Opinion on  China Nuvo Solar Energy Inc. (CNUV)
China Nuvo Solar Energy Inc.

China Nuvo Solar Energy, Inc. (OTC BB: CNUV) is a development-stage company that is designing and plans to soon manufacture solar photovoltaic (PV) cell technology products. The Company holds exclusive worldwide rights to a unique solar cell technology based on photovoltaic cells with integral light-transmitting wave guides in a ceramic sleeve. The advantage of this technology is that less exposed surface area is required to generate electricity. The light-transmitting particles act as wave guides and allow the sun-exposed conversion area of the solar cell to be shifted readily from horizontal to vertical to capture more sunlight. The ceramic sleeve eliminates the need for expensive vacuum chambers, thereby allowing less expensive materials to be used in solar cell production.

The Company’s technology offers significant light-trapping benefits compared to conventional solar energy technologies. Tests performed by the Joannopoulos Research Group at MIT on a similar technology confirmed that wave guides can increase lighttrapping in photovoltaic cells by as much as 37%.

In December 2007, CNUV entered into a collaboration and development agreement with California-based Pioneer Materials, Inc. (PMI) to establish a pilot development and manufacturing operation in PMI’s existing facility in Chengdu, Sichuan, China. The pilot line will produce solar cells based on CNUV`s licensed technology.

A business model capitalizing on innovative solar cells technology

CNUV holds exclusive worldwide rights to a unique solar cell technology based on light-transmitting waveguides in a ceramic sleeve. With this technology, less exposed surface area on the photovoltaic cells is required to generate electric power. The technology utilizes interspersed light-transmitting particles as waveguides to shift the square conversion area of the solar cell exposed to the sun from horizontal to vertical.

The Company is currently in discussions with the technology inventor to acquire the patents and related intellectual property.

Novel solar cell configuration creates greater efficiency

The Company’s technology consists of a multiple-stacked solar cell that uses light-transmitting particles as wave guides to better trap sunlight. Multiple layers means less surface area is required, resulting in greater current-generating capacity to a given area. In addition, the technology enables the packaging of photovoltaic cells into any desired physical shape with a reduced overall surface area, thus reducing solar cell shipping, storage and deployment costs.

A recently published independent report by the Joannopoulos Research Group at MIT determined that light-trapping increases as much as 37% when wave guides are incorporated in photovoltaic cell designs.

Ability to substitute materials eliminates silicon supply shortage challenges

CNUV’s technology uses a ceramic sleeve as a receptacle for the various materials in the solar cell. The ceramic sleeve replaces expensive vacuum chambers and permits materials other than silicon to be used in manufacturing. Competitor designs that typically require a vacuum chamber don’t allow for the interchange of materials because of contamination issues. CNUV’s technology gives solar cell manufacturers a broader range of materials to choose from. When silicon is in short supply, alternative materials such as Cadmium/Tellurium can be used to produce solar cells.

Agreement with PMI to develop a cost-effective solar cells manufacturing process

The Company’s short-term plan focuses on developing a viable manufacturing process for its innovative solar cell technology. To accomplish this, CNUV is collaborating with Pioneer Materials, Inc. on the construction, equipping, operation and management of a prototype testing, development and manufacturing facility in Chengdu, Sichuan, China. The goal of this facility is to produce solar energy products and equipment based on the Company’s licensed technology.

PMI is a developer of advanced, thin materials for solar energy applications so this relationship will likely provide CNUV access to low-cost materials that could potentially reduce its solar cell manufacturing costs. PMI management believes its innovative materials may significantly lower manufacturing costs from $2.00-7.00 per watt currently seen in the industry.

Environmental benefits attract government tax incentives

Governments worldwide are stepping up efforts to promote renewable clean energy technologies. Government subsidiaries and financial incentives in more than 40 countries around the world are fueling deployment of solar energy installations and creating business opportunities for technology innovators such as CNUV.

Solar cell market opportunity

Solar photovoltaic (PV) market installations worldwide reached a record high of 1,744 megawatts (MW) in 2006, representing 19% growth over the previous year. An EPIA/Greenpeace report forecasts 35% annual market growth through 2009 and 26% annual growth between 2010 and 2015. Worldwide photovoltaic sales were approximately $16 billion in 2006, and are estimated to reach $36 billion in 2010 and $50 billion by 2020 ¹ .

