DayStar: Latest Thin-Film Player to Hit Roadblocks

Santa Clara, Calif.-based DayStar Technologies has been maneuvering to become an industry leader in the development of thin film solar cells, commonly known as a CIGS solar cells, for the direct conversion of sunlight into electricity. (Solar remains the second leading investment category for clean tech, as the latest data shows.) DayStar's big challenge has been to bring the cost per watt lower than $1, compared to price points of $2.86 per watt for amorphous Silicon.

But a review of company activities in its latest SEC filings suggests that the gestation period from 'proof-of-concept' to commercial production at DayStar is taking longer than management predicted, and the company is no closer today in bringing to market a $1 per watt solar module than it was a year ago. Other revealing highlights from DayStar's recent filings:

• Technology Review. The solar module typically represents around 50 percent to 75 percent of the installed cost of a PV system. The assembly of cells within the module is the largest single cost element. Thin-film solar cells use less than one percent of the raw material (silicon or other light absorbers) compared to wafer based solar cells, leading to a significant price drop per kWh. A shortage of solar-grade silicon -- due to rising demand -- continues to pressure manufacturing prices. As of January 2008, the manufacturing cost for a multi-crystalline solar module averaged $3 per watt.Daystar is developing manufacturing processes for its thin-film solar cells, which management claims will be cheaper to produce than conventional polycrystalline silicon solar cells, which currently dominate the market (94 percent market share). Solar CIGS is superior to silicon (a-Si) and cadmium telluride (CdTe), achieving energy conversion efficiencies approaching 20 percent (due to valuable characteristics such as a favorable absorption coefficient and one of the highest current densities of any semiconductor material).
• Manufacturing Challenges. Embedded in manufacturing delays is finding the correct substrate to use as a conductive foil. In May 2007, the company switched from producing CIGS solar cells on titanium metal foils -- initially touted for their cost and flexibility, such as in dual-use building materials -- to plate-glass substrates.
• Milestone Delays. In its FY 2007 (ended December) 10-K, filed with the SEC on March 31, the company reported that in the 1H:08 it would achieve two critical milestones: (1) demonstrate process scalability of a commercial grade sputtering tool by producing mini modules; (2) begin construction of its first 25 Megawatt (MW) manufacturing facility, producing CIGS on glass modules, built around its unique and proprietary one-step sputtering deposition process.As currently configured, a low-volume pilot plant in New York using the proprietary deposition technology is producing a maximum of 0.5 MW of solar cells per year, resulting in modest-in-class thin-film PV cell yield sustainability and consistency in performance (energy efficiency). In addition, looking to cut costs, management reduced staff, decreasing its pilot production lines from three shifts to one.

  The company entered into a lease in March 2006 for approximately 50,000 square feet of factory in Santa Clara -- space for its first large-scale manufacturing facility. Capital spending activities listed on the company's books do not signal much commercial activity in Santa Clara. Minimal construction-in-progress and equipment and improvement expenditures of $875,000 and $1.65 million, respectively, warn that build-out activities at this alleged workhorse site are not occurring on schedule. (CIGS manufacturers estimate it costs a minimum of $25.0 million to bring production online for 25 MW panels). A purchase agreement for sale of the company's products to Blitzstrom GmbH -- originally signed in 2005 -- was recently amended and restated to extend the contractual delivery dates--another sign of milestone slippage.

• Pressure from rivals. CIGS neighbor Global Solar, has already achieved consistent full-scale production, shipping 4 MW in 2007. Retailers list their Solar Panels at an average of $4.61 to $5.86 per watt. Last week, another CIGS challenger looking to sell panels for a little as $1 for each watt of capacity, Nanosolar, received a $50.0 million investment from EDF Energies Nouvelles (Paris). DayStar's stated goal to hit the 100-megawatt production mark by the end of 2008 is also no longer within reach.