Solar Stocks Feeling the Heat

Solar stocks are again feeling the heat from a report that Spain plans sharp reductions in subsidies for solar power. On Friday, a number of solar stocks dropped sharply after Lehman’s Vishal Shah asserted in a research note that the country was considering sharp cuts in its solar subsidy program. Today, there were further reports on the same theme.

According to Bloomberg, the Spanish newspaper Cinco Dias reported that the Spanish industry ministry is considering cutting the electricity rate paid to photovoltaic installations by as much as 35%.

The story reports that the ministry would set a limit of 300 megawatts of new capacity for the industry for next year, 200 for roof-top installations and the rest for ground equipment. The new tariff would be 33 Euro cents per kilowatt-hour for roof installations and 29 cents for ground panels, down from about 45 cents. (Shah last week had said the proposal could be 33 cents for roof-top installations, and 25 euro cents for ground-mounted.)

Shah contends Spain could afford a more favorable incentive program, especially given its reliance on imported natural gas and given its “attractive solar radiation profile,” but that there is a risk the government could choose a less favorable program. He advises investors to take “a more selective approach toward the sector as increased volatility due to concerns about potential outcomes in Spain beyond September could continue to weight on stocks with high Spain exposure.” He lists Canadian Solar (CSIQ), Suntech (STP), SunPower (SPWR), Solarfun (SOLF) and Yingli Green Energy (YGE) as companies with high Spanish exposure. He notes that companies with lower exposure to Spain include First Solar (FSLR) and Evergreen Solar (ESLR).

In today’s trading (as of 2:20 EDT):

• Canadian Solar is down $3.57, or 8.9%, to $36.62.
• Suntech is down $3.03, or 8.1%, to $34.43.
• SunPower is down $6.22, or 8.6%, to $65.76.
• Solarfun is down $1.60, or 9.1%, to $15.90.
• Yingli is down $1.32, or 8.3%, to $14.60.
• First Solar is down $7.47, or 2.7%, to $265.35.
• Evergreen Solar is down 39 cents, or 4.1%, to $9.30.

Comments

[aquaculture]

Yes but at the same time GRID prices for Spanish consumers (except for very low income families -who will not buy panels anyway) will also increase by 16%. And businesses WILL START TO PAY MARKET PRICES.
Spain has subsidized electricity consumption in general (not just solar) for more then 10 years now. Just to pay back government debt in 15 years would mean grid prices will have to increase by at least 35%.
Spanish consumers are not stupid: the net effect is zero and the solar market in Spain will stay strong, especially as solar silicon prices come down and the entire mediterranean will reach grid parity.
(disclosure: long CSIQ)

[supershort]

Yes but at the same time GRID prices for Spanish consumers (except for very low income families -who will not buy panels anyway) will also increase by 16%. And businesses WILL START TO PAY MARKET PRICES.
Spain has subsidized electricity consumption in general (not just solar) for more then 10 years now. Just to pay back government debt in 15 years would mean grid prices will have to increase by at least 35%.
Spanish consumers are not stupid: the net effect is zero and the solar market in Spain will stay strong, especially as solar silicon prices come down and the entire mediterranean will reach grid parity.
(disclosure: long CSIQ)


Where to begin......The poor were never figured into the equation, as everyone knew that they would never buy panels. The growth and absurd P/E ratios were driven by the ramblings of Gore and the greenies. Also, we were in a housing boom where we thought that the whole world would become millionaires, through housing and the way the economies were growing. Well we all know where we stand now in that respect. The only thing that was left is these subsidies. Well, finally the governments have realized that the ROI and grid parity for these panels will never be reached in their present states, so the subsidies will be cut. So what is to hold these stocks up? Nothing, jujst don't be the last one holding the bag.

[Jack Yetiv]

Not to mention the fact that even at 33 euro cents, that's not exactly a pittance--we're talking about 21 US cents per KWH!

Also, as Spain's subsidies decrease (and Germany's, by a relatively small 8% per year), several new markets are coming in strongly, especially Italy.

Although TSL has been selling off every day for more than a week, strangely enough, in Q3 and onwards, Spain will represent only 16% of TSL's sales, while TSL is the market leader in Italy.

Jack

[Robert Sczech]

Jack, 33 euro cents at present exchange rates is equivalent to more than 50 US cents (not 21 US cents as you claim!).

[akapital9]

Subsidies are not what are currently driving the solar or alternative energy market right now. Certainly this was the case for many years but it is evident now that higher traditional energy is the prime mover. Thus, these observations are anachronistic.

Interest in alt energy is being driven by the prohibitive cost of oil and other traditional energies. In addition, alt energies are cleaner and have less geopolitical impact as well.

But traditional analysts and investors alike are slow to change...

[User 52095]

To relate to the costs per KWhr seems irrelavent at this point. This is new technology and as it matures the costs will come down, uses will expand,and the strong innovators will survive making a strong industry.
The cheap energy is over and the fact that we will have energy available at all should be the driving force.
Subsidies will come and go and the industry will survive. To talk about the present cost of the technology is silly.

[Jack Yetiv]

Robert, thanks for correcting my faulty math. But of course, this only potentiates my point. A 50-US-cent subsidy per KWH is more than generous, and it seems to me should be more than enough to stimulate continued large purchases--even in Spain, not to speak of the other new markets.

