Allegheny Expands Growing Generation Portfolio with Solar Energy ,
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SourceBook Weekly December 4, 2000 Issue:=20
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SCIENTECH IssueAlert, December 8, 2000
Allegheny Expands Growing Generation Portfolio with Solar Energy
By: Will McNamara, Director, Electric Industry Analysis
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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 =01v. The systems are suited for industrial, commercial an=
d
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=20
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 further=
ed
very aggressive generation expansion plans this year, announcing one=20
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 mileston=
e
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, Alleghen=
y
Energy Solutions will be adopting Siemen's earthsafe platform which, accord=
ing
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 interconn=
ect
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 reduci=
ng
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 solution=
s
(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 Mitchel=
l
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.=20
Allegheny
must surely know that companies like Dominion, Reliant and AES=01*just to
name a few=01*are also aggressively stacking up generation assets in key ar=
eas
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 compani=
es
that are strong in generation. This partnership with Siemens seems to indic=
ate
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 diversify=
ing
into solar power comes at a time when, as CEO Alan Noia puts it, "our stron=
g
growth strategy and resulting solid financial performance" have received
recognition. The S&P 500 Index is widely regarded as the standard for=20
measuring
large-capitalization U.S. stock market performance. As of yesterday (Dec.
7), Allegheny Energy's stock (NYSE: AYE) 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-po=
wer
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 compan=
y
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 appea=
rs
to be a smart venture for Allegheny and one that should strongly benefit
its power supply opportunities.
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