Reprieve for solars?

Finally, the Senate agreed to extend the US incentives (in the form of tax credits) for solar companies for another eight years. Will the House follow?

It’s good news, at last. Valuations have, in some cases, been reduced to a quite ridiculous level. The solar company we are following has a 2008 p/e of less than 10, while it’s still growing at triple digit rate and is profitable.

OK, given that this growth might very well slow down (in our ‘the week in solar’ series we published an article that predicted a bit of a shake-out), but the growth will nevertheless be significant still.

There are a couple of possibilities, depending on what the House of Representatives does next:

  • While quick House approval would be nice, it might not play out that way. Citigroup analyst Timothy Arcuri notes in a research piece this morning that approval in the House could drag into November, in part because the solar tax credit extension is longer than the bill’s 1-year extension for wind-related credits and 2 years for other renewable energy sources. “We don’t think that distinction was broadly expected,” he writes.
  • Arcuri says the House is expected to break the tax extender bill into four pieces, with provisions relating to the Alternative Minimum Tax and disaster relief to be considered separately from a bill with the alternative energy tax credits and some other provisions. He thinks the thinned down tax extender package including the solar provisions will eventually sent back to the Senate. He notes that there is some risk in that approach; he points out that Senate Majority Leader Harry Reid has warned the House against breaking the bill into pieces, asserting that the current version, HR 6049, is the only formulation of a tax extender bill that can pass the Senate. According to Arcuri, Reid warned that extension of the tax provisions is seriously threatened if the House goes along with its current plan.
  • On the other hand, it is also possible that the House decides not to tinker with the existing legislation, and instead passes it; Cowen’s Robert Stone wrote this morning that it is possible a final bill could pass this week, “which is not priced into PV stocks.” Note that the White House has indicated support for the measure in its current form

Trina Solar already had nice news out from the US market

  • CHANGZHOU, China, Sept. 24 /Xinhua-PRNewswire-FirstCall/ — Trina Solar Limited (NYSE: TSL; “Trina Solar” or the “Company”), a leading integrated manufacturer of solar photovoltaic products from the production of ingots, wafers and cells to the assembly of PV modules, founded in 1997, today announced that shipments began this month to provide more than 13,400 solar PV modules to power the Atlantic City Convention Center (“ACCC”). This supply comes as part of a signed agreement with general contractor American Capital Energy, who is managing project integration and installation for Pepco Energy Services and the Atlantic City Convention & Visitors Authority (“ACCVA”). The agreement provides for up to four additional megawatts (“MW”) to be supplied during 2009.
  • Once complete, the ACCC project will be North America’s largest single roof-mounted solar array, with approximately 185,000 square feet of solar panels for a system size of approximately 2.4 MW. The system is expected to generate over 2.8 million kilowatt-hours of energy per year, or enough to power 280 US homes. The system is being developed under a 20-year Power Purchase Agreement with Pepco Energy Services, a subsidiary of Pepco Holdings, Inc., and will provide the ACCC with energy savings of $4.4 million over 20 years.

Trina is also expecting silicon cost to decline by 20% next year, which is the reason some observers predict a bit of a shake-out, as silicon scarcity has been a significant barrier to entry.

On the other hand, it will bring solar energy closer to that holy grail, grid parity, so demand will get a boost.