Jack

[gebby]

global warming is real is man destined to obliterate himself. what is with the death wish of supershot

[svosavvy]

Hey Jack,

I said a few weeks back I like tsl under $36. I bought at 33.60 last week, looking for more. Any thoughts on when common sense starts to prevail on this one.

[alphameister]

The subsidy noise should prove to be nothing more than a speedbump on the road to great prosperity for most of these deeply undervalued companies. Weakness in the Chinese market generally has also served to undermine the group. But the worldwide push into alternative energies is in a very early stage and these highly volatile stocks seem likely to score big gains as earnings are reported.

[ART005]

I don't think it's right to cut the solar industry so much slack calling them a new industry. Solar panels have been popular for at least 30-40 years that I can remember. I don't think it's right to cut them slack on economies of scale. They are receiving strong subsidies and production facilities are near capacity.

All of this is their favor and they are still over $5/watt. More than all the traditional energy options people say they don't like anymore. More than wind. And more than other mechanical type options like wave or geothermal.

Solar has a couple nagging problems that keep it a loosing proposition: it takes tremendous electrical energy quantities to manufacture solar panels, solar panels have low capture efficiency per area. If these govern economic efficiency of solar panels no increase is size improves their benefit! Until collection efficiency is improved over 200%, subsidized installation of solar panels is a loosing proposition. I wish it wasn't so....

Consider simple comparison at consumer level:
2.5 sq. meter solar water heater colector: ~$6300, 7500 BTU/hr = 2.2 kW. shop.solardirect.com/p...

2.2 kW PV panel at $5/watt = $11,000 plus ~$1300 inverter = +$12,000 minimum plus racks and maybe more.

35% sunlight * 365 days * 24 hrs * 2.2kW * $0.10/kW*hr = $675/yr. and that is on the high side.

Example gives 10.7%/yr for solar heat, and 5.5% for PV. After installation costs they each loose a couple percentage points and then PV is too close to 0% while heat is equitable. Every hotwater user should evaluate solar heat. Subsidizing PV research to at least cut costs in half before extensive uneconomical installations helps preserve financial assets for future opportunities.

[Piggybank]

Meh it doesn't matter all to much. At the current state Solar energy is a niche, it is that small that demand easily far outstrips supply for years to come at this moment. Most established solar company's have very deep backlog's, and even during this crisis the backlog's only appear to increase. Solar energy is like something of 0.2% of our total world energy supply, probably not even that, and they have been installing for a few years.

There only needs to be a tiny shift towards solar energy use on global scale and already it would mean enourmous demand difference for the solar sector and even for that tiny market share many of these company's are already very financially sound, much better than most banks these days that are filled with gifted analysts.

And the shift will come quite soon enough. Electricity prices should be youre indicator to follow. It could be more determinal that subsidy's, because the more electricity prices rise, the faster solar panels pay themself back. And solar power has a hughe advantage, it empowers people to produce their own energy, the more electricity prices rise the more people and company's that will want to be specificly energy independant.

But i think that if electricity prices begin to soar, then many major company's will feel compelled to invest heavily in solar panels and produce their own energy. Not only because it would greatly improve the net income of these company's but also their competitiveness, and often it's just that very large profitable company's just have the excess money anyway to easily afford a solar upgrade.

I think the damand curve of solar panels wil just smoothly continue as it's going now, steadily up.

[supershort]

gebby states "global warming is real is man destined to obliterate himself. what is with the death wish of supershot"

What does global warming, even if there is something we could do about it, have anything to do with making a bad investment? You guys have been saying that these stocks are going to the moon, when they have gone down. I have been right on with my assessments and Jack Yetiv, although he appears to be smart has led you all to lose money.

Global warming is not an absolute. The world is getting warmenr but it has been going on since the last ice age. We have not caused this. Can we stop it or reverse it? Not with solar panels of all things. How about limiting the amount of sunlight hitting the earth, causing a decrease in temperatures, just like when St. Helens erupted?

Jack, I have told you before, you know nothing about Italian politics and their economy. Italy is in no way poised to become the savior of solar, much less TSL, a China company with a pegged currency and on the verge of a total meltdown of their economy. Both my parents, uncles, aunts, and friends have land in Italy. My brother in law looked into leasing the land for solar panels. Well he has some fig trees, and other trees deemed by the environmental agency that they are not to be destroyed. So no solar panels there. My parents had people steal trees from their property and they investigated us that they thought we had chopped the trees down ourselves, which we did not and had no idea who did. The Italian economy has been at a standstill for some years. My two cousins who are physicians, had to wait years after graduation before they were placed at jobs, and not their choices. Both in other cities away from their families. So even though there may be interest in Italy, it will not make up for the cuts in Germany and Spain. Besides, the P/E ratios have priced in increases in panel use, when the trend is clearly that they will be using less than expected.

I am concerned about the environmnet. I limit my use of fuel everyday and try to conserve, recycle, and buy eco friendly products. That is one of the main reasons I get a knot in my stomach when I see "MADE IN CHINA" as tehy are the most eco destructive country out there, and yet Jack touts one of their stocks as being the global warming savior.