rattling around in my head for some time. Here are some thoughts. Take them as purest opinion and speculation. If they are fundamentally unsound, then give me hell.

The question is, what have the Options Writers been doing, and what are they doing now?

Well, the trend since October '07 has been that puts have been golden. LDK has nearly on every occasion dropped to or below Max Pain for options expiration.


"Max Pain" is the point of intersection between the interests of Call Writers and Put Writers.


In the case of Calls, if the Price of the stock goes above the Strike Price of the Call, then the Call Writer has to deliver 100 Shares of Stock to the Call Buyer (if they Buyer Chooses to take them). The Call Writer DOES NOT WANT the price of the shares to pass the Strike Price of the Calls that he has written and sold. Some Call Writers don't even have the shares to deliver. In the case that their calls get into the money, these guys would have to buy shares to deliver sometime after OE (or else be in possession of other Calls that were also in the money).

This puts it in the interest of Call Writers for the Price of Shares to Drop (or stay below the price of the Written Contracts, anyway). It puts Call Writers on the Short Side.


What about the writers of Puts? The Writer of Puts is somewhat the opposite of the Call Writer. The Put Writer says to the Put Buyer that if the Share Price of the Stock goes BELOW the Strike Price of the Put that has been Written and Sold, then the Put Writer will BUY 100 Shares of Stock from the Put Buyer (if the Buyer Chooses to sell them). The popular idea here, is that a person would Buy a Put in order to protect themselves in the case that the Price of the Shares Decreases. If the Price of the Shares Goes Below the Strike Price of the Put, then the Put Buyer will Sell the Shares to the Put Writer for the Higher Strike Price.

This would seem to suggest that the Put Writer would be interested in a Rising Price, and would be on the Long Side.


Now, if the Put Contract were truly the opposite of the Call Contract, then clearly, just as the Call Writer does not want their Calls to come into the money, neither does the Put Writer; i.e. where the Call Writer wants the Price Down, the Put Writer wants the Price Up.


This is the basis for Max Pain, but is it accurate? Maybe not always.


What if the Put Writer Actually Wants or Needs the Shares? They could be perfect happy to Deliver on their In the Money Put Contracts.


Consider a situation where there are very few shares to go around (Low Float, Dedicated Long Holdings), and an incredible level of Short Interest that needs to protect itself from a Squeeze. In this case, the last thing that the Short Interest wants to do is to buy Shares on the Open Market, as these Transactions would create significant Upward Pressure on the Share Price. However, in order to have control of the Price, Short Interest must have Shares to Strategically Dump.

If the Put Writer really wants those shares, then they might very well be perfectly willing to let the Puts end up In the Money and to collect the resulting Shares. They make the initial income from Selling the Put in the first place, and then on Options Expiration Day, they could collect 100 shares of Stock per Contract without undue buying pressure on the Open Market Price of the Shares.

Of course, the Buyers of the Puts would be happy with the deal, because they managed to sell their shares at a lower level of Loss (percieved).

This would be exactly what the Short Doctor Ordered; Sell Puts, Drive the Price Down, Collect Shares. It's a Win, Win, Win situation for Short Interest.

The Next month, they can then repeat the process, and use the Shares Collected in the Previous Month to Dump on the Open Market, and Drive Down the Price as Necessary to bring the Next Wave of Puts Into the Money.

It's a Vicious Circle, and could Explain why, on a couple occasions LDK Shares ended up more than $5 below the Max Pain Price.


Q2 LDK Earnings caused a failure in this Short Process.


Nobody had any idea that LDK was going to Blow Away Expectations like they did. Many eyes moved to see LDK for the first time, and Many More have looked this way Since. The Price went from $33 to $42 in Five Days up to August OE, knocking out the $35 and $40 Strike Puts. I don't have access to an Options Chain from August, but I did record that between $30 and $40 Puts for August there was a total Open Interest of 23313 Contracts. Whether there was any possibility of taking this Stock below $30 had LDK announced mediocre results, who knows, but I think it's safe to say that the losses of the $35's and $40's unexpectedly deprived Short Interest of over a Million Shares that could have been used for Dumping in September.

This is not to mention the Calls that had been bumped into the Money, for which either Shares would have to be Delivered, or additional Calls would have to be purchased to cancel the debt. Either way there would be a cost to the Short Side.


Looking forward to September.


Well, obviously the August Share Price Movement since Earnings has been incredible. How much of this has to do with the repercussions from the August Options Scenario, is unknown. I think it's safe to say, though, that Short Interest is suffering.

August Options Losses, however, are miniscule compared to the potential Risk that the Short Side faces in September. A week ago it was looking possible that Put Writers could lose their $45 Strike Puts, and now it's looking possible for them to lose the $50's. Again, this is not even to mention the cost of Delivering Shares on In the Money Calls at these higher Strikes.

How does Short Interest Deal with this?

I have no freakin' idea! LOL!

The threat to Short Interest of Poly Production hangs over the Stock. Poly Production is the Key in the minds of a great many Investors. Jesse Pichel has said that he believes that they will FAIL. Where Earnings were worth an immediate 20% added to the Share Price, Poly Production (or even other pieces of wholly unexpected news, for that matter) could add 20% OR MORE between refeshes on the screen.