Rising oil prices, environmental concerns related to global warming, and the rapid industrialization of China, India, Eastern Europe and the CIS countries are driving robust growth for the solar energy industry. Solar energy has emerged as a viable power source in many countries and is becoming increasingly price-competitive with grid-generated electricity.

1 http://www.bine.info/pdf/infoplus/SunScreenII.pdf

Business model

The Company is developing and plans to manufacture and market innovative solar cells and solar power products for a wide range of applications based on a licensed technology that increases light-trapping while enabling a variety of materials to be used. CNUV’s technology employs multiple stacked solar cells in a ceramic sleeve that uses nano-particles and crystal wave guides to carry light from the opening down to the last junction in the solar cell. Competitors’ processes that use vacuum chambers (instead of a ceramic sleeve) generally don’t allow for material substitution because of contamination issues. CNUV’s technology allows manufacturers to quickly and economically shift to new materials if a shortage of any one type of material occurs. The Company’s technology offers a flexible, cost-effective solution for increased light-trapping.

In June 2006, CNUV acquired the exclusive worldwide rights to a solar cell technology from Photovoltaics.com, Inc. The technology consists of multi-layer photovoltaic cells incorporating integral light-transmitting materials that act as wave guides in directing light to targeted areas. The term of the license is 10 years and the license can by renewed for another ten year per the terms of the agreement. The license also covers the rights to use all applicable copyrights, trademarks and related intellectual properties anywhere in the world. In late November 2007, CNUV signed a letter of intent to purchase the patent from Photovoltaics.com.

To minimize the start-up costs of solar cell manufacturing, CNUV has signed an agreement with Pioneer Materials, Inc. (PMI) to establish a pilot production line by building out and modifying PMI’s existing manufacturing facility located in the Chengdu West High Tech Development Zone in Chengdu, Sichuan, China. PMI is a supplier of advanced materials for thin-film photovoltaic processing serving the optical recording market segment. Headquartered in Torrance, California, PMI has manufacturing operations in China and Taiwan.

Per the terms of this agreement, PMI will build, equip, operate and manage this facility which will develop, test and manufacture prototype photovoltaic cells and related products and equipment based on CNUV’s licensed technology.

Corporate strategy

The Company is focused on developing cost-effective, environmentally-friendly solar energy products. CNUV plans to acquire technologies and businesses that will help it implement its business strategy and enter into strategic partnerships with companies that can help advance its technology.

Key to growing its business is developing efficient manufacturing processes for producing affordable, commercially viable solar energy products. Over the next several months CNUV plans to:

• Raise sufficient capital to support product development and prepare for commercialization;
• Collaborate with PMI on the establishment of a pilot line for solar cell production at PMI’s existing China facility. Production will be based on CNUV’s technology;
• Test the completed equipment;
• Procure an initial stock of raw materials, commence commercial solar cell production and build an inventory of finished solar cells; and
• Invest in an ongoing marketing campaign.

Technology

The Company’s licensed technology –patented as “Photovoltaic cell with integral light transmitting waveguide in a ceramic sleeve” - utilizes Cadmium/Tellurium Cadmium/Sulfide powders layered in a ceramic sleeve with a conductive metal back contact. The ceramic sleeve, which serves as a receptacle for the various materials used in the solar cell, eliminates the need for expensive vacuum chambers or a vat with a molten material. A removable lens, clamped on to the cell, gives CNUV the unique ability to repair or add materials to the finished solar cell.

The Company’s photovoltaic cells consist of:

• An in initial semiconductor layer, comprised of N-type semiconductor material ² having a top surface and a bottom surface. Light-transmitting particles are interspersed within the N-type semiconductor material; and
• A second semiconductor layer, consisting of P-type semiconductor material having a top surface and a bottom surface. Light-transmitting particles are interspersed within the P- type semiconductor material. The top surface of the second layer is in direct physical and electrical contact with the bottom surface of the first layer to form an N-P junction ³ .

