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SCIENTECH IssueAlert, November 6, 2000
Evergreen Solar, Inc. Issues Successful IPO; Do Alternative Fuels Increase
Stock Value?
By: Will McNamara, Director, Electric Industry Analysis
===============================================================

Waltham, Mass.-based Evergreen Solar, Inc. (Nasdaq: ESLR) issued an initial
public offering of 3,000,000 shares of its common stock at the IPO price
of $14 per share. Evergreen Solar develops, manufactures and markets solar
power cells, panels and systems throughout the world. The IPO reportedly
will raise $42 million in gross proceeds to support further expansion and
development by Evergreen Solar.

ANALYSIS: Here's yet another case of a relatively unknown company going
public based on grand marketing ideas rather than a solid track record.
Yet, surprisingly, the IPO has opened strong. Last Thursday (11/2), Evergreen
Solar's stock closed 36 percent above its offering price, at $19.00. At
the close of the market on Friday, the stock price had dropped to $17 ?,
but still represented a strong showing while other IPOs last week (both
energy and non-energy) have crashed and burned (Excelergy, for example).


What makes the strong IPO even more startling is Evergreen Solar's 
less-than-stellar
financial history. Since its inception in 1994, Evergreen has incurred
significant net losses ($2.5 million in 1998, $2.9 million in 1999 and
$1.9 million for the first six months of 2000). As a result of ongoing
operating losses, Evergreen has a cumulative net loss of $12.3 million
as of June 30, 2000, and has stated clearly that it "expects to incur 
substantial
losses for the foreseeable future, and may never become profitable." In
1999, product sales only accounted for 8.2 percent of total revenue, with
the rest coming from research grants. Granted, Evergreen is still in start-up
mode with regard to a large-scale production of its business, but still
it seems very odd to see such a strong IPO from a company that is really
just getting started.

So, what gives? Doesn't it seem logical that a company should demonstrate
financial stability before it goes public? And that if it's not financially
stable, the stock price should go down and not up? I'll provide one theory,
but first let's establish exactly what Evergreen Solar is all about.

The company's sales since 1997 have been composed primarily of solar panels.
Evergreen plans to begin large-scale manufacturing of its solar power products
in a new manufacturing facility in early 2001, a growth strategy that the
IPO proceeds obviously would support. Evergreen's principal objective is
to become a leading producer of high-quality solar power products, primarily
for the on-grid market and the off-grid rural electrification market. What
makes the company unique, according to Evergreen, is its String Ribbon
technology, which reportedly avoids the slicing of solid block of silicon,
which is required for most solar-power technologies. Evergreen's String
Ribbon technology reportedly cuts the use of silicon in half, which reduces
manufacturing costs without impairing product reliability.

In December 1999, Evergreen Solar formed a five-year strategic distribution
and marketing contract with Kawasaki for the Japanese market. Essentially,
Evergreen has agreed to sell its solar power products in Japan exclusively
through Kawasaki. In fact, the partnership constitutes the bulk of Evergreen's
business. In the first six months of 2000, sales to Kawasaki accounted
for approximately 70 percent of Evergreen's product revenues. After the
IPO, Kawasaki will have an 8.4 percent stake in Evergreen.

The risks associated with Evergreen's business are formidable, and the
company admits that its stock price could fall substantially if quarterly
revenue continues to be disappointing. Beyond that, Evergreen's success
hinges on the potential growth of the solar power market, which is still
in question. Evergreen contends that distributed generation technologies
(point-of-use electric generation that either supplements or bypasses the
electric grid) will be one of the most promising areas for growth in the
global electric power market, and within DG technologies solar power has
experienced significant growth over the last 20 years. In addition, solar
power produces zero emissions, and may grow as a result of renewable energy
requirements in various states.

This may be true, but at the same time there are other competing DG 
technologies
such as fuel cells, microturbines and wind power, which may slow the grow
of solar power. Plus, there's little proof that Evergreen's String Ribbon
technology will produce significant cost-savings to make it a standout
technology. There are other risks as well, not the least of which is the
exclusive relationship with Kawasaki. If the relationship goes sour, this
could dramatically diminish Evergreen's potential revenues and market share.

So, with this market profile, the question of why Evergreen had such a
strong IPO still remains. I think the answer is that Evergreen's business
focus is exclusively placed on alternative power. At a time when e-commerce
stocks are under growing pressure to demonstrate financial success, stocks
based on new technologies in general and alternative fuels in particular
are being received particularly well by investors. There is arguably a
general perception within the financial community that distributed generation
technologies will gain an increasingly strong lock on the energy market
in the next two years. Commercial and industrial customers want various
options that can reduce their dependence on the grid. With regard to 
alternative
fuels and distributed generation technologies, investors may believe that
either utilities or large end-users will begin to develop these technologies
as deregulation continues.

Remember Active Power (Nasdaq: ACPW), whose shares soared on expectations
that flywheel energy storage devices will be a leading technology. On its
opening day in August, Active Power stock increased by 210 percent, from
the opening price of $17 to $51 1/8. Although Active Power's stock price
has bounced around since then, it still closed at $30 on Nov. 3, a very
respectable level and approximately 111 percent above its original price.
Another example is Capstone Turbine (Nasdaq: CPST), which is currently
trading at $45 3/8 after opening at $16 in June.

Along with alternative fuels, venture capitalists also appear to be responding
to technology startups that plan to provide software and related services
to energy companies. Then there is the growing market of exchanges, such
as Pantellos, Enporion, Enermetrix and the like, which could be the next
big round of successful IPOs.

The long-term question is how long such stocks can continue to open so
successfully, without having a strong financial performance to support
the opening. E-commerce stocks started opening strong about a year or two
ago, but began to take a downward decline this spring as investors demanded
to "see the money." Evergreen Solar and similar stocks may be following
a similar path, which makes time a critical factor. The bottom line is
that it is a real race for a company like Evergreen Solar to secure as
much funding as it can and grow its business while the financial climate
remains strong.

===============================================================

Hear JON BROCK, Director of Strategic and Competitive Intelligence, 
SCIENTECH/RCI,
address the ramifications of legislative and regulatory requirements on
your Information Technology Infrastructure at the McGraw-Hill/EEI/AGA 
Information
Technology Expo in Phoenix Arizona, November 5-7, 2000.

===============================================================

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Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@scientech.com
===============================================================
Feedback regarding SCIENTECH's IssueAlert should be sent to 
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===============================================================

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