Can OptiSolar Make Thin-Film Dreams Real?

A low-key California solar startup with links to Canada’s oil sands industry is emerging as a dark horse in the increasingly competitive market for thin-film solar cells.

But some observers wonder whether three-year-old OptiSolar can deliver where others have struggled.

OptiSolar, of Hayward, Calif., unveiled plans last week to build a 550-megawatt solar PV park in San Luis Obispo County, Calif. Construction on the massive $1 billion project is expected to begin in 2010, with the company’s silicon-based thin-film panels blanketing about 9.5 square miles of flatlands on the Carissa Plains -- not far from Ausra’s proposed 177-megawatt solar-thermal plant.

Meanwhile, OptiSolar aims to break ground next month on the first of several solar parks it plans to construct in Ontario, Canada. The company has signed 21 contracts with the local power authority to sell more than 200 megawatts of solar electricity into the Ontario grid. The province pays a premium of 42 Canadian cents per kilowatt-hour under its European-style standard offer program.

Peter Carrie, vice president of OptiSolar’s Canadian subsidiary, OptiSolar Farms Canada, says the first 10 megawatts of its largest project -- the 60-megawatt “Solar Sarnia” park -- will be operational by the end of this year.

“Our project management team is already mobilizing,” Carrie said. “We’ll build out the balance in 2009.”

The projects in Ontario and California alone account for more than 700 megawatts of solar capacity, an impressive pipeline for a thin-film startup yet to establish volume manufacturing or an industry track record.

“If they’re developing their own thin-film technology, you might expect that to take more than three years,” said Jenny Chase, lead solar analyst with New Energy Finance. She said producing quality thin-film modules has been the holy grail of the solar industry for 30 years. “It’s not trivial. There are a number of companies that have hit the stage where OptiSolar is right now and haven’t produced enough to build a 550-megawatt project.”

First Solar (NSDQ: FSLR), with its cadmium-telluride thin-film modules, is a standout exception. Even Nanosolar, which has a three-year head start on OptiSolar and has raised $150 million over the past two years, only began production of its copper-indium-gallium-diselenide panels in December.

OptiSolar, however, has a vertically integrated business model that makes it somewhat unique among its peers. Its biggest customer appears to be itself, meaning it can assure access to low-cost modules as it embarks on a plan to construct multi-megawatt solar parks around the world.

Its revenues will come from long-term power-purchase agreements, and any progress in lowering module and installation costs go directly to the bottom line.

The strategy makes it easier for OptiSolar to attract capital for its large solar parks, because it theoretically can guarantee a better return on investment than a company such as SunEdison, which must buy marked-up product from third-party suppliers.

So far, OptiSolar has done a decent job of attracting capital, most of it under the radar. Chase said the company – formerly named Gen 3 Solar Inc. -- has raised $71.7 million in venture capital since December 2006, though some have reported figures as high as $89 million.

Even so, Chase said she suspects the company will run into difficulty supplying its own projects and may need to buy modules from other manufacturers to bridge the gap.

Carrie dismissed the possibility.

“Our plans are to use our own modules for all our projects, including the initial ones,” he said. “You don’t need to speculate about that.”

Initial modules for Ontario will be manufactured out of OptiSolar’s California facility. The company also is constructing a 600,000-square-foot “high-volume” manufacturing plant in Sacramento, Calif., where the county is offering a $20 million economic incentive to make the site more attractive.