The generation of electrical current from the lower N-P junctions of a stacked multi-layer photovoltaic cell results from the transmission of light through each semiconductor layer to the lower semiconductor layers. As a result, photovoltaic cells are produced which exhibit greater current-generating capacity for a given surface area of sunlight exposure.

The technology utilizes light-transmitting materials reduced to a powder form, typically through grinding the material to a size of 5 micrometers to 150 micrometers, followed by a further reduction in the particle size to 400 to 800 nanometers.

A wave guide carries light through the cell. This is achieved by exciting metallic structures that cause the conduction electrons to oscillate. Conduction electrons improve the absorption and emission of light from thin planar semiconductor layers by coupling the light with the wave guide modes of the semiconductor layer. Enhancing absorption through the use of conduction electrons also avoids the increase in surface recombination that occurs with conventional light-trapping methods.

Source: www.pv.unsw.edu.au/Research/3gp_Surface_Plasmons.asp

The wave guide mode concentrates electrical potential in the cell. The material and amount of layers determines voltage while amperage is determined by particle size. The multiple stacked solar cell and wave guide mode enables sunlight- exposed conversion areas to be maximized by shifting the orientation from horizontal to vertical.

In addition, the technology enables PV cells to be packaged in any desired physical shape and with a reduced overall surface area such as cubes or elongated tubular structures designed to fit within specific size and shape constraints. This design flexibility greatly reduces the difficulty and costs of shipping, storing, deploying, and securing large solar module arrays.

Product development and manufacturing

The Company’s short-term operating plans focus on developing a viable manufacturing process for its licensed solar technology. CNUV’s collaborative agreement with PMI is the cornerstone of this plan. Per the terms of the agreement, PMI will build, equip, operate and manage a production line in an existing manufacturing facility which will develop, test and manufacture prototype products based on CNUV’s technology.

The terms of the agreement are for one year with automatic six-month renewals unless terminated by the parties. CNUV will pay PMI $2,500 per month for providing the facility and services of its technical, engineering, development, testing and manufacturing support staff. In addition, PMI is eligible to receive up to 4,000,000 shares of CNUV common stock upon the achievement of certain milestones, 2,000,000 shares of which have already been earned.

The Company’s licensed technology incorporates a process that is conducive to batch manufacturing. This is possible because the solar cell cylinder replaces the need for expensive vacuum chambers in the production process. CNUV believes its approach enables manufacturing capacity to be ramped up quickly and cost-effectively.

Because batch processing is highly labor-intensive, CNUV has opted to establish manufacturing capabilities in China. In addition, more than 50 companies with silicon-refining capabilities are located nearby in China as well as numerous independent mines for cadmium/tellurium refining and production. Cadmium/tellurium and silicon are key raw materials used in solar cell manufacturing.

2 Semiconductors are typically categorized into either N-type or P-type semiconductors.
3 www.freshpatents.com/Photovoltaic-cell-with-integral-light-transmitting-waveguide-in-a-ceramic-sleeve-dt20070920ptan20070215201.php.

Energy demand

Electricity consumption is strongly influenced by economic and population growth in the world’s developing economies. Demand for electrical power is projected to nearly double between 2004 and 2030, growing at a 2.6% average annual rate from 17,408 TWh to 33,750 TWh. Demand increases will be most dramatic in developing countries where some two billion people still lack access to electricity, and addressing that issue is a high public priority.

Exhibit 1: Demand for electricity

Source: http://www.world-nuclear.org/info/inf16.html

With the United Nations predicting world population growth from 6.4 billion in 2004 to 8.1 billion by 2030, energy demand will also increase substantially. Population growth and rising standards of living in developing countries will drive a 53% increase in energy demand between 2004 and 2030. The US Department of Energy predicts world energy consumption will grow 71% by 2030.

Solar energy industry trends

Solar energy offers a clean, safe alternative to energy produced from coal, oil or natural gas. Electricity is produced at low variable costs and solar energy plants don’t emit carbon dioxide. Despite these advantages, solar energy currently accounts for only 0.04% of the world’s energy usage. Solar photovoltaic (PV) installations worldwide reached a record high of 1,744 megawatts (MW) in 2006 and were up 19% from the prior year. An EPIA/Greenpeace report forecasts 35% annual growth in the worldwide PV market through 2009 and 26% annual growth between 2010 and 2015.