For Shorts to avoid massive Options Losses, the price has to be driven down in September. On the other hand, to do so will require the dumping of shares, which carries with it incredible additional risk based on the Timing of LDK's Poly Announcement. Even if the price could be brought back down to, say, $39, a 20% rise on News from LDK would pop it right back up to $46, bringing the 40 and 45 Strike Calls right back into play. As of today, just those two Strikes amount to almost 22 Thousand Contracts, or the equivalent of 2.2 Million Shares. So, what if Short Interest Dumps a Million or more Shares in order to save on 2.2 Million Shares, and they Fail? I'll leave that to the reader's imagination / calculation.


What can Longs do?


Not that I am advising in anyone's personal investment decisions, but I think that there are some things that could concievably be done to support the Price through this time. Call it "common sense." Remember that each potential investor is absolutely responsible for their own investing decisions, and I am not liable for any potential losses or other repurcussions from those decisions.

One, be careful. Recognize that when Short Interest buys the price up, they'll do all that they can to then sell it back down. Don't go out on a limb on Margin on a spike in the price. Emergency Selling on the Downside suits Short Interest by generating Fear and Losses from Longs. Avoid the temptation to buy on Margin by making sure that you have your desired position PRIOR to the big moves that we're looking to see as this Short Interest unwinds.

Two, don't use stops. Stops, in this case, have been consistantly used by Short Interest to trigger chain reactions of Selling. If you know the facts of this case, and are confident enough to buy shares, then great, but if you are investing with such fear of short term loss that you need to put up a stop to be triggered, then maybe you'd better go find a different Stock to buy.

Three, don't forget the Fundamentals. For a reminder, see the July Presentation Slides. These Fundamentals ultimately define the Value of LDK, and the day to day ticks are of Secondary Importance. It is these Fundamentals that give you the comfort of Confidence that your money invested in LDK is likely to grow over the long term.

Four, for Traders, having looked at the Fundamentals, as well as at the history and projected future of this Company, recognize that though buying and selling short-term dips and peaks can increase the profits of a skilled trader; missing the rapid rise of a Short Capitulation would be a damned shame. Holding a core position safe from trading might make sense.

Five, spread the word. This story, the LDK Story, the Global Solar Story, and even the Climate Change and Peak Fossil Stories are incredibly important for people to understand. Without understanding of the Problems and Solutions, is it any wonder that people are unable to properly determine the market value of the Relevant Businesses?


As usual, Comments / Questions / Disagreement is welcome.


Final Late Night Edit: LDK has just announced ANOTHER contract WITH PREPAYMENT from Hyundai Heavy Industries for 440MW of Wafers over 7 Years Starting in 2009. This even more greatly complicates the Calculations for Short Interest on LDK.

LDK has developed a clear pattern of offering Contracts for future Production, in part, based upon Immediate Partial Prepayment in support of the Growth that LDK will need to fulfill those Contracts.

This strongly supports LDK's position by not only assuring LDK a supply of Capital for Growth, but by doing so without the Need for Dilution on the part of LDK. There are clearly no new shares coming onto the Market for shorts to use in covering.

Tuesday, August 26, 2008

Sunways - LDK - GT Solar - Relationships - 8/26/08

In the news today, LDK was dominated by a statement from Sunways AG.

This clears up a couple of things about LDK's Poly Plant Plans.

For one, it clears up any confusion about the reactor make-up for the 1000 Ton Poly Plant. It had previously been unclear whether the 1000 Ton Plant was being supplied with Reactors by GT Solar, Sunways, MSA, or a combination of all three.

It now appears that the 1000 Ton Plant is solely under the perview of Sunways, and all the Reactors appear to be supplied by MSA of Germany.

Per the article, there is indication of some delays in the LDK project, due to weather-related supply disruptions. In addition to this, however, there was some added certainty as to the timing of the 1000 Ton Plant in terms of Implementation.

Per Sunways, the first two 125 Ton/Year Reactors are to be put into production in Late September to Early October. In addition, the plant is to be Completed by End of 2008 or Early January 2009. Based on this, though, I have to wonder what the present status is of the initial 2 MSA Reactors recieved from Sunways. The possibility that they are presently in "test," and producing "test" amounts of Poly is a critical one.

In other news, GT Solar has announced Q2 Earnings today. I've left some notes here. In the CC, GT stated that they had Reactors ready for Delivery to LDK, and LDK was next on the list for Delivery. They also stated that they expected to realize no revenues from poly Reactors for the remainder of the year, which suggests that per plan there will be no poly production from the LDK relationship this year. That's ok, we didn't expect any production from the Large Poly Plant this year.

Well, that's the news for today, and now it's bedtime. :)

Monday, August 25, 2008

Sent to my CEO just now - Peak Oil.

Hi D,

I'm going to pass this around to some others, but I thought I'd pass yours along with a short personal note.

We haven't talked in quite some time, but if you remember, I have a particular interest in Energy Issues. I couldn't go into too much detail on all of the aspects without turning this into a book, so I'll keep it short. :)

Linked, you'll find a 18 minute long video, which puts the concept of "Peak Oil" into sharp relief, and I hope that you can find the time to watch it.

