Kelvin Schulle's  Instablog

For investors who favor emerging market, such as Chinese markets, will get in confidence as Beijing signals on Wednesday that it will allow Yuan to appreciate against green back, well actually against a basket of currencies. This is seen as a boost to exports of US and EU companies as stronger yuan makes goods cheaper to Chinese people, which is a big positive for US market getting ready for next leg up for the months ahead.

Well, the sector, who will benefit the most, is the renewable energy sector, particularly the companies whose business is growing in China. Revenue of Asian renewable energy companies will get boost when China's strategic Golden Sun project and wind farm projects kick off later this year. These projects are targeting to achieve the nation's 20% electricity generated from Solar and wind. When revenue is received in yuan and reported in USD. Investors may see surprising earning upbeat for coming years. The following companies are growing business aggressively in China as local government is strongly supporting them.

A-Power energy generation(APWR): company is ramping up wind turbine capacity rapidly to meeting demand in Chinese market and international market. The pace of signing contracts is picking up recently, for example, 49MW inner-mongolia wind farm(to be completed in mid 2010) and 20MW wind farm in Shangdong province(to be completed in Nov 2010). The company will reach an estimated capacity over 2GW in 2010.

Suntech power(STP), the company has reached deal with Chinese government to develop over 1GW solar farm so far this year. Although Suntech has majority sales in overseas so far, the domestic demand is picking up speed.

Solarfun(SOLF): Solarfun is expanding domestic market aggressively as the co work together with local government to develop solar farms, 600MW contract was signed earlier this year with inner mongolia government. The management has raised Q3 earning not long time ago due to increased shipping of panels.

Trina solar(TSL), Trina may be doing the least business in China market as it reaches out the most to Germany and Italy, but Euro appreciation also benefiting the top line.

First Solar(FSLR), First solar entered China market with a 2GW contract with central government. this is going to serve as a seed to grow in China market

Disclosure: long FSLR APWR SOLF

China's $680B stimulus is boosting economy faster than many westerners expected. Q# GDP was 8.9% on a annual basis. Report that CHina may reach double digits growth in Q4 as the stimulus kicks in full speed. The 2nd largest economy in the world may reach self sustainability in 2010. G20 meeting on the weekend confirmed that stimulus around the globe will remain intact till 2011. As a result, raw materials demand pick up quickly both in China and here in US. One on the materials that is in strong demand is metallurgical coal. Part of the reason is China doesn't produce high quality metallurgical coal, or the domestic production is really low volume, and it depends on import from Australia and US to meet its demand. High quality steel products need high quality metallurgical coal. Earlier this year, China's Chinalco tried to take stake in RIO Tinto(RTP) to lock the supply of iron ore and metallurgical coal from Australia. However the deal didn't go through as Rio Tint turned to BP (BP) for help on its funding shortage.

So it is no surprise to see China widen their search to the west. Look no further, there are high quality metallurgical coal producers in US, most of them exporting to China. So China is depending on these company for supply. To names a few. Alpha Natural Resource(ANR), Massey energy(MEE) and BP PLC(BP) are all seeing strong demand from China well into 2010. Alpha Natural resource is particularly interesting. Can any Chinese company takes a stake in these companies to lock metallurgical coal supply for the nation? We will see. President Obama's visit to China may shed some light on how the two nations can promote free trading to jump start the global recovery.

Disclosure: no position

First Solar(FSLR) reported Q3 earning with revenue down from $520M of Q2 to $480M, however the company beat on the EPS by 0.05c margin. The company raised 2009 guidance to $1.975B to $2.025B from previously announced numbers.  one positive movement in the sector is that inventory is getting lower according to CEO. The inventory depletion is across the whole solar sector, which is positive for the rest of the industry. For the rebate program, it is not working as expected according to the company. It is likely Chinese solar names are gaining market shares in Europe because company like Trina solar(TSL) and Solarfun Power(SOLF) raised shipment guidance for Q3 a few weeks back. The cost base is much more competitive for Asian solar companies. Overall First solar presented a mixed earning report. 

We also had Sunpower(SPWRA) earning reported last week. Co said its third-quarter profit fell 48 percent to 13 cents per share. On the bright side, excluding one-time charges, adjusted earnings amounted to 42 cents per share, beating Wall Street estimates of 40 cents per share. For the full year, SunPower said it expects adjusted earnings to be between $1.15 per share and $1.25 per share on revenue of $1.43 billion to $1.5 billion. That's slimmed down from its July estimates of $1.15 per share to $1.60 per share on revenue of $1.35 billion to $1.7 billion. Again the company cut Q4 outlook, despite acknowledging that the industry is improving significantly in terms of demand. That may means shipment from Chinese solar companies are gaining momentum because they are more competitive. An evidence is that LDK recently joined TSL and SOLF, raising Q3 and 2009 shipment.

Disclosure: long FSLR SOLF TSL

On last Thursday, the world learned China achieved 8.9% in Q3 based on year over year, while for the first three quarters the nation achieved 7.7% GDP growth year over year. Having said that, China needs to achieve at least 8.9% in Q4 to reach their average 8% growth for 2009, which means massive stimulus policy needs to stay for the Q4 at least. It was reflected recently in a speech by Premier Wen Jiabao. Chinese Premier Wen Jiabao pledged to continue his government's aggressive stimulus efforts on the  World Economic Forum meeting in China last month.  The Chinese leaders know that stimulus need to stay well into 2010 to sustain the growth before the econemy can grow itself.

