Solar Winners And Losers In The New Age Of Gigawatt Panel Orders

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Includes: CSIQ, HQCL, JASO, JKS, SOL, TSL
by: Sneha Shah

Summary

The order size is increasing with the growth in Solar industry.

Few companies have the capacity to serve these big orders.

Trina Solar, JA Solar, Canadian Solar, Renesola, Jinko Solar and Hanwha will be the winners.

The solar industry has seen an exponential increase in growth over the last 15 years. The growth has increased sharply post 2008, when Germany passed the EEG law giving fixed electricity tariffs for solar electricity generation. With solar costs falling by almost 80% over the last 5 years, solar electricity prices have become competitive with alternative fuel prices in a large number of regions around the world. It is now cheaper to use solar power in Chile and places like Italy, where electricity prices are very high. It is also become cheaper to use solar power where grid connections do not exist in many places such as Africa and India. Solar power prices will keep declining going forward, making the demand to grow between 10-15% for a long time to come. The size of solar panel orders have also increased, with the growing appetite of the industry. While most orders used to be in the tens of megawatt range with a few in the hundred megawatt range, recently two orders of more than 1 GW were given to solar panel suppliers. Mingsheng Energy which is one of the largest utilities in China gave a 1 GW solar panel order to Jinko Solar (NYSE:JKS), while NRG Energy (NYSE:NRG) placed a 1.5 GW with Hanwha Q-Cells (NASDAQ:HQCL). Most companies in the world do not have the capacity to serve these very large orders. There are only a few companies with the scale and they are positioned to benefit from the increased order size.

Order size is growing vis-à-vis the growth in industry

The industry has grown at a furious pace over the last few years. This year is going to be no different, with the industry size estimated to grow by more than 20% to 57 GW up from ~45 GW in the last year. The business case for solar energy keeps on improving with solar prices declining by the day, concerns over climate change rising and with coal power coming under pressure due to mercury poisoning. IEA Institute has predicted that solar energy could capture a 16% share of the global electricity market by 2050 up from 0.1% today. What this means is that more than 4500 GW of solar capacity could be installed by 2050. The massive growth in industry size means that some customers are looking to secure cheap suppliers. SolarCity (SCTY) which is the largest residential installer in USA, is on its way to set up a gigawatt size factory in USA to serve the growing demand. Some large installers such as SunEdison (SUNE) are planning an installation run rate of almost 2 GW a year. This implies that they will need to secure solar panels, as there might not be enough capacity to meet their growing demands.

Who will be the Winners

There are only a few companies in the world who can supply more than 1 GW of solar panels in a year. Most of them are based out of China. During the last downturn in 2012-2013, most companies reported large losses as huge supply glut led to a crash in solar panel prices. However, in the last one and a half years, solar panel prices have stabilized at the 60-65c/watt level, allowing the larger players to return to profits. Some of them such as Yingli Green Energy (NYSE:YGE) are still reporting losses due to the large debt, while others are showing good profits. Trina Solar (NYSE:TSL), JA Solar (NASDAQ:JASO), Canadian Solar (NASDAQ:CSIQ), Renesola (NYSE:SOL), Jinko Solar and Hanwha are some of the winners. These companies have the scale and experience to successfully deliver these giant orders. Many of them now have manufacturing bases around the world to skirt anti-dumping duties.

USA solar companies like SunPower and First Solar (NASDAQ:FSLR) might not benefit too much, as these companies still have higher costs when compared to the Chinese companies. In large order sizes, the prices are extremely competitive which means that these companies will not win much. First Solar is not being able to sell a lot of solar panels anyway, supplying the thin film solar panels to its in-house solar projects. Same is the case with Sharp and Kyocera. These Japanese companies serve their domestic market mostly and have ceded the foreign markets to the Chinese biggies.

Most of the Top 10 solar panel makers shipped between 1.5 to 3.5 GW of solar panels in 2014. This shows that there are only 5-6 companies that can effectively service large gigawatt scale orders.

 

Supplier

Y/Y Ranking Change 2014

1

Trina Solar

1

2

Yingli Green Energy

-1

3

Canadian Solar

0

4

Hanwha SolarOne

6

5

Jinko Solar

0

6

JA Solar

3

7

Sharp

-3

8

ReneSola

-1

9

First Solar

-3

10

Kyocera

-2

Source: PV Integrated Market Tracker from IHS Inc. (NYSE: IHS)

Who will be the Losers

The losers will mostly be the Tier 2 solar panel producers based in Europe and Asia. These companies have never really recovered from the last solar downturn when prices crashed. Most of them have their balance sheet impaired and are in no position to expand capacity. Many of them have partnered with or sold themselves to larger, stronger solar companies. Suntech sold itself to Shunfeng, while LDK Solar is also trying to revive itself under new owners. Small companies which ship less than 500 MW of solar panels such as China SunEnergy (NASDAQ:CSUN) will be the worst affected. These companies will fall further behind the top solar panel makers.

Conclusion

The growth in the solar industry is starting to make headlines every day. Even now analysts such as IEA are underestimating the growth of the solar industry. With solar prices falling every year, it might become cheaper than coal. Lower solar prices will increase the overall size of the energy market, as demand grows with lower energy prices. The gigawatt solar panel orders are only going to increase in the future and there are only a few companies which can benefit from this change in the industry. I have rated most of these stocks as a buy and this new change makes their bull case even stronger.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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