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2020-01-31

Comment Industrial Solar: Solutions for green industries

Detta är en betald analys på uppdrag av Industrial Solar Holding Europe AB utförd av analysföretaget Carlsquare (före detta Jarl Securities) på uppdrag av Analysguiden.
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Industrial Solar provides fossil free and clean energy solutions for industrial processes and after the acquisition of SolarSpring GmbH also solutions for industrial water treatment. The energy demand from industries as well as the market for GreenTech is expected to grow. The company’s offer is also in line with global goals for a sustainable world.

Since it was founded, Industrial Solar (Industrial Solar, the company or ISHE) has been driving the commercialization of solar thermal technology. The company provides turnkey solutions for clean energy to the industrial sector, especially for process heat (steam/hot water/thermal oil) and cooling. A key technology in many of the company’s solutions is the Fresnel Solar Collector providing temperatures up to 400°C. This makes the technology applicable in about 50 percent of today’s industrial applications.

According to a report produced by IEA/IRENE, the industry is responsible for 32 percent of the global energy demand. Out of these 32 percent, 74 percent of the energy is consumed to create heat. Coal, gas and oil are the dominating fuels to produce heat. See picture below:

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Source: Solar Payback / IEA SHC Task 49

The demand for energy from industries is expected to increase, and if nothing is done, the CO2-emission level will continue to rise. In the battle against climate change for a sustainable future it is crucial to replace these CO2 emitting energy sources with clean, green and financially viable solutions. This is precisely what the company Industrial Solar is all about.

A significant part of the current and future industrial energy demand can be covered by solar thermal energy solutions. Solar energy, in its simplest form, has been used for decades in areas with a warm climate and plenty of sunlight. Long before today’s surge for photovoltaic solar cells, people have been using simple flat solar collectors in roof-top installations to provide for hot tap water at temperatures of up to 40°C.

With the increasing interest in clean and renewable energy, the technology for solar collectors has evolved towards Concentrating Solar Heat (CSH) systems, such as the Fresnel collectors, that can provide higher temperatures.

Introduction of Industrial Solar

Industrial Solar is a German technology company, 100% owned by the Swedish holding company Industrial Solar Holding Europe AB. The company offers technology, solutions and services within the field of solar energy.

Industrial Solar was founded in 2008 in the environment of the renowned Fraunhofer Institute for Solar Energy Systems (ISE), Europe’s largest applied solar research institute. The aim was to commercialize the Fresnel collector optimized for industrial applications. Later, Industrial Solar evolved from a product manufacturer to a solutions provider.

Today, Industrial Solar is the world leader in Fresnel projects for industrial heat supply and delivers comprehensive and customized energy solutions as a One-Stop-Shop concept based on a variety of technologies and solutions that covers a wide range of industries and industrial applications.

The company has gathered extensive know-how from different industrial sectors and has carried out several international projects. This and the long track record of installed Fresnel collector projects for industrial applications make Industrial Solar a world leader in solar process heating and cooling.

Over the years, Industrial Solar has established a number of reference installations in Europe as well as in the Middle East and in Africa.

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Source: Industrial Solar

Industrial Solar has an ongoing share issue, raising a maximum of SEK 24.7 million. The last day to subscribe is February 5th. Some of the cash will be used to acquire the German company SolarSpring GmbH. SolarSpring provides water cleaning solutions for industrial wastewater using an innovative membrane distillation technology. The SolarSpring wastewater cleaning solution has a complementary fit with solar energy and can be powered with Industrial Solar’s thermal energy solutions.

Business model

Industrial Solar has evolved from being a technology provider to a solution one-stop-shop for industrial energy. Projects are provided as turnkey installations, involving a variety of technologies.

More recently, the company is also offering projects as Heat Purchase Agreements (HPA). In an HPA, the initial project investment is provided by Industrial Solar in collaboration with financial actors. The industry customer commits to purchasing the energy produced over a specific time similar to the power purchase agreement commonly used for large electricity consumers. With low maintenance costs HPA can generate high gross margins.

Technology and products

Fresnel solar collectors provide heat up to 400°C

The company’s main technology is the Fresnel solar collector. Direct solar radiation is reflected from several rows of single-axis tracking mirrors onto a stationary receiver which consists of a highly efficient vacuum tube with selective coating. About two thirds of the solar radiation reflected by the primary mirror hit the absorber tube directly, whereas about one third of the solar radiation hits the absorber tube via the secondary mirror. The heat is collected in this absorber tube and fed to the application by means of a heat transfer medium.

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Source: Industrial Solar

Based on the principles of the Fresnel collector, Industrial Solar has developed the solar collector product, LF-11. The LF-11 collector is a linear concentrating solar thermal collector optimized for industrial applications.

It can provide heat at up to 400°C and operate with pressures of up to 120 bars. With thermal heating of up to 400°C, more than 50 percent of today’s industrial applications can be addressed. Due to its modular design, the system can be scaled up from a 500 kW to 30 MW.

Besides being operated with water, thermal oil or high-temperature glycol, it can also generate steam directly.