China's $700B stimulus was largely spent on building infrastructure, such as high speed railway cross the nation. As a result, steel demand, hence the metal coal from overseas are sky rocketing. Both Peabody Energy and Alpha Natural Resource(ANR) are seeing strong demand from China. The metallurgical coal demand is growing as China use it to produce steel domestically, China is not importing steel from overseas, which is reflected in the weak demand in international steel names, such as US steel(X), nucor(NUE) and ArcelorMittal (MT). Building the high speed railway and other infrastructure will keep the demand of raw materials such as metallurgical coal growing in the next 5 years.

China is also spending aggressive on renewable energy, the nation sees the industry as an opportunity to surpass western nations in the 21st century. So far 270GW from solar, wind and nuclear power is planed to reach before 2020. Many Chinese companies in the space have seen domestic demand picking up, such as GE(GE), Yingli green(YGE), Solarfun Power(SOLF), Suntech power(STP),JA Solar(JASO) and Best solar.  As a result, Chinese solar names will out perform US names such as Sunpower(SPWRA) and First Solar(FSLR).




Author is long GE, FSLR, SOLF

Governor Arnold Schwarzenegger approved a new subsidy for solar power on Monday and joined forces with the federal government to fast-track renewable energy projects. This is on top of current solar incentives , hence it is huge for the industry. California support on solar energy has drawn many companies open office in the state. Solarfun(SOLF) opened Solarfun USA in Southern California city Torrance, expecting to get a piece of the pie in the world's eighth economy, the company already raised Q3 shipment to exceed 100MW. Tirina solar(TSL) also sees module demand picking up, and the company opened US office earlier this year. Schwarzenegger also signed an agreement with the U.S. Department of the Interior on Monday to speed development of up to 7,000 megawatts of large-scale renewable energy projects.

In the PV market, China's domestic demand is not on wall street's radar yet, at least for analysts from research firms like Raymond James and others. However, the demand is picking up at faster pace than you think, according to Best Solar's Peng Xiaofeng at the 2009 Taiwan International Photovoltaic Forum & Exhibition, Best Solar is projecting 1GW demand in China and 10GW worldwide in 2010. Some Chinese solar names are seeing demand picking up in Chinese market, Solarfun Power(SOLF) is seeing higher demand well into 2010, this reflected high demand from Chinese market. Trina Soalr(TSL) also forecasted high demand in the coming quarters, its domestic and US markets are picking up quickly, the worst of solar industry is behind us according to CEO Jifan. Good quarters are expected in Q3 and Q4 for these two companies while wall street earning estimates are still low.  This may mark the turning point for solar stock prices.

On the other hand, a proposal of adding renewable energy into the nation's eleventh five-year strategic plan is underway, it is expected to pass by the congress later this year before Copenhagen meeting. China is targeting to achieve 290GW of renewable energy by 2020.according to China's renewable energy report.

The following companies will be benefiting from China's energy embition:

First Soalr(FSLR), General Electric(GE), Trina Solar(TSL), Solarfun Power(SOLF), Suntech power(STP), JA Solar(JASO), Renesola(SOL), Yingli Green(YGE).


Disclosure: Author is long FSLR TSL SOLF JASO GE

While China's President Hu is  in United States laying out the nation's ambition to tackle global warming, a tone that you can not found in other leaders' speeches, Premier Wen Jiabao is hosting a conference with the nation's top economists to pledge more investment in low-carbon industries, such as renewable energy, next generation automobile. China apparently is looking for new spot to lead the world for the decades to come. These new industries include solar power, wind energy, nuclear power, and automotive, etc.

Wall St didn't expect solar companies to raise guidance for Q3, however Solarfun on last Thursday came out, becoming the first Asian solar name to raise Q3 guidance, Q3 module shipment to exceed 100MW. The company expected a maximum 100MW in Q2 earning report. It is no surprise If you look back how many solar farm projects have been signed in the last 6 months in China. As I mentioned in my last article, Asian solar names are experiencing better sales in Q3 and Q4 in Asia and Europe, as a result, more upward guidances are expected from names with good management team, such as Solarfun(SOLF), Renesola(SOL), JA Solar(JASO), Trina Solar(TSL) and Suntech power(STP). The sales in Asia are simply not in wall st analysis model yet. In the Q2 conference call from Renesola(SOL), CEO Li clearly stated that sales in China are not included in the guidance at the time of Q2 release. US solar companies however may face tougher Q3 as they do not have sales penetration in to Chinese and Japanese  markets yet. Some Chinese solar makers have already established sale network in Japan, such as Solarfun(SOLF), Suntech(STP) and JA Solar(JASO). The only company that has sales in Asia is First solar(FSLR), who recently signed a massive 2GW contract with Chinese government. Sunpower (SPWRA) and ECD(ENER) seems lack of activities recently. These companies simply do not have the edge to compete with Asian peers.  on the technology side, China's JA Solar(JASO) is leading the rest of industry with 18% efficiency on its inkprint thin film technology(First solar achieved only 13% on its CdTe thin film PV).

Another reason why Asian solar names having sequential sales growth quarter over quarter is Chinese government policy favoring solar other than wind power.

Disclosure: long FSLR SOL