Shares of solar energy technology providers are broadly lower this afternoon following the announcement that Germany plans to cut but as much as 29% from subsidies that have helped to support buildout of solar installations starting next month, as reported by Marc Roca and Stefan Nicola of Bloomberg.
Roca and Nicola report that the cuts in feed-in-tariffs come despite the fact the German government wants to phase out nuclear power in favor of solar by 2022. This year’s target is for solar panel installations of 2.5 to 3.5 gigawatts worth of capacity, down from 7.5 gigawatts last year, with a target of 1.9 gigawatts annually by 2017.
As far as the stocks, the response is very mixed. The hardest hit among the group include Trina Solar (TSL) which has the burden of having reported a much-deeper-than-expected Q4 loss per share this morning, currently down $1.18, or 12%, at $8.58; First Solar (FSLR), down $3.58, or almost 9%, at $36.87 ; JinkoSolar Holding Co. Ltd. (JKS), down 72 cents, 8%, at $8.06; and SunTech Power Holdings (STP), down 28 cents, or almost 8%, at $3.22.
Raymond James‘s Pavel Molchanov writes that while there are “cuts,” there is “no installation cap,” although “we wouldn’t be surprised to see a cap in the second half of the 2012 or early 2013.” The cuts are generally in line with expectations in Molchanov’s view. The only surprise was how quickly German’ys environment and economy ministries managed to come to agreement on the move, he observes.
Demand globally may decline 8% this year while supply rises 9%, he estimates. It will be a matter of puts and takes between the various geographies:
While the level of 2012 German installations still remains a question mark, we think that demand beyond March 9 will be substantially reduced (that is the point, after all). Consistent with our forecast from January, we still envision full-year German installations down ~7% y/y, from 7,500 MW in 2011 to 7,000 MW in 2012. Combined with the expected demand decline in Italy (partly reflecting the fact that some Italian projects counted in 2011 were actually installed in 2010), total European demand could be down by more than 15%. That is partially offset by what we project will be a doubling of the Chinese market to 4,000 MW (bias to the upside) and a near doubling of the U.S. market to 3,000 MW (bias to the downside).
Auriga’s Hari Chandra is somewhat more optimistic. He expects total German installations this year will exceed the 2.5 gigawatts to 3.5 gigawatts talked about, coming in more like 4 gigs to 4.5 gigs.
He also sees China filling in some of the gap:
German FiT cuts and the likely imposition of U.S. tariffs on China pressures China to create local demand. >5GW expected in 2012 – China will likely see the writing on the wall and initiate a policy catalyst soon. China can let domestic solar PV installations to go up to 7GW in 2012 and initiate a process to support demand of up to 10GW/year through 2015. This is not out of charity but more out of its need to support its solar PV manufacturing base, solar jobs, solar debt underwritten by domestic banks, the shift to domestic energy as opposed to importing rising amounts of primary energy, and also meeting its own environment goals.
As far as the stocks, Chandra advises that while they “will get hit as they are now,” nevertheless, “there will be an opportunity to buy again in due course based on price and the market/policy catalysts.”
And lastly Gordon Johnson of Axiom Capital, writing about the cut in Q4 outlook by Yingli Green Energy (YGE) on Tuesday, actually raised his price target to $3 from $2, because he now values the stock based on price-to-book multiple from a P/E multiple, given the high likelihood, as he sees it, that Yingli will produce positive operating cash flow.
Yingli’s struggle is �the writing on the wall,� writes Johnson, for 2012, with a solar market “defined by structural oversupply,” resulting in “steep losses” this year.
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