(Evergreen Solar plant closure story updated for analyst commentary, plant closure details)



) --

Evergreen Solar


announced after the close on Tuesday that it was closing down its Devens, Massachusetts solar manufacturing plant.

While the handwriting may have been on the wall that all was not well in Devens, ever since Evergreen Solar decided to move a large portion of its wafer manufacturing to China, the reasons behind the Evergreen shutdown may be a negative data point for the entire solar sector.

Evergreen Solar said in a statement, "Although production costs at our Devens facility have steadily decreased, and are now below originally planned levels and lower than most western manufacturers, they are still much higher than those of our low cost competitors in China. We have consistently stated during quarterly conference calls throughout 2010 that we would continue to manufacture in Devens as long as it was economically feasible. During the month of December, we experienced a 10% decrease in average selling prices from the beginning of the fourth quarter. As industry selling prices continue their rapid declines into 2011, panel manufacturing in Devens, either fully or partially, is no longer economically feasible."

While the fact that Evergreen was falling behind the Chinese manufacturers in solar was long ago a given -- and precipitated the company's move to China -- solar analysts read the Evergreen move as another negative data point about pricing pressure across the solar module market at the outset of 2011.

Sam Dubinsky, analyst at Wells Fargo, wrote in a note on Tuesday afternoon that the Evergreen Solar plant shuttering was the beginning of the industry shakeout in 2011, a process that will favor low-cost Chinese module leaders like

Trina Solar



Yingli Green Energy


as a loose supply and demand dynamic takes hold.

The recent ASP declines were "the final straw" for Evergreen, and it's a sign of what's going on throughout the solar industry, according to some analysts.

LDK Solar


released an aggressive expansion plan, shipment guidance and revenue target for 2011 on Monday, leading to a big rally for solar.

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By Tuesday, ever-skeptical analyst Gordon Johnson of Axiom Capital was writing that even module ASPs among the top tier Chinese were falling faster than expected, and there was no way that LDK could aggressively expand in line with its bullish guidance in 2011.

After Evergreen announced the shuttering of its plant, Wedbush analyst Christine Hersey agreed that the Evergreen comment about pricing declines of 10% in module ASPs is a negative data point for the whole solar industry. Evergreen Solar had 64% of its sales in Germany in the third quarter, and the slowdown in Germany is one of the largest pressure points in the solar supply/demand debate for 2011.

The Wedbush analyst said there is an added layer of interest in the Evergreen Solar data point about module ASPs because typically it is the installers on the other side of the negotiating table from the module vendors who like to play up deteriorating pricing.

"I'm not really surprised as I've been hearing that there is a problem in the module market, and hearing that tier-2 players are experiencing rapid price declines, but the problem is that lots of these guys who give you the negative data points are the installers talking their side of the equation," the Wedbush analyst said.

This means that a negative module ASP comment from a module vendor is less negotiating table-motivated.

Evergreen, on the other hand, does have the negative publicity of shutting down a U.S. plant and laying off workers with which to contend, and it also received a sweetheart deal from the state of Massachusetts to set up the Devens facility, which will now have to be financially unwound. Therefore, playing up the inability to compete with China's low-cost model is in line with the political rhetoric about the loss of jobs in the U.S. It's also, to be fair, a fact.

Evergreen Solar CEO Michael El-Hillow covered both the U.S. vs. China issue and the solar pricing declines in the statement, saying, "While overall demand for solar may increase, we expect that significant capacity expansions in low-cost manufacturing regions combined with potential adverse changes in government subsidies in several markets in Europe will likely result in continuing pressure on selling prices throughout 2011. Solar manufacturers in China have received considerable government and financial support and, together with their low manufacturing costs, have become price leaders within the industry. While the United States and other western industrial economies are beneficiaries of rapidly declining installation costs of solar energy, we expect the United States will continue to be at a disadvantage from a manufacturing standpoint."

There were several ways to read the Evergreen plant closure as an indication of conditions in the solar industry, though, and it's not just about a shakeout in the industry or the pricing declines. Evergreen was always among the highest-priced vendors in the market, and even if the plant closure is indicative of the long-anticipated shakeout between top-tier solar companies and second-tier companies that won't win the cost model race, Auriga Securities analyst Mark Bachman contends the Evergreen Solar story remains a case-specific struggle.

"Evergreen Solar is not an industry driver here. We're starting to see people fall by the wayside who can't compete in this business. I don't think there will be top-tier consolidation, but there will be a shakeout," Bachman says. However, the analyst adds, "I wouldn't read too much into Evergreen about the solar industry though, any more than the plant closure is an indication that they can't compete."

Evergreen Solar shipped 47 megawatts in the fourth quarter at an average selling price of $1.90 per watt.

The bottom line, according to both Dubinsky and Bachman, is that while Evergreen says pricing declines have come more quickly than anticipated, the Chinese solar companies are still "printing" money in the current environment.

For Evergreen, the announcement of the U.S. plant closing is far from the end of the road, but it's a change in navigation on the company's route, which is now firmly directed at a move to manufacturing of industry standard solar wafers at a competitive cost model in China.

"This seems to indicate an evolution in the strategy shift, for which the handwriting was already on the wall at Evergreen Solar, but that it's being precipitated by a decline in ASPs and increased commoditization of the market is the read-through for the entire solar sector," Wedbush's Hersey said.

Evergreen announced that it will shut down its Devens manufacturing facility by the end of the first quarter. Closure of the Devens facility will result in 800 jobs lost and may require Evergreen to repay a portion of the $58 million in loans, grants and aid to build the factory in Massachusetts since the requirement of 350 jobs through November 2014 will not be met, Wedbush's Hersey noted.

Evergreen Solar expects to incur $340 million of non-cash charges to write-off the building, facilities and equipment.

-- Written by Eric Rosenbaum from New York.


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