Solar problems? II

We wrote about the sell-off in the solar sector. We couldn’t find any negative fundamental news, apart from a lone prediction that solar energy was about to shrink in one of the more important markets, Japan. However, there is plenty of good fundamental news around from markets that have yet to take off, like India and Turkey.

There are numerous big markets with lots of sunshine that have yet to take off in earnest, like the US, China (despite numerous producers, it has not even started at being a big consumer), and.. India.

They have just released an energy action plan.

The Action Plan focuses attention on eight priorities National Missions, the first among which is “Solar Energy”, whose success, according to the Prime Minister Dr. Manmohan Singh, has the potential to change the face of India.

Serious talk. However, where is the beef? Measures, like subsidies, are required to implement these visions. On the other hand, there is a clear necessity, India has little energy sources of its own. It’s main sources are coal and hydro power (and a couple of nuclear centrals), but there is an acute shortage of energy and brownouts are still happening.

On the other hand, the economy is rapidly decelerating and budget deficits that are threatening to spiral out of control, so they have to find some budget room for this.

Australia. With some searching, we found one other story predicting a market to shrink, the Australian market. The cause of the very considerable (50%!) predicted fall is the sobering of incentives by the new government.

Tax rebates will be reserved for homes with an income below a certain threshold. This is not a good idea, for several reasons:

  • Means testing  itself is expensive and bureaucratic
  • Low income homes are not the prime target market for solar energy.
  • There is a study (although concerned with wind energy) that argues that incentives pay for themselves because the stimulus to the alternative energy sector generated by these incentives create economic activity and jobs, which generate tax income. There is no a-priori reason to think that incentives for solar wouldn’t be subject to the same logic.

As of now, this Australian plan is just a plan, it might not get implemented. Whether implemented or not, plans like this do show, however, that the sector still crucially depends on government incentives, and that pushes uncertainty into the sector, and hence lower valuations.

Which is, we repeat once more, a main reason for us to seek out the pleasantly valued companies in the sector, like Trina Solar (TSL). It has quite a bounce this morning.

Turkey, though, just as India realized that it has large parts of land basking in sunshine. It has just released an ambitious plan to profit from that, and even to connect to the European grid to export surplus solar generated electricity.

Japan. Back to that scary story of falling demand in Japan which we reported previously. It has to be noticed that not everybody agrees:

The cost issue that solar cells have always been facing could also find a solution in the near future. Solar cells have continued to experience the rule that states “the cost of power generation is lowered by 80% as the amount of cumulative production doubles” for nearly 30 years. If this experimental rule is applied to the global cumulative solar cell production of about 5.7GW and power generation costs of about ¥46 per kWh as of 2006 (data provided by the Japan Photovoltaic Energy Association), assuming the production of solar cells will continue to increase at the current rate, the cost for power generation will equal the current level of a household electrical bill in 2011.