As you've probably noted, discussion of Energy Issues have increased in volume over the last year or so, and with very good reason. Of all of the reasons that are typically mentioned, however, Peak Oil is not one of the more common items mentioned, though it is arguably the most critical.

In terms of a specific relationship to and ; in brief, the wellbeing of a Company and Economy has no greater dependence than to the sources of Energy that allow for the functioning of all of its parts. Consider just the incredible feat of staffing a Company with hundreds of Employees who must travel regularly to work from all parts of a City, or County, or Country, or even the World.

Maybe this doesn't seem like so much of a miracle to you; but it can certainly be said that such a possibility has not ever been had in any historical setting prior to about the middle of the last century, and it was Fossil Energy that has made it possible.

So, without further adieu, here is the video: http://www.chrismartenson.com/peak_oil .

FYI, the creator of this video is very credible, and his facts are sound. The remainder of the videos at the site are also excellent primers for understanding of the Economic Challenges that we find ourselves in at the moment, from the basics on money creation, debt, inflation, etc. I go out on a limb and suggest that you surely have a strong basis in Economics, but I'll also suggest that you may have never seen many of these concepts presented in such a way as in these presentations.

Anyway, I hope that you enjoy the video, and I hope you don't mind the intrusion into your day. Also know that if you have any questions on this issue, please don't hesitate to ask.

Yours,
DP

LDK Announces 1GW Annualized Capacity!

Also, Preliminary Financial Outlook for 2009

Saturday, August 23, 2008

Must See Video - Peak Oil - TheEndofMoney.com

http://www.chrismartenson.com/peak_oil


This is a great video, and there are many other videos on the same site.


Please take a few minutes and watch it.


My thoughts in brief:

So far, the market itself is doing a shitty job of preparing us for the physical realities that we're about to face. Entrenched Energy interests are suppressing potential competitors (Solar, Wind, etc.) in various ways (both in the Private Sector and in Government). The valuations assigned to things by the market, as dependent on the decisions of its participants; is dependent on the level of information had by those participants. Americans are NOT informed on Energy Issues, and particularly they're not informed on just how critical these issues are in comparison to just about every other issue.

I'd like to see the market do the trick here, and in some way's it is getting started, but its opponents have an incredible amount of power to manipulate the Markets. At the very least, I think they're waiting till November before accepting the fact that things are changing, and the time for massive investment has arrived.

Thursday, August 21, 2008

Wednesday, August 20, 2008

ADR REPORT: Potential Chinese Stimulus Plan Boosts Shares

ADR REPORT: Potential Chinese Stimulus Plan Boosts Shares


"The Asian index ended up 1.5% at $136.80, buoyed by a claim that China is considering an economic stimulus package of up to CNY400 billion ($58.4 billion). Among the companies that rose in China were China Life Insurance Co. Ltd. (LFC), up 5% to $53.25, Yingli Green Energy Holding Co. Ltd. (YGE), up 9.7% to $16.02, and Baidu.com Inc. (BIDU), up 4% to $321.22.


Also in China Suntech Power Holdings Co. Ltd. (STP) jumped 12% to $41.75 after it reported a 58% increase in second-quarter net income as demand continues to be strong for solar power. The Chinese producer of photovoltaic panels - the world's largest by revenue terms - also raised its full-year revenue guidance and sees current-quarter sales above analysts' forecasts."

A Note on Convertable Bonds.

Form F-3ASR

I think I figured it out in the shower this morning (nothing like a good shower for clarity of thought).

Crackhead has mentioned several scenarios involving the CBs, and the point I've been trying to make has to do with the fact that the redeemer does not get to choose whether they will recieve actual shares, or a fair cash value.

So, yeah, these ain't your Granpappy's Convertable Bonds.

These are Chinese Short Trap Bonds.

Ok, so with a normal CB, the buyer has the right to redeem the bond for shares. So, a short that holds a normal CB doesn't care if the price goes from $30 to $200, because that bond will make them even when it gets redeemed.

With these ones, the short buyer doesn't know whether they'll get Shares or Cash. It's a roll of the die as far as they're concerned.

Ok, so the question: Well, what if they do only get cash? They recieve a fair value for the shares in cash and they can just buy shares, right?

YES!

THEY CAN JUST BUY SHARES!

LOL!

Um. What happens when you buy shares, and there are few to be had? You drive up the price, of course!

Also, the calculation of fair value for the shares is an average based on some number of days of PAST performance, so while various shorts are taking that cash and buying up shares and driving up the price, later short redeemers are recieving payment for the bonds that is LESS THAN THE CURRENT PRICE OF SHARES.

They lose money and drive up the price of shares at the same time!

What say you all?

My only real question is whether anyone has ever seen such a Convertable Bond Setup before. Anyone? Anyone? I'm pretty sure that this isn't standard.

Saturday, August 16, 2008

WSJ - Feb '08 - Asia Coal Issues.

China Spurs Coal-Price Surge

This goes well with my still incomplete comparison between Solar and Coal.

Incredible Paper on the Economic Inviability of Nuclear Power.

The Nuclear Illusion

Here's the Author before Congress.

