Allegheny Expands Growing Generation Portfolio with Solar

Through a new agreement with Siemens Solar Industries, Allegheny Energy Solutions will provide its customers with a comprehensive offering of solar electric solutions.

Condensed from – IssueAlert by Will McNamara, Dec 8

Allegheny Energy Solutions, an unregulated subsidiary of Allegheny Energy, Inc., has added Siemens Solar Industries, L.P., to its growing portfolio of suppliers for distributed generation products. Through its new agreement with Siemens Solar Industries, Allegheny Energy Solutions will provide its customers with a comprehensive offering of solar electric solutions called earthsafe. The systems are suited for industrial, commercial and residential applications. The new partnership further advances Allegheny’s strategy of becoming a national energy supplier. Analysis: This partnership comes on the heels of Allegheny’s recently announced agreement to purchase three gas-fired merchant plants from Enron North America. Both deals reaffirm Allegheny’s intent to expand its geographic footprint and strengthen the scope of its unregulated generation capability. In my opinion, Allegheny is one of a handful of companies that have furthered very aggressive generation expansion plans this year, announcing one acquisition or development after another. The company has added seven new offices in the northeastern United States over the last year, and has disclosed that it will open new offices in the Southeast in 2001 to begin preparing for the albeit slow move to competition in that region. The partnership with Siemens is particularly interesting as it indicates that Allegheny believes solar power will become a significant part of its service offerings. Siemens Solar is one competitive business in Siemens’ portfolio of companies, specializing in high and medium voltage, protection and substation control systems, power and distribution transformers, system planning, and decentralized energy supply systems. Siemens Solar claims to be the number one provider of solar-power solutions in the world, having shipped solar cells and modules with a cumulative peak power of 200 MW. The company has been in business for about 20 years, and reached a milestone of 100 MW in 1996. Thus, the company has doubled its production output in just four years. Siemens Solar offers an array of solar-related products. As noted, Allegheny Energy Solutions will be adopting Siemen’s earthsafe platform which, according to information on Siemen’s Website, is offered in four models ranging in DC power from 300 watts to 1,200 watts. The earthsafe system consists of solar modules, universal roof mounting kits, DC/AC inverters, and interconnect hardware. The intent is that businesses and residences would install the earthsafe system to supply a portion of their energy needs (the remainder supplied by more traditional means) and contribute to the efforts of reducing emissions from fossil fuel plants. Allegheny Energy Solutions claims that the addition of the Siemens’ product to its service offerings positions it as one of the only suppliers of distributed generation products to offer a complete on-site power solution. I think that this is a smart move for Allegheny to take as it certainly diversifies the company’s service offerings. Although the jury is still out regarding the profitability of solar power, along with other forms of distributed and renewable energy sources, for Allegheny the move makes sense as it attempts to offer on a national scale a full package of energy solutions. Allegheny Energy Supply, where most of the generation expansion efforts of its parent are focused, develops competitive generation solutions (e.g., cogeneration, green power, etc.) for a variety of end users. Within the last year, Allegheny Energy Solutions has made great strides in moving from a regional player into a national energy supplier, resulting primarily from its success in the strong Northeast market. This venture into solar continues a decided focus on distributed generation on the part of the unregulated company. Earlier this year, Allegheny Energy Solutions formed a partnership with Capstone Turbine Corporation under which the Capstone MicroTurbine was installed at Allegheny Energy’s Mitchell Power Station in New Eagle, Pa. Allegheny Energy Solutions is providing technical and economic analysis of the unit for the customers of its parent company. This was a very strategic partnership for Allegheny as it makes the company one of the few system integrators of the Capstone MicroTurbine in the Northeast. The diversification of Allegheny’s generation arsenal is also important because it gives the company a possible edge over direct competitors. Allegheny must surely know that companies like Dominion, Reliant and AES just to name a few are also aggressively stacking up generation assets in key areas across the country. Thus, by adding diverse power options to its service offerings, Allegheny conceivably will have more to offer customers in its energy supply packages. I observed several months ago that Allegheny was probably in search of a unique niche to set itself apart from other companies that are strong in generation. This partnership with Siemens seems to indicate that distributed generation, including solar power, could become that niche. As a sidenote, Allegheny Energy was just added to Standard & Poor’s 500 Index earlier this week. So, the announcement that the company is diversifying into solar power comes at a time when, as CEO Alan Noia puts it, “our strong growth strategy and resulting solid financial performance” have received recognition. The S&P 500 Index is widely regarded as the standard for measuring large-capitalization U.S. stock market performance. As of Dec 7, Allegheny Energy’s stock was priced at $42 5/16. The only red flag that I can determine for this deal relates to Siemens, not Allegheny Energy Solutions. Competition among companies that develop products related to solar power has become pretty fierce as of late, and there is still a great deal of uncertainty surrounding the profitability of this market. One direct competitor to Siemens that I’ve tracked recently is Evergreen Solar, a company whose String Ribbon technology reportedly cuts in half the required use of silicon, which is needed for most solar-power technologies. Evergreen Solar, which recently became a publicly traded company, has acknowledged that its own market prospects are uncertain and that it may never become a profitable company. The same market conditions apply to Siemens Solar Industries, so the company may have a difficult time in finding wide application for its solar power units. This is, of course, an issue for Siemens, and not Allegheny, to address. Under its partnership with Siemens, Allegheny attains all the value of solar power technologies and little of the risks. Thus, this appears to be a smart venture for Allegheny and one that should strongly benefit its power supply opportunities.

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