March 5, 2010    Volume 17, No. 4

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Evergreen Solar Heads To China 'As Quickly As We Can'

By Richard A. McCormack

If you can't beat China and can't get the U.S. government to understand what you're up against, then you may as well join them.

That is what Evergreen Solar has decided to do, shifting production of solar fabrication and assembly from its factory in Devens, Mass., to Wuhan, China.

Evergreen Solar CEO Rick Feldt went to Washington, D.C., and met with Energy Secretary Steven Chu and Commerce Secretary Gary Locke. He told them Chinese government policies made U.S. production uncompetitive. But the Obama appointees do "not quite [have] the understanding that we think is necessary about what's actually happening in this industry," Feldt told financial analysts on Feb. 9. "The United States keeps talking about keeping jobs. You go to the President's State of the Union Address and he said, 'I want to keep jobs in the United States.' It's easy if you say it, but you've got to do something to do that."

Without an adequate response from the U.S. government to counter competitive forces working against domestic production, "we are going to China as quickly as we can," Feldt told the analysts. "The issue for us is just how long does it take to get there. We've got the China operations underway as we speak." The company expects to spend $50 million this year on its Wuhan, China, facility.

Evergreen Solar's Massachusetts plant is producing panels at $2.05 per watt, down from $2.24 per watt in the third quarter of 2009. But the 100-megawatt Chinese facility will produce panels for $1.25 per watt, going down to $1.00 per watt by the end of 2012 including wafer costs of about $0.30 per watt, Feldt told analysts. The company is also in the process of hiring engineers in China to conduct R&D, "which will help us reduce costs," added Evergreen Solar CFO Michael El-Hillow.

Virtually all of the company's new hires are taking place in China. "Basically we have a headcount freeze in the United States, maybe doing onesies and twosies, but we're cutting way back," said El-Hillow. "It all comes down to scale. We have got to scale that at the top line of the capacity and that's what we're driving to, that's the drive to China. We're in a growth phase and we have to treat it as such.

"The fact is, if the Chinese are going to continue to sell near marginal cost because they get the support of the Chinese government, that's just the way the world is. Either you get German ministers talking about it, you get the United States talking about it, but all we can hope for is this: that the U.S. government will not let the Chinese replace the Middle East for access to solar energy," said El-Hillow.

In response to the Chinese competitive challenge, Evergreen Solar has two options. It can try to counter China's advantage by reducing its costs in Massachusetts as low as possible, or "get to China as fast as we can," said El-Hillow. "We've tossed internally about becoming more aggressive in Washington, trying to get them to understand the situation that we face as a solar manufacturer and leveraging our wafer technology. There's no silver bullet here. It's an incredibly tough situation." Added CEO Feldt: "The issue for us is just how long does it take to get [to China]."

The company's Wuhan, China, wafer fab building is almost complete and the company will soon be installing furnaces. "We have a strong management team in place and we are hiring experienced engineers and other essential support staff needed for the initial 100-megawatt facility," said Feldt. "We are well positioned to prove again that our wafer manufacturing technology will scale quickly and successfully, this time in the low-cost manufacturing region of Wuhan."

The company expects to produce 20 to 25 megawatts of solar cells per quarter in China by early 2011. During that time, the company expects to reduce costs at its Devens facility to about $1.50 per watt "as we transition panel assembly to China," said Feldt. The Devens facility is one of the most advanced solar facilities in the United States, Feldt told the analysts, and the company expects it to remain its center of excellence for wafer and cell technology, process development and advanced R&D.

For now, the company will keep cell manufacturing in Devens. "We think we're extremely competitive making wafers any place in the world," said Feldt. "We have this fixed investment in cell manufacturing so it comes down a little bit to cash versus GAAP accounting depreciation [and] amortization." Even if the company continues to improve its Devens, Mass., plant "it's not all clear to us that we'd be better off by buying a whole new set of equipment in a salvaging operation in China and scrapping the equipment we have here. These cell lines are not easy just to pick up and move -- of course it's possible -- so we'll have to play that one by ear. We think that we will continue to reduce wafer and cell costs efficiently that would make sense given our fixed investment here. Of course if it doesn't we would take other action."

In 2007, the company received $23 million in grants from the State of Massachusetts to build its facility on state-owned property in Devens. It also received $17.5 million in low-interest loans along with a 30-year lease on the property.

Evergreen spent $8.5 million in its fourth quarter on the transition of panel assembly operations from Devens, Mass., to China. It expects to reduce costs by $4 million to $5 million per quarter in 2010 "consisting mainly of non-cash accelerated appreciation charges associated with transitioning panel assembly to China," said El-Hillow.

The company expects its production capacity to be about 175 megawatts in 2010, up from 104 megawatts in 2009, an increase of 70 percent. The company shipped 32 megawatts of solar systems in its fourth quarter. Product sales for the fourth quarter of 2009 were $74.5 million, compared to $75.5 million for the third quarter 2009. Sales declined slightly due to a 3.7 percent decline in average selling price, which was $2.32 per watt in the fourth quarter of 2009, down from $2.41 per watt in the third quarter. Prices are expected to drop by another 15 percent in 2010. The company sold 68 percent of its output in Europe, and only between 15 percent and 20 percent in the United States.

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