I could fill pages upon pages with the data that struck me very strongly, but I won't bother. Just read the whole thing. :)

Last, by random chance, an Article on Yahoo's front page gives some support to the challenges of Nuclear.

Friday, August 15, 2008

IPO Note: Changing World Technologies

Changing World Technologies IPO


I remember these guys from way back, and at the time I was excited for their technology.

In fact, I've stated that when I die I'd like to be converted into useable Energy by their process (as a joke, of course). :)

We'll have to see what the details look like.

They could be explosive if their technology is efficient, though it's another case of an Energy / Food tradeoff, as if they weren't turning those turkeys into Energy, they carcasses would otherwise become Fertilizer or possibly Livestock Feed.

Cramer - Mad Money - 8/13/08

Cramer - Mad Money - 8/13/08

"How do you buy the stock of a great company, AFTER it's reported a monumental earnings blowout and gone so high.

Thats the question I'm answering for you this week. In order to try and help you make money, off of companies that reported the biggest beats during earnings season, because that means that they will likely outperform the rest of the market.

...

The reason we're focusing on ORB is the fabulous quarter ...unclear... July 17th when the company reported 35 cents a shares. You know, that was actually 12 cents higher than the 23 cent consensus estimate, ...unclear... 52 percent beat.

ORB also raised it's full year guidance from 84 to 89 cent range to 93 to 97 cents. It's a wholesale reevaluation of this company. It booked $425 million in new orders, $4.2 billion backlog. This is a business with a market cap of just $1.5 bill. It's backlog is 2.5 % of the entire company.

Now every time we've seen that it has either produced a takeover or major move, whenever the backlog is that much bigger."

...


Side Note:

LDK's Market Cap is 4.33B, and their backlog is 12,482 MW over the next 10 years. Even assuming a low average ASP over that time of, say, $1 / Watt, gives a backlog of $12,482 Billion, or 2.88 times the Market Cap.

Oh, and they beat by so much more.

How's that sound to ya', Cramer?

Thursday, August 14, 2008

Good News from the States! 800MW in California.

Two Large Solar Plants Planned in California

"Companies will build two solar power plants in California that together will put out more than 12 times as much electricity as the largest such plant today, the latest indication that solar energy is starting to achieve significant scale.

The plants will cover 12.5 square miles of central California with solar panels, and in the middle of a sunny day will generate about 800 megawatts of power, roughly equal to the size of a large coal-burning power plant or a small nuclear plant. A megawatt is enough power to run a large Wal-Mart store."

Wednesday, August 13, 2008

LDK Factoids - 08/13/08

PE = 15.5

Jesse Pichel has Upgraded to Neutral.

New Investor's Presentation containing the following update, "1,000 MT polysilicon plant will commence production shortly."

LDK has surpassed REC as the Number One Solar Wafer Manufacturer in the World!

Excellent Article from "Gaming the Market."

Who is Gaming the Solar Market?

Breaking News - New LDK Contract w/ XL Telecom of India.

300MW with Prepayments.

"LDK Solar Co., Ltd, a leading manufacturer of solar wafers, today announced that it has signed a five-year contract to supply multicrystalline solar wafers to India-based XL Telecom & Energy Limited.

Under the terms of the agreement, LDK Solar will deliver approximately 300 MW of multicrystalline silicon solar wafers to XL Telecom & Energy Limited over a five-year period, commencing in the first quarter of 2009 and extending through 2013. XL Telecom & Energy Limited will make a down payment representing a portion of the contract value to LDK Solar."


Very nice!

Remember, these prepayments aren't just going to pay for the Poly Plant. They are going toward expansion in Wafering Capacity, which as we've just seen, is bringing in record profits.

LDK is growing faster than you can conceive of.

What other Companies are able to get Customers to pay UP FRONT so that that company can build the capacity to meet the customer's demand? These customers are paying up big, because they know that LDK is doing something that they can't do themselves.


Looking back, here's some basics on LDK for any who haven't seen it. When looking at the pics of the progress, keep in mind that the flattening of the surrounding land was only just completed at the end of November last year, and the ground was just broken in August of 2007.

Monday, August 11, 2008

Saturday, August 9, 2008

Coal / Solar Cost Comparison - Final Draft

Note: This article is under revision, considering current fluctuations in price. The Concept is sound (IMO) as a way to make rough comparisons in cost, but the Prices are presently off.

Also note, the 33% Insolation that is used as a basis for comparison, is very high for a stationary system, but well within the range of a tracking system. For more information on Insolation, see "A Note on Units of Energy and Insolation."





I'll set up two equivalent scenarios using Coal and Solar, and will then make comparisons.




Note: I make numerous assumptions, and will mention these where appropriate.




For this thought experiment, we'll imagine that both of these industries are starting from scratch with equal Energy Production Capacities. In reality, of course, Coal has tremendous existing Scale Advantage over Solar.

This will be a demonstration of how fuel costs could affect the long term comparative cost of the Coal Energy vs. Solar Energy.

First, imagine two industries; Solar and Coal. The goal of both of these industries is to produce Energy.




Now, divide each of the industries into three groups.




Group One:

Group One is made up of those segments of the Industries that produce the actual Electrical Generation Facilities.

