From CS on the 7th:
Solar Snippet
Price Elasticity Driving Higher Solar Demand
Raising demand estimates. We are raising our 2011 solar demand
estimate from 23.8GW (up 12% y/y) to 27.1GW (up 28% y/y) and 2012 solar
demand estimates from 24.7GW (down 9% y/y) to 28.8GW (up 6% y/y),
driven mainly by higher than expected price elasticity for solar demand in
new countries outside the traditional Germany/US/Italy markets. Installed
solar prices are now below retail rates without incentives in several markets
(see charts). Adding incentives, price elasticity is driving much higher
volumes. Our poly driven supply estimates remain unchanged.
Implications. The better S/D balance is a positive for mid-stream panel
companies such as YGE, TSL, JKS and STP, which are trading at only
~0.6x P/tBV. If you want to dip a toe in the water, we prefer TSL/YGE, as
they have competitive costs and brand. YGE/TSL are likely tracking in line
with or better than our model for 4Q11 and 1Q12, and we expect our CY12
panel price assumptions (~$0.95/watt for TSL) to remain intact post earnings.
We remain cautious on FSLR (~1.1x P/tBV), as it is not as competitive with
c-Si. The tighter S/D balance is also leading to some inventory rebuild, which
is likely reason for stabilizing spot prices for poly near term. Poly prices
could decline again once inventory catches up as gross poly capacity is
more than demand – and remains a concern for poly makers.
Several risks remain. While price elasticity of demand is a positive, there
are several policy-related risks that remain. Most important is whether
Germany will impose a cap on solar (most recent trends suggest economic
ministry is less hawkish than before). In the US, there is a relatively high risk
of fairly significant retroactive tariffs applied to Chinese companies (see
charts for impact). Lastly, Italy was a big market for ground mounted
systems – this segment could decline from 2Q12.
Supply still over demand, but some signs of rationality. Our 2012 supply
estimate of 36GW remains unchanged and well above even the higher
28GW of demand we expect in 2012. Also dormant cell capacity can quickly
come back if demand improves. On poly, Corning noted that Hemlock, a Tier
1 poly maker, is putting some expansions on hold, the first sign of planned
production ramp reductions from a Tier 1 poly maker. The current stability is
likely transitory given 2012 imbalance – but nevertheless worth noting.
Recent demand strength
Solar demand picking up as prices fall. New regions of the world are opening up as
solar prices fall to grid parity in a number of markets. Note that rooftop system prices of
$4/W lead to unsubsidized solar levelized costs of energy (LCOE) below or equal to the
retail electricity rates in Hawaii, Germany, Italy, Spain, Japan, Portugal, and California.
Recent demand strength in Germany, Italy, and the US is a function of policy and project
economics. If incentives are cut significantly in Germany and Italy but installations are not
capped, demand strength for distributed generation like small roof top systems will
continue. However, demand for large projects may decline.
$4/W is reasonable system pricing in some markets – Germany averaged $2.80/W
(including ground mount) in 3Q11, according to Greentech Media. Grid parity especially
matters in regions with net metering. Even without net metering, large consumers of
electricity may choose to offset part of their electricity needs with solar at grid parity.
Wholesale solar costs are competitive with peaking natural gas plants in some regions, but
need to decline further to compete with coal wholesale electricity (without adjusting for
carbon).In regions with tiered electricity rates like California where residential consumers pay 11c-
40c/kWh depending on usage, unsubsidized solar is already compelling for consumers of
large amounts of electricity. That said, residential solar system pricing has averaged $6-
8/W in CA, according to CSI, above our $4/W assumption here. $6/W with 5.5 sun hours
per m2 per day gives an unsubsidized solar LCOE of 19c/kWh, below the elevated tiers of
residential electricity rates of many California utilities.
China
China estimates revised up to 2.9GW from 2GW in 2011 and to 6GW from 5GW in
2012. Industry checks have suggested that China installations have been higher than
expected. According to Solarbuzz, China took 2.9GW of solar panels in 2012. In July 2011,
China’s National Reform and Development Commission (NDRC) stimulated demand with
feed-in-tariffs (FiT) of 1.15RMB for 2011 projects and 1RMB for 2012. YGE believes that
its pipeline alone can install over 800MW of solar in China in 2012.
Germany
Germany policy uncertainty may lead to near-term pull-in of installations but likely
long-term declines in demand. After Germany installed a surprisingly high 4.2GW in
4Q11 and 7.5GW in 2011, the government has debated policy changes to limit the subsidy
burden and manage production for the electricity grid. We have maintained our 2012
estimate of 5.5GW. According to news flow, Germany Environment Minister Norbert
Roettgen has proposed pulling in incentive cuts to April from the previously planned July.