With government support in more than 40 markets, end-user demand for solar power significantly exceeds production capacity. CLSA Asia-Pacific Markets estimates volume growth of at least 30% annually through 2010. This sector is poised to grow four-fold from 1.5 Gigawatts in 2005 to at least 6 Gigawatts in 2010. The European Photovoltaic Industry Association reached the same conclusion in their published outlook for the global PV (photovoltaic) market.

Exhibit 2: Global annual PV installation capacity

Source: www.epia.org

According to the US Energy Information Administration, each year roughly 100 Gigawatts (GW) of incremental electricity-generating capacity are added globally. Most of this capacity is powered by coal, natural gas, nuclear or hydro-electricity. In 2006, solar power accounted for only about 1.5% or 1.8 GW of new installed capacity. Solar energy’s share is expected to increase to 5% by 2010 and 15-20% by 2015.

Worldwide photovoltaic sales were approximately $16 billion in 2006 and have grown 40% annually since 1997. Sales are projected to reach $36 billion in 2010 and exceed $50 billion in 2020 ⁴ .

Exhibit 3: Worldwide photovoltaic sales, $ billion

Source: Source: http://www.bine.info/pdf/infoplus/SunScreenII.pdf

Germany, Japan and the US are the largest PV markets. Together, these three countries represent 1.3 GW of a total 1.8 GW global installed capacity. Germany’s grid-connected PV market grew 16% in 2006 to 960 Megawatts and now accounts for 55% of the world PV market. While Japan’s market size barely advanced last year, Spain and the United States were strong performers. Spain’s market grew 200% in 2006 while the US market grew 33%.

Tight poly-silicon supplies

Silicon is the basic material used in the production of solar cells based on crystalline technology, which account for more than 90% of the world market. Silicon usage has increased from 14,000 tons in 2004 to 19,000 tons in 2006. Solar-grade silicon prices have risen as well: from $24/kg in 2003 to $50/kg in 2006. Demand continues to significantly exceed silicon supply. Production of solar cells based on non-silicon technologies is rising as a result of tight silicon supplies and soaring silicon prices. Production of non-silicon-based solar products increased from 70 MW in 2004 to 140 MW in 2005 and 240 MW in 2006.

Silicon shortages and rising prices are compressing the margins of solar cell manufacturers who rely on poly-silicon semiconductor materials, despite strong demand for solar photovoltaics. Because CNUV’s solar cells can use cadmium and telluride materials, the Company will not be impacted by silicon shortages and may actually benefit from market share gains made at the expense of higher- cost solar cell manufacturers.

High oil prices

Rising oil prices make solar energy an increasingly attractive and affordable power alternative. After surging nearly 58% in 2007 (the biggest annual gain in a decade), crude oil prices hit $100 a barrel in early 2008 before ending the trading day at $99.62 a barrel. OPEC’s weekly average oil price has increased for five consecutive weeks since early December, with prices rising 9% to $92.62 from $84.97 per barrel.

The International Energy Agency recently announced its 2008 forecast, indicating global oil demand will rise 2.3% in 2008 to 87.7 million barrels a day. The Energy Information Administration’s (EIA) projects world oil demand will grow much faster than non-OPEC supply, leaving OPEC and inventories to make up the difference.

Exhibit 4: NYMEX Crude Oil Futures Close (Front Month)

Source: http://www.wtrg.com/daily/crudeoilprice.html

Industry analysts expect oil prices to remain high for the foreseeable future and some experts predict prices exceeding $125 or even $150 per barrel. The Director of the International Energy Agency expects oil prices to reach $150 a barrel because of booming demand from India and China. According to Goldman Sachs, the price of oil could stabilize at $105 a barrel by year-end 2008.

4 http://www.bine.info/pdf/infoplus/SunScreenII.pdf

Revenues

CNUV has yet to generate any revenues from product sales. The Company recently acquired its technology license and is in the process of developing prototype solar cells and a cost-effective manufacturing process.

