Two big effects this terrible disaster..
Earthquake’s Effect on the Solar Energy Industry
The 8.9 magnitude earthquake not only wiped out people’s belongings in northern Japan, but also destroyed supply chains from various industrials. The nuclear power industry was especially hit hard due to the chain reaction resulting meltdown of the metal containers in the reactors. Numerous organizations and governments around world protect against nuclear energy as a major source of energy on this planet because it is simply not safe in such scale a disaster.
Countries such as USA, China, Japan and Australia are most susceptible to big earthquakes. It is reported that Southern California is way overdue for a big hit, it is not a question of “if” but “when.” California has two operating plants: Diablo Canyon and San Onofre, both are vulnerable to earthquakes. This causes serious concerns in the region. Naturally, last week’s earthquake changed the mentality of how people should approach renewable energy in the future. We will not likely give up nuclear energy, but the problem is that no safety rule is strict enough to guarantee safe operations if a big earthquake strikes. As a result, nuclear power will likely play a smaller role in the future energy market, while solar and wind energy are much more secure, safer and easy to distribute.
The earthquake also has impact on the solar energy industry. Japan accounts for 1/4th of global solar production, including solar panels and polysilicon. Most of these products are sold in domestic markets, some polysilicon is shipped overseas. The earthquake caused shutdown of production from Sanyo (SANYY.PK), Panasonic (PC), the Kyocera Corp. (KYO) and Sharp (SCHAY.PK). Some facilities are not severely damaged, but what impacts the industry is the infrastructure. It is believed that at least 2-3 months will be needed to repair the power grid. Without electricity, the solar industry will remain shutdown for foreseeable future. The supply chain is not there any more. It will even take longer to repair the roads and ports in the northern coast.
Japan may have two weeks of inventory for panels and wafers. M. Setek, a solar wafer supplier, has completely shut down its facilities due to the damage caused by the earthquake. It supplies wafers to Sunpower (SPWRA). Companies benefiting the most are the polysilicon producers such as LDK solar (LDK) and ReneSola (SOL). Both will fill the gaps left by Japanese companies. Sunpower, Sharp and Kyocera will likely have to place orders from LDK and SOL to solve the supply problem, and they may have to pay high price for the wafers. We believe Suntech power (STP), Jinko Solar (JKS) and Trina Solar (TSL) will not be affected by the shortfall, as they have long term contracts in place. Yingli green (YGE) is a vertical integration company, so it is barely impacted.
The sentiment is shifting towards to solar energy as governments from Japan, China, France, Italy and Germany are considering boosting the solar energy shares in their renewable energy portfolios. People of these countries are putting lots of pressure on politicians to shift their energy policies to favor solar energy. In the next 2-3 months, new policies from the countries of major solar markets are expected to be enacted. The German government has indicated that existing nuclear plant operations will not be extended as most Germans are opposed to nuclear power. It is certain that leaders in Japan will rigorously set policies to promote solar power as opposed to nuclear power in their next congressional meeting.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LDK over the next 72 hours.