ABB's Unique Approach to Solar (ABB)

June 26, 2008 | by Gregory S. Davis

ABB Ltd. (NYSE:ABB) is taking a new approach on solar energy. When you tilt a magnifying glass at just the right angle sun rays are concentrated into a beam of energy that can burn wholes through leaves. A similar concept is being used at a solar plant in Spain with the help of power generation technology from ABB.

Parabolic Troughs
Instead of using photovoltaic panels the Abengoa owned facility named Andasol I uses a field of more than 600 large parabolic trough mirrors, bigger in size than most mid-sized vehicles, to reflect the sun’s energy toward a 377 foot tall cement tower. The heat turns water into steam that is redirected into turbines to generate power. Located in Andalusia, Spain Andasol I and II, the second solar facility under construction, will each generate 350 gigawatt hours of emission free electricity capable of powering 100,000 Spanish homes each year. The drawback to this technology is its high expense in comparison to traditional energy sources. It also doesn’t produce energy at night so the system is built to store steam for use when the sun is down. The first plant to use this parabolic technology was built by ACCIONA Energy of Spain in Phoenix, Arizona.

ABB’s Role
ABB’s Extended Automation Systems 800xA and ABB Power Generation Portal software will be used to control both solar plants. ABB power transformers will also be used to transfer power from the solar plants to the local grid. The majority of ABB’s revenues in 2007 were derived from its Power Products division. The ABB Power Products division has the ability to meet the increasing global demand for power by providing and supporting the infrastructure that must be updated, replaced and adapted to handle new loads, and to incorporate renewable energy sources.

Valuation
ABB has an attractive price/earnings to growth ratio (PEG Ratio) of 0.84. A PEG Ratio below “1” suggests that the stock is undervalued relative to its expected five-year earnings growth rate. ABB revenues at the end of 2007 increased 20% to $29 billion form the previous year. For the first quarter of 2008 ABB revenues rose 29% over the same period a year ago to $8 billion boosting earnings 65% to $1.4 billion. Other industrial electrical equipment makers with PEG Ratios below “1” include Eaton Corp (NYSE:ETN) and Regal-Beloit Corp (NYSE:RBC).

Why ABB?
ABB’s reach into renewable energy further solidifies the company as a global market provider of power transmission and infrastructure development resources. The need for equipment replacement in Europe and the U.S. along with strong development trends in Asia, the Middle East and Africa shine a positive light on ABB’s future growth prospects.