The Economy Minister Philipp Roesler initially proposed a cap of 1GW per year – but most
recently appears to have backed off from such a low hard cap. Other suggestions have
included monthly or quarterly incentive cuts, the elimination of incentives, and a transition
to net metering for small systems. 1Q12 installations are seasonally slow in Germany, but
a pull-in of demand before incentive cuts will help near term demand. Inverter
manufacturers like SMA and PWER claim they can continue to benefit from the 4.2GW
installed in 4Q11, as some installations were registered without inverters.
Italy
Italy subsidy burden exceeds 2011 and 2012 budget. Ground mount limitations a
concern. The Italy energy management agency GSE announced on Jan. 20 that large PV
projects installed and registered in Italy since June 2011 under the Fourth Conto Energia
have reached E1bb, exceeding the 2011 and 2012 budget of E580mm. As a result, new
registrations for large PV projects will receive the 2013 FiT rates. Recall that small PV
projects <200kW ground mount with net metering or <1MW rooftop have uncapped
budgets through 2012.
The Italian government may review the Fourth Conto Energia when the cumulative annual
subsidy burden reaches E6-7bb. The current cumulative annual subsidy burden is E5.5bb.
Legislators had hoped the subsidies would last through 2016 but a review is likely much
sooner in 2012 or 2013. News flow has suggested that Italy (and Germany) may end
subsidies for ground-mounted PV projects.
2011 demand was 5.8GW vs our previous estimate of 5.3GW. Note that we included 6GW
of installations in 2010 – about 3.5GW of these 2010 installations were interconnected in
2011 but not counted in the 5.8GW of 2011 installations. We have adjusted our 2012
estimate slightly from 3.8GW to 4GW.
According to GSE, under the Fourth Conto Energia, about 59% of installations in Italy may
have been for ground mount systems (labeled other plants); 36% rooftop; 1% BIPV; and
4% shelters (like parking covers). We believe that small scale systems (largely rooftop) will
continue to have strong growth as they are uncapped through 2012 while large ground
mount systems are at risk to incentive changes. As a result, we expect that Italy
installations may decline from 5.8GW in 2011 to 4GW in 2012.
US
We are revising our 2011 US demand estimates lower to 1.75GW from 2.5GW and 2012
to 3.5GW from 3.4GW. Utility project uptick in US is a 2012 event, versus our prior model.
We now expect US utility scale market was at least 250MW in 2011, and will increase to
1.75GW in 2012 based on utility scale project tracker. US utility market will soon have
tougher comps as the 2007-10 vintage California utility scale projects start to wind down.
Retroactive tariffs in US may lead to large charges for China manufacturers. The US
Department of Commerce announced on Jan 27th that potential tariffs, if imposed, would
be retroactive to December 3rd, 90 days before the March 2nd Department of Commerce
decision on duties. The decision to make potential tariffs retroactive has resulted from a
“massive” surge of imports, increasing much more than 15% q/q in 4Q11. We believe that
the imposition of tariffs is highly likely. They may range from an additional 50% to 250% of
panel prices.
Impact to China manufacturers. US-based subsidiaries of China panel manufacturers
have imported their modules and carried the risk of retroactive tariffs, passing along higher
prices to customers as a result. Hypothetical retroactive tariffs of 100% from Dec 3rd to
March 2nd assuming TSL shipments of 40MW in 4Q11 and 100MW in 1Q12 could lead to
$80mm or 96c of EPS impact total from 4Q11 and 1Q12 (see charts below). We believe
that China manufacturers will circumvent US tariffs by tolling cell and module
manufacturing in Taiwan or elsewhere, possibly adding ~5c/Watt of cost to modules
shipped to the US. We believe that many of the modules shipped before March 2nd have
already been tolled through Taiwan or elsewhere outside of China.
Risk of EU and India tariffs against China manufacturers. SolarWorld has begun
circulating a petition to begin a similar investigation in Europe against China panels. News
flow has suggested India solar companies have also considered pushing for protection
against competition from China panels. While likely tariffs in the US can be circumvented
through Taiwan, it would become costly and prohibitive for China manufacturers to deal
with Europe and India based tariffs as well.
UK
The UK may implement a system of triggered incentive cuts similar to Germany,
according to news flow. The goal of triggered incentive cuts is to give more foresight to
the solar industry and avoid regular political debates about each incentive change.
Incentive cuts would happen at regular intervals and the extent of the cut would depend on
prior installation levels. Germany has a similar system in place, but strong installations of
7.5GW in 2011 vs government targets of 2.5-3.5GW have renewed government debates
about changing the system further to make deeper, more frequent incentive cuts or
implement a cap.
