Norsk Hydro Buys Big Stake in Tiny Ascent Solar

The private placement represented a 23% stake in the company, according to Ascent, which spun out last year from ITN Energy Systems, a research and development company that works on government and private technology development, largely for the aerospace and defense industries.

Hydro paid about $5.77 a share, a 25% premium to Tuesday's closing price. The Oslo-headquartered company, which is the world's third-largest aluminum producer, will have the option to increase its stake by 12% of the outstanding shares once the deal is approved by shareholders.

Ascent Chief Executive Matt Foster said the investment, announced late Tuesday, will help pay for construction of a production plant for its thin-film photovoltaic systems used in solar panels. The plant should reach its initial production capacity of photovoltaic cells capable of generating 1.5 megawatts worth of power by early 2008. Ascent plans to increase production to 100 megawatts as demand grows, he says.

"[Norsk Hydro] had been looking in this space for about two years, and they looked at other thin film companies," Foster says of the deal, which closed in about three-and-a-half weeks. "They wanted to move forward, and they came out for a visit. Within 30 minutes they knew they'd found the right company."

In November, Norsk Hydro made a $24.5 million investment in Norsun, a Norwegian company that's building a plant to produce monocystalline silicon wafers for solar cells.

"There's a lot of money going into solar," says Robert Margolis, a senior analyst at the National Renewable Energy Laboratory, the Department of Energy's main research laboratory for alternative energy, in Golden, Colo. "There's a lot of opportunity, and the market's growing really fast."

Domestic incentives are gaining ground in the tiny, heavily subsidized market, which still hasn't reached commercially applicable production capacity. There's California's Solar Initiative, which is slated to spend $2.9 billion over 10 years to boost solar production in the state to a total three gigawatts, enough to supply power to about a million houses. The Department of Energy last week announced a list of 13 companies it's considering for as much as $168 million in federal research funding. The potential recipients run the gamut from tiny, privately held Nanosolar to corporate behemoths such as Boeing (BA) and Dow Chemical (DOW).

Globally, the clean energy market notched revenues of $55 billion last year, and is projected to grow to $226 billion by 2016, according to Clean Edge, an energy research firm based in San Francisco and Portland, Ore. Clean Edge projected solar photovoltaic revenue from modules, system components, and installations will grow to $69.3 billion by 2016 from $15.6 billion last year.

Ascent posted a loss of 30 cents a share for the third quarter of 2006, its most recent quarterly filing with the Securities and Exchange Commission. Total losses for the first nine months of last year totaled $1.12 a share.

Norsk Hydro is in the midst of a massive transformation that involves a $28 billion sale of its oil production and exploration business to government-controlled Statoil (STO), creating the world's largest offshore operator, with a 1.9 million barrel daily production capacity.

That's made its tiny alternative energy operation potentially more important, says Kjetil Bakken, an analyst at Fondsfinans, a Norwegian investment bank in Oslo.

"This seems to fit nicely into that portfolio," he says. "The new management has reorganized and they have a new executive who is covering power generation and alternative energy. It's an area where Hydro seems to be increasing its focus."

The Norwegian government last week pledged $4.9 billion in international development aid over the next three years to accelerate clean energy development in emerging markets, which could bolster Hydro's international market.

On Monday, Ascent had a market capitalization of $25 million. One huge deal later its value jumped to $34 million. That's a bit more than twice what alternatively powered slugger Barry Bonds will make playing baseball for the San Francisco Giants this season.

This is still a tiny market, with all kinds of government supports that make a solar stock investment one based more on conviction and optimism than demonstrable fundamentals. But it's got to start somewhere, and Margolis, of the National Renewable Energy Laboratory, says growth rates are hard to ignore.

"When you get up to 2.5 gigawatts, you're starting to talk about real numbers," he says. "I hate to say that solar's around the corner — the point is that it's happening. It's becoming a real, relevant factor."

For the investors who've stuck with Ascent since its rocky Nasdaq debut last July, when the $5.50 a share stock plunged nearly 40% within six weeks of its initial public offering, it's the first of what CEO Foster hopes will be a glowing success story.

"I think it's starting to build," he says. "This news adds credibility."