Competition – as I used to say to my sales force – has a way ofkeeping competitors honest. The real beneficiary of a healthy businessduel, however, is the customer. Particularly when the competition getsdown to price. Nowhere is that more apparent right now than in the solar energyindustry. Over the past few weeks, solar panel and module prices havebeen dropping through the floor. The reason can be summed up in justone word: China.
Executing a strategy not unlike the Japanese car companies did backin the 1970’s and 1980’s, Chinese solar panel manufacturers are sellingsolar panels for less than it costs to make them. Suntech Power Holdings (NYSE: STP) and Yingli Green Energy Holding Company, Ltd. (NYSE:YGE) are doing it for two reasons: to gain market share and – more importantly – drive demand.
And in another page taken from the Japanese, Suntech is planning tobuild a module manufacturing plant here, primarily to avoid growinganti-China solar protectionism.
So the Chinese are quietly fighting back, offering inexpensivegovernment-backed loans in support of their own solar modulemanufacturers.
The module makers themselves are weaving their way into solarindustry trade groups to soften any would-be support for futureprotectionist legislation. This was done by the Japanese car companies,too.
In the end, it will be good news for homeowners and industrialcustomers of solar modules, as prices will continue to drop, both hereand abroad. Low prices will continue to be the catalyst that drivessolar installations, and should actually eliminate any subsidies fasterthan originally anticipated.
While solar is currently more expensive to generate electricity fromthan other conventional fossil fuel sources, in the next several yearsit will be the lowest-cost power available.
What about the huge drop in solar shares? Analysts seem to bedivided, but my opinion is the sell-off is a little overdone,particularly when it comes to First Solar.
The reason is that First Solar’s panels are a different breed. Ituses thin-film semiconductor technology that has a much lower cost thanpolysilicon-based panels – which is what most of the Chinesecompetitors are using.
As a result, First Solar’s cost structure continues to drop as fastas the prices of the modules themselves. The stock is off nearly $64 ashare in the last two months, and seems to be firming.
Investors with an eye towards the long term – and who want to be inthe solar sector — might want to consider this level as a place to pickup a few shares of First Solar as a buy-and-hold strategy.
I would avoid the Chinese panel makers for the present, until aclearer picture emerges regarding government-pricing policies towardsthe Chinese panel makers.