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The Solar Energy market experienced a roller coaster ride in the last six months, mainly because of the policy uncertainty from Germany.
Although the German market is only 40% of the global market (probably
less than 40% due to the growing shares from China, Japan and the USA),
Wall Street analysts seem to only focus on Germany. The media sometimes
also contributes to the speculation. When the German government
discussed a likely cut to its FIT program. Reuters came out with a much
larger cut even before any announcement from the government. That
scared investors and caused a 35% hair cut in one week. However the
latest report from German local newspapers
is that the cut will likely be a much smaller percentage and delayed to
September to give enough time for the market to respond, and policy
exists to avoid any setback for the industry. While the original
Reuters report sounded like the government wanted to kill the industry,
there are many new developments lately signaling a strong global demand
in Solar energy. Here are some:
1. FIT cut in Germany likely small and pushed to September
The
ruling parties in Germany are facing tough protest ahead of the FIT
modification. Recent polls show 83 percent of voters of the CDU and CSU
are against the cut, while 88 percent of SPD voters are against the
cut. The worry of losing the upcoming election likely results in a much
smaller cut than the Reuters report. This explains why PV makers kept
inking contracts in Germany, such as when Trina Solar (TSL)
signed a 80MW deal with ITEC and AE Photonics. Maybe the high quality
of Trina Solar's panels helped to win market share, but German demand
is stronger than many expected.
2. New senate bill to boost PV demand in US
A new bill
has been proposed in the Senate aiming for 10 million rooftop solar
systems in the US. The Ten Million Solar Roofs and Ten Million Gallons
of Solar Hot Water Act was introduced by Senator Bernie Sanders,
chairman of the Senate's green jobs subcommittee. A rough calculation
shows that 100GW of solar PVs will be installed under this plan,
considering an average of 10K per rooftop system.
3. UK is picking up speed on FIT
UK
announced a FIT program in January to focus on small projects under
5MW. This is a new market for the UK solar industry and we still need
to see what the impact will be. Analysts hardly follow the small
projects because it's difficult to track, however PV demand is expected
to pick up in the UK this year.
4. China may exceed 5GW installation in 2010
Wall
Street analysts can usually model the renewable energy markets in the
U.S. and Europe quite accurately because the government policy is
pretty transparent and easy to understand. So they can pretty much
predict what's coming in the next 6-12 months based on the supply and
demand equation. But when it comes to China, it is an unknown world.
Especially if you don't read Chinese (to be clear, it is simplified
Chinese), you really have no idea where to start your research. The
government thinking of growing their economy is different from the
West.
For these reasons, Wall Street models do not work at all
on China. A good example is China's GDP growth in the last 20 years.
Economists has been predicting Chinese economy crashes in the past, yet
it grew at an average rate of 10% for that period. The planed economy
seems to weather recession very well. China achieved 8.7% GDP growth in
2009 while the rest of the world economy shrank. Based on history,
investors have the right reasons to believe China can achieve the goal
of renewable energy faster than the rest of the world. One example is
the wind energy. According to the global wind industry report,
China has doubled wind power in 2009 to 25GW from 12GW, a total US$63B
market. We didn't know the market was so big until it was built.
However companies who entered China early scored big in the market.
These include Siemens (SI) and General Electric (GE).
Solar
energy is a newcomer compared to wind energy. The government not only
promoted domestic PV makers, but also the overseas companies, such as
First Solar (FSLR),
and eSolar. Provincial governments played a big role to promote solar
energy as well, many provinces came up with policies to match the funds
from central government. It is believed that the final amount will be
much bigger than the announced $454B. It is clear that some names are
winners and gaining market shares significantly. Both Trina Solar (TSL) and Solarfun Power (SOLF)
have won projects from local and central government as the technology
in these two companies has clear advantage over peers. It is noteworthy
that, in these days, the execution of Chinese policy is amazingly fast,
unlike the U.S. When it comes to developing the economy, there are no
politics in China. It is believed that at least 5GW of solar PVs will
be installed in China in 2010, and the number will grow faster in the
next 5 years.
Disclosure: long FSLR