CNUV’s operating expenses increased to $305,800 in the first quarter of FY 2008 from $40,300 in the prior year first quarter. First quarter FY 2008 expenses included stock compensation costs of $137,500, legal and accounting expenses of $60,800, and management and consulting fees of $41,300. Other expenses of $51,000 consisted of depreciation and amortization of $11,000 and miscellaneous general and administrative costs of $40,000.

Exhibit 5: Income statement, $ thousands

Source: SEC filings, fiscal year ended July 31, 2007

Liquidity and capital resources

The Company has limited cash and is relying on external financing to fund its operations. During the three months ended October 31, 2007, CNUV received net proceeds of $416,500 from the issuance of notes payable and convertible debentures, which was partially offset by repayments made of $109,317 on a note payable and $41,200 paid for placement fees related to convertible debentures.

At October 31, 2007, CNUV had $183,000 of cash and equivalents, negative working capital and a significant accumulated net deficit.

Source: SEC filings

Going forward, CNUV plans to seek additional financing to support its 2008 business activities. On January 10, 2008, CNUV announced the closing of a new financing agreement through which it received net proceeds of $311,900 as part of a $700,000 funding commitment. The Company intends to use the proceeds to further develop and eventually commercialize its multi-stacked solar cell technology.

Renewable energy stocks rose in December after the US Senate passed a revised energy bill intended to cut US dependence on imported oil by increasing fuel-efficiency standards. Although this energy bill didn’t include an anticipated directive requiring utilities to derive 15% of electricity from renewable sources, the long-term outlook for solar installations remains strong.

Government support at the local level, with many US states establishing their own alternative energy standards, and from the European Union, as well as soaring oil prices, will be major growth drivers for solar energy deployments.

Demand for solar energy products is expected to grow 40% in 2008 and to maintain double-digit growth rates over the long-term.

Solar energy companies presently face two major challenges: high costs and silicon supply shortages that constrain production capacity. These problems are interconnected since tight supplies push up material prices. CNUV’s technology addresses both cost and supply issues by allowing materials other than silicon to be used in manufacturing and improving light-trapping efficiency on a given surface area, thus reducing generating costs.

These technology advantages should create a large potential market for CNUV’s solar cells, assuming the Company can establish cost-effective manufacturing capabilities.

The peer group we created for CNUV consists of early-stage solar energy companies with limited revenues but promising technologies. Despite the lack of revenues, most of these companies have market capitalizations exceeding $100 million because of the strong growth potential associated with their technologies.

Exhibit 6: Peer comparison

Source: Yahoo Finance

Despite the advantages of its licensed technology and the Company’s rapid progress toward production and commercialization, CNUV trades at the lowest market capitalization of the peer group. We believe CNUV’s partnership with PMI greatly increases its changes of successfully commercializing its solar cell technology. Moreover, since Pioneer Materials is a developer of advanced thin materials for solar energy industry, CNUV will likely gain access to innovative low-cost materials that will minimize its solar cell manufacturing costs. PMI management believes its innovative materials may reduce solar cell costs from $2.0-$7.00 per watt to as low as $0.50 per watt.

Taking into account peer valuations of firms that are also emerging in the solar energy sector, the solar energy industry outlook and the Company’s novel technology and progress towards commercialization, we think CNUV warrants a median, if not higher valuation. We believe this Company should command a market capitalization of at least $70 million and are initiating coverage of China Nuvo Solar Energy, Inc. with a Speculative Buy rating and a $0.35 price target. However, the Company’s early-development stage increases investment the risk associated with investing so we urge potential investors to consider the risk factors cited below before investing in these shares.

Development-stage status

CNUV is a development-stage company with an unproven ability to commercialize its technology and establish a customer base. The Company has a limited operating history, no revenues and an accumulated deficit that raises doubt about its viability as a going concern.

Unproven technology

There is no guarantee that the Company will be able to cost-effectively manufacture solar cell products or that the products will perform better than competitors’ products in commercial deployment. The solar energy market is rapidly evolving and becoming increasingly competitive. CNUV will be required to invest significant additional capital in research and development and keep pace with technological advances in solar cell technology.

