Cowen: 2009 Spanish Cap on Solars Unlikely to Become Law

Cowen notes Solar stocks have been pummeled by concerns about a potential sharp drop in Spanish solar subsidies. In the firm's view, a proposed 2009 cap of 300MW is unlikely to become law, as it would cause significant job losses and business closures. Unemployment and economic growth are the major issues for the Spanish government. The power sector has accumulated a large deficit, because regulated prices have not kept pace with fuel costs, underscoring the case for renewables.

They see Outperform-rated thin-film players Energy Conversion Devices (ENER) ($64) and First Solar (FSLR) ($253) as best-positioned, but believe Outperform-rated Evergreen Solar (ESLR) ($9), SunPower (SPWR) ($64) and Suntech Power (STP) ($35) are also oversold.

Modules are fungible across PV markets, so they believe that 2009 industry volume of about 9GW is achievable, but a smaller Spanish market implies lower ASPs (perhaps down 15% for c-Si players, vs. our prior 10% est.). ENER and FSLR have not seen ASPs skewed upward by Spain and have higher gross margin. Moreover, ENER benefits from higher roof and BIPV tariffs. SPWR and STP should benefit from a lower blended-cost silicon portfolio next year, while ESLR has no spot-poly exposure and should see margin expansion from the ramp of Quad-ribbon technology and the new Devens plant.

Notablecalls: I don't have great conviction in this one but we may see a slight bounce in the Solars in the near-term.

Comments

[supershort:]

"The power sector has accumulated a large deficit, because regulated prices have not kept pace with fuel costs, underscoring the case for renewables."

This is the most telling sign. With the slowdown in the world economies, more people out of work, a socialist government such as Spain does not want workers, nor do they encourage work. They encourage free loading off the government. So in order for the party to placate and please the masses that voted for them, they need to increase the welfare and socialist programs, not solar. So look for deeper cuts in the future.

2008 Jul 07 02:39 PM

[Stockguy456:]

Things will get worse before they get better but to have a true global economy we need a fuel besides oil!!!!!!!!

2008 Jul 08 05:24 PM

[Ames Tiedeman:]

Why would the Spanish Energy Secretary propose such a move in the first place?
Spain wants to be a big leader in solar from all the reading I have done. This would be a national set-back for Spain. It will not pass.

2008 Jul 09 08:08 AM

[supershort:]

Solar isn't it. Nuclear power will probably be it in the future. They probably will be able to work on a way to ensure that noone gets enough cars together to make a bomb. But they could do that now. Each auto carries a gas bomg in it now. We have to wake up to nuclear. It's clean but expensive. Subsidies should be thrown at this.

2008 Jul 09 05:19 PM

[Rusty Crazy:]

A comment on Nuclear power. Nuclear power IS already completely dependent on huge subsidies from Government.. effectively from your pocket. It would be completely inviable if it werent for this. Nuclear power is limited, and will probably be at capacity very shortly due to the shortage of raw material. It may be a good investment prospect, but it certainly isnt an environmental solution nor an energy supply panacea.

As for solar in Spain, everyone here is waiting for the news! The subsidies so far have benefited large scale "heurto solares" which alot of the large companies have been interested in. The trouble is, we are running out of suitable sites, that is to say areas close to transformer stations, which is needed for these kinds of installations. This affects the economics. Being Spain, and there being so many regulations preventing free-market operations, I cant see the industry continuing its recent rise. Until they reduce the administrative barriers to all kinds of PV installations, including widespread application of smaller installations, such as on rooftops (which doesnt require special transformer stations)... but this is like waiting for this Spanish government to reduce its number of "blood-sucking" civil servants who work 3 hour days (if you´re lucky) and have guaranteed jobs for life... I cant see it happening.

That said, unofficial sources tell me that there is likely to be a moratorium in september for a couple of months and then they are likely to find ways (most probably over-complex and dysfunctional) to facilitate smaller installations. The chances are that the "huerto solar" model will die a fairly quick death.

2008 Jul 10 04:41 AM

[supershort:]

Nuclear does have government subsidies but it is much more viable than solar, which is not a stand alone source. Nuclear is safe, powerful, eco friendly and is proven. If you have any doubts, look at most modern naval ships, they are nuclear powered, and they carry bombs also. Nuclear has a stigma that is unjustly applied to it. My "inside sources" at Entergy and Con Ed tell me they wish they could build more plants, but the regulation, taxes and the government control stifle profits. So the government for those subsidies, they make it back quickly and much more over the long term.

As far as Spain, you are dead on. Socialist governments will never have the growth that capitalism affords. There will never be the common joe putting panels on their homes because they wish to save the world. They are looking for the next handout.

2008 Jul 11 09:02 AM