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Crisis, what crisis?

October 18th, 2008 · 1 Comment

Stock prices collapsing, some valuations implying a nuclear winter, accelerating falls in energy prices, many scary stories about the end of subsidies, a global recession or even depression to boot, you can be excused for thinking that the end of solar energy is neigh. Yet there is no sign of that in the industry itself..

Sanyo to Produce More Solar Modules, Strengthen Solar Business in N America
Oct 15, 2008 15:12

  • Sanyo Electric Co Ltd has announced its plans to increase the production capacity of solar modules at its Mexico Monterrey Factory by nearly 2.5 times the current amount. The increase in production will serve the rapidly rising demand for solar power in the North American market.
  • The Mexican plant, Sanyo Energy SA DE CV, currently has an annual production capacity of 20MW for solar module assembly of the company’s proprietary HIT solar panels. The planned increases in production capacity would add up to a total production capacity of 50MW, more than doubling the current capacity of the factory. Operations are expected to start from December, reaching full capacity within this fiscal year (FY).
  • The company said it is currently accelerating efforts to increase production of HIT photovoltaic modules to correspond with the needs of the three major markets in the world: Japan, the US, and Europe. At the same time, the company will continue to invest in equipment and facilities, in order to reach the goal of double its annual production capacity from the current level of 260MW to at least 600MW by the close of FY 2010.

You might think this is an isolated case of one company being too optimistic, or rapidly gaining market share because of some proprietary advantage. Think again.

Sharp to Introduce Second-Gen Thin-Film Solar Cells in US
Oct 14, 2008 15:08

  • Sharp said it will introduce next-generation thin-film solar cells in the US market in the near future. With its thin-film solar product, Sharp will be capable of handling multi-megawatt, large-scale utility projects that are best served by a thin-film solar solution, and the company is already working with prospective US customers in preparation for these large-scale deployments.
  • According to Sharp, it plans to increase thin-film solar production with the construction of next-generation solar manufacturing facilities. Sharp Corp has just completed installation of a new second-generation thin-film solar cell production line at its Katsuragi Plant (Katsuragi City, Nara Prefecture) using large-size glass substrates measuring approximately 1,000 x 1,400mm, equivalent to 2.7 times the area of Sharp’s first-generation substrates (560 x 925mm), and will begin volume production this October. The addition of this new line expands production capacity for thin-film solar cells at the Katsuragi Plant to 160MW annually.
  • Photovoltaic modules fabricated using the second-generation tandem-junction thin-film solar cells manufactured on Sharp’s new production line at its Katsuragi plant feature a 9% module conversion efficiency and high 128W power output. It is these modules that will make up the initial offering from Sharp in 2009.

And a couple more:

So by every count, despite a monumental sell-off that has taken at least some valuations to laughing levels, businesses are doing fine and they are actually increasing guidance.

Of course, stock prices could be looking a little bit more forward than just this year and there things do not look so nice according to some:

Congress Acts To Boost U.S. Solar Demand

  • As part of last minute set of sweeteners designed to ensure speedy passage of the Emergency Economic Stabilization Act of 2008, Congress approved legislation extending billions of dollars in tax credits for the solar, biodiesel and wind energy industries. For the solar industry, the specific benefit was an extension of a 30% solar tax credit for residential and commercial installations for eight years until 2016, and the elimination of the $2,000 credit cap for residential installations.
  • The decision to extend and “upcap” the federal tax credits was quickly hailed as a major positive by the Solar Energy Industries Association which predicted that it would help create 440,000 new solar-industry jobs and expand private investment in the industry by $325 billion.
  • Despite New Incentives, Solar Companies Selloff
  • Despite all this positive spin by the industry’s trade association, shares of most of major U.S. solar power companies where unable to hang onto the one-day positive bounce they experienced following the news of the Act passing Congress, and have continued their southward trajectory. So far this year, shares of companies like First Solar (Nasdaq:FSLR), Evergreen Solar (Nasdaq:ESLR), Suntech Power (NYSE:STP) and Canadian Solar (Nasdaq:CSIQ) have seen their shares lose half to three-quarters of their value from their highs.
  • European Subsidy Loss Eclipses U.S. Tax Breaks
  • At the moment, these last minutes government incentives look to be too little and too late to reverse the fortunes of an industry that now faces the prospect of slumping sales in key European markets and declining margins prompted by declining product prices.
  • Industry watchers on both sides of the Atlantic have lately turned decidedly negative on solar industry fundamentals. European investment bank Lazard Capital Markets now expects solar installations in Spain to drop to 500 megawatts next year from 1,400 megawatts this year as the Spanish government slashes solar electricity subsides by 36% in response to its own U.S. style housing market collapse. American investment dealer Jefferies & Co is now predicting a 15-20% decline in the price of solar modules next year, and just last week, Goldman Sachs dramatically reversed its ‘buy’ recommendations on First Solar and Sun Power to ‘sell’ on the view that generous European subsidies have come to a permanent end and a solar product supply glut would soon become a reality.
  • U.S. Long Term Prospects Enormous
  • While the short-run prospects look somewhat rocky, the industry’s long-term prospects look decidedly sunnier given the U.S.’s enormous untapped solar potential. According to a study by Navigant Consulting in Chicago, the 30 billion square feet of flat roof space in the U.S. could accommodate up to 150,000 megawatts of solar panels. That would meet 25% of total U.S. electricity demand at a cost of about $650 billion.
  • Right now, the investment required to supply the average California home’s electric needs with solar panels, net of state-level grants and the new federal tax credits, is just a little over $12,000. Assuming a 30 year life to the panels, and annual increases in utility supplied power of about 6% (which has been the average rate of increase between 1970 and 2001), that investment would generate an internal rate of return of about 8.9%. That’s more than twice what you’d get on a 30-year U.S. Treasury bond right now, and it may be enough to entice more homeowners in the largely untapped California market to take the solar plunge. According to California’s biggest electricity utility PG&E (NYSE:PCG), only 25,000 of its five million customers have installed rooftop solar systems to date. (For more on this industry, read Spotlight On The Solar Industry.)
  • The Bottom Line
  • In the face of current industry uncertainties and ongoing broader market turbulence, it’s likely that the solar stocks could head even lower over the next few months. But, if investors are prepared to look beyond next year’s valley, the period beyond could be sunny indeed as the cost equation favoring solar finally prompts a much needed green shift in how Americans power their homes. It strikes me that that would be a much more sensible way to spend about $700 billion.

A couple of observations:

  1. So, this year things still look terrific, the long-term future also looks very bright (energy prices will recover, solar energy continues it’s steady march improving efficiencies and costs), it’s the intermediate which people actually worry about, that is, 2009
  2. Many solars, however, have already large backlogs of orders which takes them well into 2009 production. FSLR is sold out, Trina Solar (TSL) has already contracts for 70% of 2009 production
  3. That leaves prices as the main worry point, and that prediction of Jeffrey’s and Co. that they will decline by 15-2-%. However, that is certainly not shared by everyone. Most solar companies predict price declines in the order of 5-10%, and for the most common technology, the silicon based producers, that is at least partly compensated for by falling silicon prices.

On top of that, the credit crisis might very well impact capex spending, so it’s likely that production capacity will rise less as well, which will support prices:

  • Hapoalim Securities analyst Gordon Johnson points out that 50% to 70% of solar projects are financed by debt, and the credit situation in the country hasn’t improved to any extent, even with the massive bailout and capital injections the government has made. Thus, there is expected to be little lending available to finance solar projects, at least over the short term. [Mothley Fool]
  • It’s still unclear whether companies will have a tougher time closing large rounds of project financing to meet their aggressive expansion plans. [Seeking Alpha]

You might think that, despite the extended tax credits, many residents will not think in the first place of installing solar panels on their roof. However, even for that there are solutions:

  • Bob Chew, who was president of SolarWrights before it merged with Solar Works and who will head the residential business for the newly formed, as-yet-unnamed company, says he expects the sluggish economy and credit situation will lead to more solar leasing next year.
  • As some customers shy away from spending the hard upfront cash to install systems themselves, leasing programs – which allow customers to finance the upfront costs of an installation in exchange for signing long-term contracts to buy electricity produced from the system – could become more attractive, he said. [Seeking Alpha]

So, with prices crashing anywhere between 50% and 75%, and companies (like TSL) still growing at triple digit rate, we have a hard time not seeing this as a giant buying opportunity. Even if the dire predictions for 2009 materialize, this is already more than priced in and energy prices will recover and the solar sector’s long-term future is very bright.

Tags: Solar sector · TSL

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