Unproven market potential

Despite a favorable industry outlook and the cost and efficiency advantages of the Company’s technology, no assurance can be given that CNUV will generate product sales and profits.

Additional financing required

The Company will require additional external financing to commercialize its technology. If CNUV fails to obtain sufficient funding, it may not be able to implement its 2008 business plan. In addition, the Company is issuing unsecured convertible debentures, options and warrants which may cause dilution to existing shareholders.

Mr. Fong has been President and a director of CNUV since its inception in April 2006. Mr. Fong was also President, Treasurer and a director of Hydrogen Power, Inc. from its inception in 1983 until January 2, 2007. Mr. Fong has been a director of FastFunds Financial Corporation, a publicly- traded shell company, since June 2004. He has been President and a director of Equitex 2000, Inc. since its 2001 inception and President and a director of Inhibiton Therapeutics, Inc. since its 2004 inception. Inhibiton Therapeutics is a publicly-traded company developing new cancer therapies. From 1959 to 1982, Mr. Fong served in various accounting, finance and budgeting positions with the Department of the Air Force. From 1972 to 1981, he held senior supervisory positions at the Department of the Air Force headquarters at the Pentagon. In 1978, he was selected to participate in the Federal Executive Development Program and in 1981, he was appointed to the Senior Executive Service. In 1970 and 1971, he attended the Woodrow Wilson School at Princeton University and was a Princeton Fellow in Public Affairs. Mr. Fong received the Air Force Meritorious Civilian Service Award in 1982 and has also passed the CPA exam. In March 1994, Mr. Fong was one of twelve CEOs selected as Silver Award winners in Financial World magazine’s corporate American “Dream Team”.

Mr. King has been a CNUV director since November 2006. He became Chief Executive Officer of Wits Basin Precious Minerals, Inc., a publicly-traded mineral exploration company, in September 2006 and has served as a director since July 2004. Mr. King also served as President of Wits Basin from May 2006 until September 2006. Since October 2000, Mr. King has served as President of SDK Investments, Inc., a private investment firm located in Atlanta, Georgia specializing in corporate finance and investing. From January 1994 until July 2000, he served as President of PopMail.com, Inc., a publicly-traded company operating in the hospitality and Internet sectors.

Mr. Hollander has been CNUV’s Chief Financial Officer since 2002. He has also been CFO of VP Sports, a privately-held company, since March 1999. From 1994 to 1999, Mr. Hollander was CFO of California Pro Sports, Inc., an in-line skate importer, marketer and distributor which merged with Imaginon, Inc in 1999. Mr. Hollander has been employed in the sporting goods industry since 1980 in various accounting, senior management and executive positions. He holds a BS degree from Fairleigh Dickinson University and is a CPA.

Mr. Olson has been Secretary and Treasurer of CNUV since its inception. Prior to this, Mr. Olson was Secretary of Hydrogen Power, Inc, a publicly-traded company in the alternative energy sector. Mr. Olson has served as a director of Chex Services, a former subsidiary of Hydrogen Power, Inc., since May 2002. He has been Secretary of Equitex 2000, Inc. since its 2001 inception and Secretary of Inhibiton Therapeutics since its 2004 inception. From August 2002 to July 2004, Mr. Olson was Secretary of El Capitan Precious Metals, Inc., a publicly-traded company owning mining properties. Mr. Olson attended Arizona State University and the University of Colorado at Denver.

Mr. Perkins has over 50 years investment industry experience and has been President and Investment Manager for Perkins Capital Management since October 1994. Perkins Capital Management specializes in micro-cap investments and has assets under management exceeding $248 million. Mr. Perkins is also a director of several public companies including Synovis Life Technologies, Nortech Systems, Lifecore Biomedical and Vital Images, Inc. He is also a director of several private companies.

Mr. Dahl is President and owner of CTD Properties, a privately-held company that manages various real estate investments. He is also the founder and President of Children’s Broadcasting Corp. and has significant media industry experience, including executive management and board positions with publicly-traded companies in the radio broadcast and public media content segments.