SEPA Report Showing End-Market Demand Disconnect Could Sink First Solar, SunPower

FBR is out with a negative call on First Solar (FSLR) and SunPower (SPWR) after Solar Electric Power Association [SEPA], an industry association bridging the solar and utility industries, announced yesterday the results of its survey of utility companies (titled:"Utility Solar Electricity Market Survey"). Summary: (a) projected PV installations of ~2 GW, on aggregate, over the next three to five years in solar portfolio, versus >3 GW for CSPs across the U.S. utilities; (b) possible paradigm shift, with utilities owning the plants and PV suppliers becoming only turn-key providers (if ITC is given to utilities instead of third parties).

FBR notes that in their "best case" demand scenario analysis, for the excess capacity to be absorbed (thus helping with manufacturers' utilization rate of ~70%), U.S. mix of PV installations would need to increase from the current 4% to 15% by 2012, implying there would need to be > 5 GW of (aggregate) demand from the U.S. alone in that period. Assuming that the U.S. utilities market accounts for a large mix of the overall U.S. market, the results of the survey suggest that aggregate installation of 2 GW most likely won't be enough to absorb the kind of incremental capacity that will be available starting in CY09, unless PV module/system ASPs were to decline by >15% starting in CY09 to make them more competitive with alternatives like CSPs.

Stock Net: With the firm's Underperform-rated stocks, FSLR/SPWR, pursuing large, utility projects in the U.S., they believe results of the SEPA study suggest that there is significant downside risk to current CY09/CY10 consensus estimates since the supply appears to be disconnected from the end-market demand environment, which requires much lower ASPs to make PV more competitive versus CSP.

They believe the relief rally has already come and gone, and they encourage profit taking/shorting.

Reiterates Underperform and $200 target on FSLR (closed at $264 yesterday).

Notablecalls: I suspect this call will drive both FSLR and SPWR down today. We could see a 5%+ downside move in both stocks.

Comments

[Wayfarer:]

Anybody believe that ITC will only be given to utilities? The natural location for PV is rooftops because real estate and distribution costs are minimal. I don't believe are government is stupid enough rule that ITC does not go to home owners.

This is another anonymous piece that should be ignored.

2008 Jul 25 10:58 AM

[jzig:]

a "notably" bad call

2008 Jul 25 05:40 PM

[huerix:]

The paradigm shift is the one away from the utilities into consumer owned SUSTAINABLE forms of energy. I have never seen so much progress in the world of solar. SEPA can try hard, but we are sick of getting bent over a barrel by the utilities- after years of rate increases, pollution, blackouts, Enron, etc., we are MORE than ready for a change. We are DRIVEN with a passionate hatred for the likes of PG+E.

2008 Jul 25 06:19 PM

[MJ Pragmatist:]

15% cost reductions seem well within reach. With the exception of material costs, manufacturing costs are coming down and solar efficiency is increasing. Once the supply can catch up with demand, material costs, and overall solar costs, should decrease significantly.

2008 Jul 25 07:02 PM

[buystocks:]

Chinese manufacturers have cost advantages on the labors, also thin film largely and mostly can only apply to free field installation.

I would vote for TSL.

2008 Jul 26 03:51 AM

[CLH:]

As oil sinks the solar and wind boon doggles will disappear. The small amount of energy these power sources provide have only one purpose---making the greenies feel good.

Lets build nuclear plants!!!

2008 Jul 26 07:49 AM

[nprfreak:]

A valid concern for investors in the short term. However, I hold out some hope that state and federal policies might shift to at least put local energy production on par with centralized production. You can't get much more local than your home or business. With some attention to conservation, these smaller locations may be more likely to produce more energy than they consume. Or at least, the capitalist ideal of parties taking actions that are in their own best interests, the owners should strive for that goal.

Personally, I think solar PV is a poor choice for centralized utility power production. Solar thermal makes much more sense for utility-scale installations, in part because of the stored (heat) energy characteristics that allow for a gradual production decline at sunset.

On the comment about the price of oil, solar stocks may be becoming untied from that. Solar is to replace coal, not oil. Mining and burning coal is an so many ways a bigger environmental threat.

2008 Jul 26 09:45 AM

[FWallace:]

Recently if you haven't noticed there's been such an all out PUSH to deflate Solar and the entire Alternative Energy growth sector for that matter..... why..... who's really behind this, and will they get what they want ???

2008 Jul 26 10:54 AM

[supershort:]

Noone is out there to "deflate" anything. It's just like any other bubble that is driven by people buying these stocks becuase it makes them feel good, like they are doing something for the environment. 99% of these investors have no intention of putting these panels in their homes and yet will berate those who criticise the profitability and the fundamentals of these companies and their absurd P/E ratios. I am environmentally conscious, but I will not make a bad investment, meaning I cannot go long SPWR, or FSLR.

2008 Jul 26 11:57 AM

[dslnbull:]

Please take a minute and let the SEC and your reps know that you are aware of the BS.

If you care about this issue, NOW is the time to speak up!

www.sec.gov/cgi-bin/ru......

2008 Jul 26 12:10 PM

[FWallace:]

dsnlebull

Thank you... I will complain to the SEC, as I did few weeks ago regarding Naked Shorting and the Restoring Uptick Rule...

2008 Jul 26 12:44 PM

[Road Runner:]

supershort and CLH, You 2, like many other people, are missing the mega-trend here. The government just put out a report that says that energy use in the US will increase by 50% by 2030. That's an amazingly large number. That means that all new sources of evergy will need to be used - wind and concentrating solar and PV solar and nuclear and natural gas and offshore oil and oil sands and oil shale and coal and bio-fuels. In the next few decades we can't even talk about one evergy source replacing another.

2008 Jul 26 10:38 PM

[supershort:]

Dsnlebul, User10755, and Roadrunner.

You should complain about the amount of naked shorting and the uptick rule. First of all the reason there are "naked Shorts" is because when an institution or market maket itself has a large amount of shares it has taken long, it doesn't want to lose so they won't let the shares be borrowed. That is inflating the price artificially, plain and simple. They are not allowing "free market pricing." If you can make an investment for 100% of shares to go long, then 100% of the shares should be allowed to go short. Period. That is true pricing and true free markets, not government sponsored interference so some boneheads who took positions for a "just cause" and feel that they should not lose money are bailed out. Where is SEC when these analysits pump up INTEL, JDSU, CSCO, BRDM which I have long positions on and they are all down? Where are my complaints being heard? That is the BS of the system. The shorts keep the market honest. They are the ones who we need plain and simple.

I am a "greenie" myself, so much that even my wife thinks I am nuts with all the recycling, poer saving appliances, turning off lights, keeping the home a few degrees cooler or warmer to conserve energy. I also do research and feel that CNG and Nuclear will be a bigger part of the world's energy needs. Solar in it's present form is just a fad. So if you want to do something for the envirornment, plant a tree, turn off a light, recycle, be more energy conscious. And by the way, to the ones who are long...why haven't you guys bought panels yourselves? I have looked into it and it is a totally ludicrous investment, so I don't want my hard earned money going into this farce.

2008 Jul 28 12:15 PM

[supershort:]

Dsnlebul, User10755,

Another thing, don't blame anyone for your mistakes. You enter a bad position, take your loss. Consider it your tuition for learning how to trade.

2008 Jul 28 12:18 PM

[solar jim:]

whoever was talking up TSL on labor costs doesn't really understand solar. The panel producers are mostly automated with very little labor. What lower labor costs exist in China are not enough to offset the lower technological capability of their pv panels on conversion efficiency and also total cost.

2008 Aug 01 05:36 PM