Japan
Japan increasing surcharges to rate payers for solar. On Jan 24th, Japanese utilities
announced higher surcharges to cover purchase costs of solar electricity, according to
news flow. The surcharges range from 7-45 yen, up from 2-21 yen in 2011. The Japanese
government has placed new emphasis on the development of renewable energy projects
after the earthquake in March 2011. We maintain our 2011 and 2012 estimates of 1.2 and
2.25GW.
Spain
Spain suspends subsidies for new renewable projects. While Spain has not been a
significant solar market since its boom and bust in 2008, the suspension of subsidies
demonstrates the effect of the push for austerity. The suspension of subsidies will only
affect future new projects and not existing projects – that is, the cuts are not retroactive, as
threatened in 2010. We are lowering our 2011 estimate from 750MW to 400MW. We are
lowering our 2012 estimate from 270MW to 100MW based on the suspension of subsidies.
Polysilicon oversupply to keep prices below $30/kg
in 2012
We estimate 36GW of supply from polysilicon manufacturers and FSLR in 2012, above
our demand estimate of 29GW. Cash costs for tier I manufacturers are in the range of
$17-25/kg leading us to believe that poly prices will remain depressed below $30/kg.
Wacker management claimed that polysilicon demand is now more robust than in
December. Lower volumes and lower ASPs in 4Q11 led to a decline in sales of 32% y/y
and q/q. Hemlock shipments were up 6% to 32kMT in 2011, below the 36.4k tons we had
estimated. Like many other tier I polysilicon manufacturers, Wacker is continuing with
capacity expansion plans, from ~34k tons at YE11, to 52k tons at YE12, and 70k tons at
YE14.
Polysilicon spot pricing up ticked from $24/kg in mid Dec to $28 in mid Jan, according to
PV Energy Trend. Industry capacity increases in 2011 and liquidated poly inventory fueled
sharp poly price declines from $80/kg in 1Q11 to $24/kg in 4Q11. Recall that GCL planned
to nearly double production q/q in 4Q11 alone to 12.6k tons.
Hemlock management has decided to delay certain capacity expansions until
pricing improves. Management did not clarify details of the capacity expansion delay but
did clarify that poly pricing is likely to remain under pressure, in spite of the recent up tick
in January. However, it is a positive sign that a tier I poly maker has slowed capacity
expansions. We have said that tier I poly makers need to reduce utilizations and cut
capacity expansion plans to improve the supply demand balance. We believe tier I
polysilicon utilizations may have fallen from ~100% in 1H11 to about 90% in 4Q11 – we
will update our poly supply model as companies report 4Q11 earnings.
Companies Mentioned (Price as of 06 Feb 12)
Canadian Solar (CSIQ, $3.69)
China Sunergy (CSUN, $2.34)
Corning Incorporated (GLW, $13.73)
E-Ton Solar Tech Co Ltd (3452.TWO, NT$15.50)
First Solar (FSLR, $46.50, NEUTRAL [V], TP $30.00)
GCL Poly Energy (3800.F)
Gintech Energy Corporation (3514.TW, NT$42.25, NEUTRAL [V], TP NT$36.00)
Hanwah SolarOne (HSOL.N)
JA Solar Holdings (JASO.OQ, $1.76, RESTRICTED [V])
Jinko Solar (JKS, $7.60, NEUTRAL [V], TP $7.50)
LDK Solar (LDK.N, $5.97)
MEMC Electronic Materials Inc. (WFR, $5.27, OUTPERFORM [V], TP $6.00)
OCI Company Ltd (010060.KS, W274,500, OUTPERFORM [V], TP W323,000)
Q-Cells (QCEG.DE, Eu0.32)
ReneSola Ltd (SOL.N, $2.52, NEUTRAL [V], TP $2.00)
Renewable Energy (REC.OL, NKr5.09)
Sino-American Silicon Products (5483.TWO, NT$64.00, NEUTRAL [V], TP NT$43.00)
Solarworld (SWVG.DE, Eu4.14)
SunPower Corp. (SPWR, $8.17, NEUTRAL [V], TP $9.00)
Suntech Power Holdings Co., Ltd. (STP.N, $3.59, UNDERPERFORM [V], TP $2.50)
Tokuyama (4043.T)
Trina Solar Ltd (TSL.N, $8.25, NEUTRAL [V], TP $6.00)
Wacker Chemie (WCHG.DE, Eu75.77)
Yingli Green Energy Holding (YGE.N, $4.46, NEUTRAL [V], TP $4.00)
I tried to post graphs and charts but they wouldn't transfer properly and format from the original pdf document here on SI.
Eric |