In the case of Coal, this is the industry that produces the actual Power Plant. It would include everything from the ground up, like the steelworks that made the metal, to the quarries that produced the Concrete. It would include the Engineers, Managers, and Laborers for the Plant Construction, as well as the Lawyers and Lobbyists required to work with the Government and Public to support the plant's construction.

In the case of Solar, this would include all of the players from TCS, Wafers, Crucibles, and Modules, through the final Solar Power Plant Installation. Once again, it would include all of the extraneous support required for the project.


Group Two:

This group is made up of everyone associated with supplying the fuel for the Power Plants that were produced by Group One, above.

- For Coal, this would include everything from the actual Mining of the Coal; the engineers, geologists, equipment operators, supervisors, etc. This group would also include the Transportation of the Coal to the Power Plant.

- For Solar, there is no Second Group. There is no Delivery of fuel to the Solar Plant.


Group Three:

This is all of those involved in the upkeep over time of the power plants. I'll ignore this group, and give Coal a freebie. I think it's safe to say that Solar will beat Coal on Upkeep Costs over time.



Notes and Assumptions:




Note: The Solar Plant is going to have to be rather larger in peak rating than the Coal Plant, since Sunlight isn't constant. 33% is a fair conversion for a very sunny place, so our Solar Plant has to be three times the rated output of the Coal Plant (Say, 350MW Coal = 1050MW Solar). Whatever actual output we settle on, we just want the total yearly output of Energy from both plants to be the same for comparison purposes.

Note: Solar does not provide a base load like Coal. We're just looking at total Energy Output, not the convenience or timing of the final product. Ultimately, for future base-loads, we'll need a heck of a grid, plus some other provider like Sequestered Coal, Geothermal, or something else like that.

Note: I have Silicon-based Photovoltaic Solar in mind in writing this.

Note: PV Solar lends itself to a decentralized solution. Therefore, when talking about a 1050 MW Installation, we don't have to assume that some company has bought 1050 MW worth of Panels and Installed them as a single project. Instead, we can talk about a total of 1050 MW of Panels installed anywhere, in any distribution. Whether Centralized, or not, a Watt of Solar Energy offsets a Watt of Fossil-based Production.

Note: The referred-to Spreadsheet is likely not entirely clear to anyone but myself. I did try to add descriptions to help, but there are a lot of numbers involved. Feel free to counter my numbers with your own if you think that I'm off on anything.

Assumption: I've worked out several Cost scenarios involving guesses on future Inflation / Coal Price Increases. Of course there's no telling how the price of Coal will vary over the next 25 Years. There are numerous reasons to suggest, however, that the price of Coal will not remain static, particularly in the face of Peak Fossil and US Dollar Depreciation. Even if Coal is not near Peak, Peak Oil will put increasing upward price pressure on Fuel to support Coal Deliveries. Nearly all of the price pressures in the foreseeable future point towards a continued Increase in the Price of Coal, particularly in the price of non-local Coal that requires long distance transport.

Assumption: No cost factors related to future Climate Change Regulations are included in this Document. This gives a huge Freebie to Coal, as Sequestration and Carbon Credits will add greatly to the cost of Energy Production from Coal Sources over the next 25 Years.

Assumption: No cost factors related to Increased Healthcare Costs due to the Burning of Coal. This is another Freebie for Coal as far as this paper is concerned.

Assumption: I assume for the initial calculations that the lifespan of the Coal Plant and the Solar Plant are equal to 25 Years. The lifespan of either a Coal Plant or a Solar Plant is certainly greater than 25 Years. I'll look back at this in a later section.

Assumption: I assume for the initial calculations that the Conversion Efficiency of the Solar Panels stay constant throughout the life of the plant. Again, I'll look back at this in a later section.



Imagine both a Coal Industry and a Solar Industry, each capable of producing a single Power Plant per year (or arbitrary unit of time, really).




Year One: Both a Coal and a Solar Plant are built.

By the end of year One, both the Coal Plant and the Solar Plant have produced one Yearly Energy Unit. The Coal Plant has consumed it's required yearly supply of Coal.

Year Two: Both a Coal and a Solar Plant are built.

By the end of this year, the Plants that were built last year, each produce their total yearly capacity in Energy. In addition, the new plants being constructed this year have each produced a Yearly Energy Unit. The two Coal Plants consume a total of 2 Units of Coal for the year.

The Total Amount of Coal burned since the first Year is 3 Units.

Year Three: Both a Coal and a Solar Plant are built.

By the end of this year, the Plants that were built in the two previous years, each produce their total yearly capacities in Energy, for a total of 2 Units of Energy from Solar and Coal Plants. In addition, the new plants from this year have each produced a Yearly Energy Unit. The three Coal Plants consume a total of 3 Units of Coal for the year.

The Total Amount of Coal burned since the first Year is 6 Units.



Now, to make some Comparisons between Coal and Solar based on the above setup.




Comparison One: Side-by-Side – Energy Output

Take a look at this spreadsheet, I'll take it out 25 Years.

See Sheet 1.

This first set just shows that over 25 years, the total Energy Output of both our Coal and Our Solar Industries are the same. Easy enough, that was part of the basic assumption.


Comparison Two: Side-by-Side – Feedstock Demand

This next set shows how the total demand for Coal Feedstock grows over time.

