COMPANY DESCRIPTION:

Evergreen Solar was formed in 1994 and is headquartered in Marlboro, Massachusetts. The company operates a 15MW production facility in Marlboro and is building a 30MW facility in Thalheim, Germany, through a joint venture with Q-Cells and REC, called EverQ GmbH.

Evergreen sells its solar modules to a series of distributors and dealers who install the product in both commercial and residential applications throughout the world.

Evergreen’s “claim to fame” is its silicon ribbon manufacturing process, which allows it to produce solar cells using significantly less silicon than traditional wafer-based manufacturing. In traditional wafer manufacturing, silicon is cast in ingots and then sawed with fine wires to produce wafers, wasting silicon through kerf loss.

In Evergreen’s string-ribbon process, two high-temperature strings draw a wafer out of molten silicon, much like a soap bubble. The ribbons, which are three inches wide, six feet long, and the thickness of a business card, are then scribed into six-inch strips and then laser-cut into cells.

This technique has proven more efficient than traditional methods because it uses ~35% less silicon. Currently, Evergreen uses a double-ribbon manufacturing process in which two ribbons are drawn from each furnace. The company is in the R&D stages of developing a quad-ribbon process, which would double production capacity per furnace.

ESLR shares are up 46% year-to-date, and we expect them to go much higher still.

KEY POINTS:

Facility Tour Firms Confidence in Technology Roadmap

String Ribbon technology has been proven in commercial production with the legacy Dual Ribbon (a.k.a., Gemini) platform on track at both Evergreen and its manufacturing three-way joint venture EverQ in Germany. EverQ has produced 12.6MW (Megawatts) of panels in 3Q as it ramps to its 100MW production capacity.

While the next-gen Quad Ribbon wafer technology is still in lab stage, the main technical issues appear to have been resolved, and the company is presently engaged in improving the platform and output at the margin. Quad Ribbon is on track to deliver higher throughput, produce higher quality wafers, with higher consistency—and do so using considerably less silicon per cell than the traditional ingot-to-wafer process.

Expansion Target Within Reach

The 75MW Devens plant is scheduled for 2009. By this time Quad Ribbon technology should be well on its way to maturity, with process improvements significantly improved and refined.

Valuation

The rate of the solar PV (photovoltaic) industry growth is estimated to be about 40% per annum over the next few years. The IPO of the EverQ three-way joint venture should bring a focus to Ribbon technology, which will result in in increased investor interest in ESLR shares.

Sustainable Competitive Advantage in Low Cost

With Quad Ribbon, Evergreen expects to reduce polysilicon usage to 2.5 grams per watt by 2011 from a current level of about 5 grams per watt. Evergreen has already established a leading position on silicon used per watt as traditional ingot-to-wafer processes use about 7-10 grams per watt. Evergreen’s reduced-feedstock variable cost advantage which is unique to Ribbon technology and unreplicable using traditional processes is sustainable.

At an estimated average polysilicon price of $70/kg, the company’s projected average of 4 gram savings could reduce the cost per watt by approximately $0.28. This equates to a cost savings of about 10% per watt.

This advantage is relative to the polysilicon shortage which could ease as silicon prices come down. This means Evergreen’s materials cost advantage attributable to Ribbon technology would decrease in absolute terms.

Evergreen Establishes Firm Source of Polysilicon

RISKS TO PRICE TARGET:

Risks include, but are not limited to: 1) technology risk, 2) the continuation of government subsidies, 3) raw material availability, 4) geographic diversity, 5) currency volatility, 6) production capacity build-out, 7) interest rate increases, 8) module efficiency gains, and 9) the potential competition from EverQ.