Has Solar Demand Finally Hit Bottom?

Has solar demand - and the slide in solar shares - finally hit bottom?

The solar analysts at Merrill Lynch think so. In a piece authored by analysts Lu Yeung, Vincent Chow, Matthew Yates and Steve Millunovich, Merrill Tuesday morning asserted that “improving second derivative trends” suggest the industry is headed for a cyclical bottom.

The Merrill analysts assert that, while there is not likely to be a recovery in demand until early 2010, Q4 2008 and Q1 2009 “will mark the shipment bottom,” with modest sequential increases in subsequent quarters. “Our research suggests that some Asian vendors may forecast flat-to-rising shipments, suggesting inventory is peaking and depletion is underway, thanks to swift production cut backs, signs of easing in solar project financing and solar ASP declines,” they write.

The Merrill analysts thinks ASP declines will decelerate for the Asian solar sector with modules already priced below $3/watt, versus $3.50/watt for U.S. and European vendors. They contend that the Asian solar sector can maintain margins at around 20% with poly prices at $150/kg or less with module prices at $2.70/watt, or with poly at $100/kg and module prices at $2.40 a watt.

Meanwhile, the Merrill analysts say that demand could shoot up as prices fall and approach grid parity. Their view is that the addessable market is 3x greater with module prices at $3/watt than at $4/watt.

Given that scenario, Merrill has shuffled ratings on some solar stocks:

• Trina Solar (TSL): Upgraded to Buy from Neutral, with $14.30 price target.
• JA Solar (JASO): Upgrades to Neutral from Underperform, with $3.80 price target.
• Motech (6224.TWO): Upgraded to Neutral from Underperform, with price target of 99 Taiwan dollars.
• ReneSola (SOL): Downgraded to Neutral from Buy, to $4.53. target.
• Sino-American (5483.TWO): Downgraded to Underperform from Buy, with target of 54 Taiwan dollars.

Merrill maintains Buy ratings on Yingli (YGE) and China Sunergy (CSUN), and keeps an Underperform rating on Suntech (STP).

Original post

Comments

[Alphameister:]

Stock charts in the sector likewise point strongly toward a bottom.

Feb 11 08:55 AM

[rdasher:]

As I recall he ROI on solar is something like 25 years... so it takes 25 years to get back the cost of electricity saved on your investment in solar... just in time to have to replace your solar, since it just died.

Feb 11 09:58 AM

[gebby:]

rdasher you are wrong, the technology already exiits where solar is cheaper that coal in five years using nanotechnolgy. the technology exists it will take five years to bring to market in a big way. it is a coating applied to solar panels, existing and new which prevents sun reflection and greater absorbtion for higher efficiencies upr to 40%. solar is here to stay


On Feb 11 09:58 AM rdasher wrote:

> As I recall he ROI on solar is something like 25 years... so it takes
> 25 years to get back the cost of electricity saved on your investment
> in solar... just in time to have to replace your solar, since it
> just died.

Feb 11 10:06 AM

[ccerenz2:]

On Feb 11 09:58 AM rdasher wrote:

> As I recall he ROI on solar is something like 25 years... so it takes
> 25 years to get back the cost of electricity saved on your investment
> in solar... just in time to have to replace your solar, since it
> just died.

For the first 464 Kwh of electricity used in my home, I pay 13.3 cents per kwh. For anything above that, the rate jumps to 30 cents per kwh for the next 250 and 32 cents for anything above that. In addition I pay 2 cents in taxes per kwh. I'm taking these rates right off my bill. My expectation is, these rates will increase over time.

I keep hearing that solar hasn't reached grid parity. That may be true at the utility level but at the consumer level it has. In addition, some of the cities are developing financing packages for the homeowner/business to buy a solar install and pay it off through the property tax bill. Berkeley, Solana Beach, San Diego, Encinitas are some. Once they prove a successful model, my opinion is that the other cities will adopt it.
So now, what does a person have in my region?...A way to 'FIX' energy costs for the next 25 years, available funding, a convenient payment method, the thought of knowing the electricity is being produced without pollution, increased energy independence for the home as well as the country, and a system with minimal maintenance.

The payoff period you note is reducing quickly with the increased rates being charged by the utilities. Now that the price of solar panels is falling again, it will again go lower. As our economy recovers, it seems that solar may be poised for an excellent rebound.

Feb 11 10:39 AM

[dan-d:]

Like you're apparently assuming fossil fuels will remain cheap in the face of 100,000,000 new people and humongous demand from china and india in future. Dream on. I suspect 10 year or less pay back. and then blue sky for the next fifteen years again with continue fossil price increase and huge demand increase.

Feb 11 01:02 PM

[rdasher:]

Electricity is getting pretty expensive in CA. When I was living there it was not too bad. maybe 10¢ / kwh... here in MN we pay a flat rate of about 8.5¢

But then you have a state where the nothing is legal.

Feb 11 09:27 PM

[Canuck2:]

Why should we believe anything that comes from Merrill Lynch analists?

Did'nt Merill Lynch Meryill recently almost disappear because of faulty analysis?!

Feb 11 10:23 PM

[Solar Guy:]

rdasher needs to do his homework on payback for solar. I do solar sales and installation for a living in Florida with a sophisticated spreadsheet tool for comprehensive financial analysis. Payback period for both residential and commercial solar is running from 8-10 years now and internal rate of return (IRR) from 10% to 22% based on PV system size, local rebates, incentives, and Federal tax credit due to economies of scale. Try making that kind of return on your money with any other investment in current credit market.

Feb 11 11:11 PM

[Road Runner:]

ccerenz2, Where do you live? Where in the country do electric rates jump to $.30/kWh after so many hours used? Ouch!!! Makes you want to sell your children along with all their dirty cloths that need washing and drying nearly daily. Please - just dark humor.

Feb 12 04:00 PM