See Sheet 2.

Per Plant, of course, it's linear; just One Unit of Coal Fuel per Year per Plant; however, as the number of plants increases, the Total Yearly Demand for Coal for the Industry increases exponentially based on the rate of increase of demand. This is a recipe for increased cost of that fuel over time, particularly since the Coal is utterly destroyed in the process of burning; there is no recycling or conservation of raw materials.

In fact, over the first 25 years of the scenario, the yearly demand for Coal from the Power Plants has increased 25 times. Unless supply increases similarly, prices will have to increase due to the additional demand.

This is where our assumption that the Coal Industry isn't actually a behemoth in comparison to Solar comes in. Of course, the Industry is so large that an extra 25 Plants worth of Demand isn't going to stress out the Suppliers too much. However, the ability of the Coal Industry to increase supply to meet demand is not infinite, particularly since, once the coal is gone from a site, it's gone and the total production from that site has to be replaced by production from a new site. Finding new sites gets more difficult over time, particularly as International Politics and Dependence on Support from Sovereign Governments creates Long Term Complications and various forms of Blowback.

Looking at some actual Coal Consumption Numbers (See P.35), we see that in 10 years between '97 and '07, consumption of Coal increased from 2317 to 3177 (Millions of Tons of Oil Equivalent), or by 37%. According to The World Coal Institute, "at current production levels coal will be available for at least the next 147 years." They specify at "current production rates," which says to me that they are not taking into account increases in Demand / Production, as production rates would either have to increase to meet demand, or else price would have to go through the roof to take into account the discrepancy. Oddly enough, at the beginning of the writing of this paper, the World Coal Institute estimation was that we had 155 years worth of Coal remaining, but now, having confirmed my links, I see that they've updated this number to 147 Years, which means that in about two weeks of time, the World Coal Institute revised their estimate down by eight years*. For a counter opinion on the timing of Peak Coal, see this article which concludes that it could be in as soon as 15 years.


Comparison Three: Costs – Inflation Scenarios

Looking at a specific example, I'll take a look at some samples of Coal Plants, to see how much coal they each go through in a year. I've grabbed a couple of examples from the web, which gives some idea of how much coal a plant will go through, compared to its rated power output. It looks like Milliken Station on Cayuga Lake is quoted as the most efficient plant of the four that I found (in Energy per ton of Coal), so I'll use that plant as an example, and support it as within a reasonable estimation with some averages from www.powerofcoal.com.

See Sheet 3.

In fact, it appears that the fuel cost that I derive for Milliken Station is slightly above the average in the Industry. Per PowerofCoal. Working out the Cost per Watt from Milliken Station over 25 Years at $100 / ton gives $6.26/Watt*25 Years. This compares to the National Average, which works out to $5.18/Watt*25 Years. Note that since this “PowerofCoal” reference was dated, most Coal Prices have increased quite dramatically, so the national average costs have probably increased by 25% or more.

Note: Per “Checking my Numbers,” below, it appears that Milliken Station is very close to the theoretical maximum in terms of Energy Production / Ton of Coal. Therefore the PowerofCoal Numbers are likely skewed in some way, likely due to the Particularly large amount of easily recoverable Coal in the Powder River Basin in Wyoming, and possibly also due to Government incentives at some stage of the Coal Energy Production Cycle.

Over the first 25 years of this plant's life, it costs a total of around $2.6 Billion in initial Construction Costs and Yearly Deliveries of Coal Fuel. Of course, this assumes that the price of Coal doesn't increase over this 25 years, and it assumes that the plant costs nothing in maintenance. As shown on Sheet 3, if Inflationary factors are considered, total cost for this near average plant over 25 years could actually approach $6+ Billion.

For Fuel Cost Estimation for other Coal Plants, see Sheet 4.

Ok, now to look at an equivalent Solar Installation (1050MW @ 33% of Peak in Total Energy Output). There are alot of different ways to work out sample prices for equivalent Solar Installations. The first, and ugliest example would be to use the retail price data from Solarbuzz.

According to Solarbuzz, the average US Retail Price for Panels is $4.82 Watt, and the Total Cost of the Project is about Twice the cost of the PV Modules. Using this method arrives at an end resulting cost of between about 2 and 5 times the cost of an equivalent Coal Plant over 25 years (Depending on Future Inflation). At this price, the total cost of the Installation would be $4.82/W * 1MillionW/MW * 1050MW * 2 = $10.12 Billion (compared to $2-$6 Billion for an equivalent Coal Plant). Wow! Ok, but this number reflects the many inefficiencies of small-scale retail distribution and installation. It also represents the current high demand / low supply that we see in the World PV Market, reflected among other things by a cost of Polysilicon of 5-10 times (or more) the cost of its production (Polysilicon costs are around 40% of the total cost of producing Solar Panels at this time).

So, with a 25 Year window, it's tough to compare the Best-case scenario for Coal to the Worst-case scenario for Solar at present Solar Prices. We'll get back to this one a bit later.

Instead, I'll try to gauge the cost of some existing large scale PV Solar Installations. Attached you'll see a few price references to indicate the Cost / Peak Power that is currently available for mid-size Installation sizes.