System integration of solar thermal power on supply temperature level is simple and the production lines and industry processes remain untouched. This is visualized in the picture below:

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Source: Industrial Solar

Wastewater – a new business area after the acquisition of SolarSpring GmbH

ISHE has signed a Term sheet and is currently finalizing a share purchase agreement to acquire 100 percent of SolarSpring GmbH, a spin-off of Europe’s largest applied solar research institute, Fraunhofer ISE. After the acquisition of SolarSpring, Industrial Solar widens its area of expertise and can also provide solutions for cleaning of industrial wastewater.

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SolarSpring has developed a system to clean wastewater and retrieve and recycle valuable compounds of the wastewater with a technology based on membrane distillation, a widely used method for cleaning water. Membrane distillation is a thermal process, meaning that energy is needed in the process for heating and cooling. SolarSpring’s solution runs on low amounts of energy and can thus be powered with solar thermal energy or with industrial waste heat. Further, the solution has a self-cleaning function (e.g. filters), which reduces maintenance costs and improves the lifetime of the system.

The system has been under development for several years and the solution has been tested in various pilot installations across several industries.

We believe that adding wastewater cleaning and compound recycle solutions to the product portfolio is a suitable complement to the solar collectors, especially as most companies that require heat for their processes also use water. According to the company, SolarSpring generated revenues of about 500 000 euro during 2019. SolarSpring aims at setting up a reference installation that can be a trigger for sales in the upcoming year. The sales force needs to be scaled up for revenues to increase.

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Source: SolarSpring

Market and competition

Increased demand is expected

Until 2040, the demand for energy in the industries is expected to increase by 27 per cent compared to 2017. See graph below. This is according to “2019 Outlook for Energy: A Perspective to 2040” published by ExxonMobile.

Increasing energy demand from the industries globally (Quadrillion BTUs):

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Source: 2019 Outlook for Energy: A Perspective to 2040, ExxonMobile

According to the same source as mentioned above, heavy industry and chemicals is driving growth. Most of this increase will take place in emerging markets and non-OECD countries such as Asia, Africa and Latin America. A significant part of the increasing energy demand can be addressed by solar thermal energy. See graphs below:

Increasing energy demand by sector and region/country (Quadrillion BTUs)

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Source: Outlook for Energy: A Perspective to 2040, ExxonMobile

Overall, the market for industrial heat energy is lagging behind the electricity market in terms of transformation towards sustainable and clean solutions. Solar heating solutions that meet industrial standards and requirements have not been generally available to the same extent as renewable electricity solutions, and the initial investments have been thresholds not easily passed. For the long-term market evolution to materialize, international commitments in climate financing are necessary to spur the industry transformation. In recent years, green funding to support emerging countries has increased but this is still a challenge that limits the industry´s transformation pace towards renewable and clean energy solutions.

Nevertheless, the total green tech market is anticipated to grow substantially over the next decade with an average annual growth of approximatively 7 percent, reaching a market value of close to EUR 6 000 billion by 2025. This is according to a report published by Roland Berger.

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Source: Roland Berger, 2016

As shown in the picture above, after closing the acquisition of SolarSpring and including the products of water treatment, Industrial Solar will be able to address between 80 percent of this huge and steadily growing market by 2025.

Even if the Industrial Solar current market is to some extent limited by the availability of green funding, this dependence is likely to decline over the coming years. The increasing presence of new environmentally friendly laws and regulations will make Industrial Solar’s products and solutions more financially attractive and accelerate the Greentech market growth in general.

Competition

Industrial Solar has a fairly small but growing number of global competitors. Most of them use a competing technology based on parabolic solar collectors that has several limitations in industrial applications compared to Fresnel solar collectors. Only a few competitors use Fresnel collectors like as Industrial Solar.

The closest competitors are the German company Protarget (https://protarget-ag.com/en/) and Belgium-based company Rioglass (https://www.rioglass.com/). Protarget manufactures small parabolic solar collectors and Rioglass has developed a Fresnel-based collector capable of industrial high temperature processes.

Opportunities and challenges

Opportunities

  • The company's basic business concept is fully in line with the global long-term pursuit of climate change and for a sustainable society based on clean and renewable energy.
  • The company has a high level of technical innovation and strong expertise in the CSP area. The Fresnel solar collectors are a key technology for industrial applications.
  • The company has been active in the field for several years and established itself as a part of the ecosystem for industrial solar thermal energy.

Challenges

  • Pay-back time for an investment in CSH is long and using renewable energy to power industrial processes is still in early stage. A price reduction, similar to the one we have seen for solar cells, might be needed for the development towards renewables to accelerate.
  • The business is reliant on “green funding”, which can also be found in the company’s target markets. However, to be able to sell in these markets, the company must be well connected with local partners.  
  • The company is likely to need more capital injections before the cash flow is positive.

High valuations in the sector

The table below shows listed companies in Sweden active within the Energy and Environment sector. The valuations could in many cases be considered high compared to net sales and operating results.

The median market capitalization for the group is SEK 286 million. Median net sales are SEK 5 million and median EBIT is SEK -9 million, for the last reported fiscal (or financial) year. Industrial Solar is currently trading at a market value of SEK 63 million (excluding subscription rights) and generated sales of SEK 2 million and an EBIT-result of SEK -2 million in 2018.

SolarSpring will add revenues (and opportunities) to Industrial Solar which is likely to improve the valuation of the company.

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Författare Markus Augustsson

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