See Sheet 5.

This spreadsheet shows some examples of Solar Power Plants in the real World, their output, and their projected costs. Remember, that I've chosen a 1050MW Solar Plant to be equivalent to a 350MW Coal Plant in annual Energy Output.

The Price per Watt ranges from $5.33 -$8.05. So, using this range of prices to construct a theoretical Solar Plant of 1050MW would give us costs ranging from $5.8-$8.5 Billion. Remember, this is compared to a cost for coal of my just slightly above US average Coal Power Production Costs of $2.6-$6.5 Billion.

Personally, I think that assuming future inflation to be zero is ludicrous, and can't help but think that the much safer bet is that Coal Fuel Prices will increase significantly faster in the near and mid-term future than we're used to thinking about. If this is the case, then there are cases in this scenario in which Solar Installation would be the best economic choice for installation RIGHT NOW.


Comparison Three A: Costs – Inflation Scenarios – Extended to 50 Years

We know that a Coal Plant Lifespan isn't limited to 25 Years. We know that Solar Panels are typically warranted out to 25 Years. We also know, however, that Solar Panels can last significantly longer than 25 Years. Sheet 7 gives some idea of what kind of useful lifespan we are looking at as far as Solar Panels, based on a .5% degradation in output per Year. Considering this degradation would certainly throw off the previous Calculations, so I'll consider it for this scenario. I'll also cut down the total output of the Panels by 5% due to Inverter Losses, and by 10% for High Temperature Loss. In addition, I'll take into account the Panel Output loss over that 50 Years using the Chart on Sheet 7 by reducing the overall Output by an extra 12.5%. All of this means that now, instead of needing 1050MW to equal the 350MW Coal Plant, we're going to need a 1364MW Solar Plant.

As before, using Solarbuzz, $4.82/W * 1MillionW/MW * 1364MW * 2 = $13.15 Billion for the entire Solar Installation.

Now, for the Coal Plant, we'll figure out the cost over 50 Years assuming some inflation rate. This time I'll assume a rate of 4%. See Sheet 8. It seems that assuming 4% Inflation in the price of Coal over these 50 Years, even with all of the negative offsets that I've just added to the cost of the Solar Installation, the Coal Plant LOSES with a total fuel cost of $13.4 Billion.

Remember, Solarbuzz Numbers are Retail. How much money can we save for a utility-scale operation by buying bulk? I'm going to take a wild guess.

In the real World, Trina Solar recently reported an ASP, or Average Selling Price, of $3.85 / Watt, which is relatively high relative to other Solar Manufacturers, but well below Retail. Given a direct relationship with a Modulemaker such as Trina, and the ability to buy at around $3.85 / Watt, brings the cost of our 1364MW Solar Plant cost down by $2.6 Billion to $10.50 Billion.

We can do more. Solarbuzz says that the total cost of the Installation is twice the cost of the Modules. Well, clearly this reflects the cost of Installation on the Retail Level, which will certainly be higher than the cost of Installation on a Utility Scale. It is much more challenging to do thousands of Individual Installations on unique rooftops all over a region, than it is to take a piece of land and set up a large scale array of panels. Another Efficiency factor to be found in Large-scale installations will be the savings due to an efficiently engineered wiring and electrical design. For instance, a large scale system won't need the vast number of small inverters that would be required for an equally powered Residential Distribution. I think it's pretty safe to assume that 20% in efficiencies could be found in this situation, so we work out a Installation cost per Watt of $3.85, or $2.6 Billion Dollars off of the cost of the 1364MW Installation, leading to a total cost of $7.9 Billion Dollars.

So, the results of this scenario show that over 50 Years, our 1364W Installation should compare very favorably with Coal. The Total Installation Cost of $7.9 Billion is much lower than the Coal Plant's 50 Year Cost of $13.4 Billion assuming a low low inflation rate of 4%. Is fact, just considering a low 4% Inflation Rate, the Solar Plant breaks even with the Coal Plant at 39 Years. Anything beyond this time is Icing.



A Note on Scale




So far I've been assuming that 1050MW or 1364MW of Solar panels could be even bought on the Open Market. This is a questionable assumption.

According to the Chart on Sheet 5, the total annual installation for 2007 was 2.2 GW. However, as can be seen on the same chart, the rate of increase of installation capacity (limited by production capacity) is taking off, and is expected to increase by Eighteen Hundred Percent, to 37GW Annually, in the next Four Years.

This is when things will start to get interesting, because Utility-scale Developers will for the first time ever, have the opportunity to supply large-scale plants with decreasing lead times, and at the prices that I have talked about in this document, or less.



Conclusion




Well, so far, what I've shown is that there is overlap in the long term price of a Solar Installation and Coal Installations. Much depends on the future rate of Inflation, or at least Inflation in terms of increased Price of Coal. However, given that Future Inflation is not knowable, but in today's World Economic Climate could be explosive, Solar, even at today's high prices, fills a lucrative Energy Niche as a hedge against increasing Coal prices.

As it is, Solar Producers have more than enough Customers to easily sell all the product that they can make at today's prices. Industry Production Capacity is increasing incredibly fast, though, and will likely soon outstrip demand. However, long term Coal Generation costs would indicate that a price bottom for Solar Products will arrive as defined by projections of long-term production costs from Fossil Fuels similar to what I've shown above.

In a future Post I will look at Comparisons between Solar and Natural Gas Electricity Production, which is really a much closer fit to the particular niche that Solar fills, but in this first case I wanted to compare the costs to Coal, which is typically acknowledged as the cheapest current source of Electricity.



Checking my Numbers




Energy Capacity per Ton of Coal:


Is it reasonable to assume that a Coal Plant like Milliken Station actually consumes 876000 Tons of Coal per Year in order to produce its 350MW of Power?

Per Wikipedia, Coal Plants produce approx. 2KW*Hour/KG of Coal.

I want to solve the equation (2KW*Hour/KG)*X Tons of Coal Burned / Year = 350 MW * Year.

I'll convert to Years because because I want the Annual Average to make Comparisons to. As for the Mass, I want Long Tons, which are equal to 1016 KG, and for Power I want Megawatts.

So, X Tons / Year = (350MW * Year)/(2KW*Hour/KG)

Then, X Tons / Year = (350MW * Year)/(2KW*Hour/KG*1MW/1000KW*1Year/8760Hours*1016KG/1Ton)

Finally, X Tons / Year = (350MW * Year)/(.000232MW*Year/Ton) = 1.5 Million Tons of Coal / Year. Wow, this is rather a lot higher than my estimated Coal Fuel Demand for a 350MW Plant, which makes the Solar Plant considerably cheaper in Comparison.

Let's try another estimation. A physicist friend of mine, who works in Coal, estimated for me that a Ton of Thermal Coal, when burned, produces 26 GJ of Energy (Wikipedia has it at 24 GJ/Ton (after some conversions)). Using an Online Converter, 26 GJ works out to 7.22 MW*Hour. Not all of that Energy is converted into Electricity at the Coal Plant, only between 30%-35% is typically converted with a theoretical limit at about 45%.

Using 35% Efficiency would put the Energy / Ton of Coal at 9.1 GJ/Ton, or 2.52 MW*Hour/Ton.

Using the same process as above, for a 350 MW Power Plant, this works out to 1.22 Million Tons of Coal / Year, also higher than my earlier Estimation for Milliken Station.

Let's go one step better for Coal. I've seen reference to 30 GJ per Ton and 42% Conversion Efficiency at a particular plant. I'll work out the Tons of Coal / Year for a 350MW Coal Plant under these Conditions.

30 GJ per Ton = 8.33 MW*Hour/Ton.

At 42% Efficiency in converting this energy to Electricity at a Coal Plant, we get 3.5 MW*Hour/Ton.

Calculating as above, at this incredibly efficient example we come up with Total Tons per Year = (350MW * Year)/(3.5 MW*Hour/Ton*1Year/8760Hours) = 877,000 Tons per Year. This almost exactly matches our estimation for Milliken Station. Nice!



PowerofCoal Data Check:


PowerofCoal Claim: The Average Cost of Production of all US Coal Plants (as of Jan '08) = $23.68 per MW*Hour

In Comparison Three I used this number to calculate a Cost / Watt over 25 Years of $5.18/Watt*25 Years. To do this, I did the following conversion:

Average Cost / Watt*Year = ($23.68/MW*Hour)(1MW/1,000,000W)(365Days/1Year)(24Hours/1Day) = $0.20 / Watt*Year = $5.18 / W*25Years or $10.36 / W*50Years.

Note: These numbers for PowerofCoal.com include all of the cost of production, including presumably, maintenance and upkeep. So, they should be slightly more representative of the actual costs to produce Energy with Coal in the US, however, as shown above, Milliken Station is close to the peak of Efficiency in terms of Energy Output to Coal Consumed, so in order to arrive at a lower average cost than Milliken Station, the average cost of Coal to these US Coal Plants must be much lower than $100 / Ton, or else the cost to produce Coal Energy in the US must be Subsidized. We can see from the Chart that the US does indeed have access to very cheap Coal from Powder River Basin, though from the same Chart we can also see that other Coal Sources are increasing their prices dramatically.

Using the above numbers as a starting place, and then calculating in 4% in Inflation Increases per year, gives $8.63 / W*25Years or $31.63 / W*50Years.



Additional References




Commodity Price Data (Pink Sheets)

PV Costs to Decrease 40% by 2010

China Spurs Coal-Price Surge -WSJ



* Note on World Coal Institute Archives. Based on Archived Reports :

2008 Estimated Reserves: 147 Years
2007 Estimated Reserves: 147 Years
2006 Estimated Reserves: 155 Years
2005 Estimated Reserves: 164 Years
2004 Estimated Reserves: 190 Years
2003 Estimated Reserves: 200 Years
2001 Estimated Reserves: 200 Years

Conclusion, since 2001, we've used 53 Years worth of Coal. LOL!

Future Company.

In about 5-7 years, there will be lots of today's panels being replaced by newer versions. These old panels would still have a tremendous amount of life left in them, and will hold alot of value.

So, you buy some testing equipment (maybe from Spire), and set up a company that takes all of the assorted panels from the various sellers, sorts them all into known units (size and output), and resells them.

Anyway, just a thought. :)