From CS this morning
China solar subsidy program update
China solar subsidy update.
Overnight, we spoke with several contacts in China, as we continue to investigate the details behind the China’s solar stimulus plan. Although we are not changing our demand estimates for China, our preliminary assessment is that the program may support likely about 100MW of incremental demand from China in CY09. While datapoints may continue to evolve on this program, our preliminary findings suggest that the melt-up in solar stocks yesterday was probably overdone; and we would tread with some caution in the immediate term. We continue to remain constructive on US market demand in 2010, and potential for FSLR over time from this market.
Additional findings.
Contacts believe the program could be a part of the 4 Trillion RMB China stimulus package (~$580bb); given the large size of the stimulus plan and some emphasis on environmental programs, generally our contacts believe that this program could be an important event. Contacts also believe that the central govt is encouraging the provincial government to establish a feed in-tariff (in addition to the RMB20/watt subsidy), the FIT may be different for each province given differing electricity tariffs, but provinces that establish FITs may get a higher priority. That said, contacts believed that the "budget" for solar may be ~RMB2-2.5bb, which would perhaps support 100MW of solar. We caution that the official posting on the MOF website does not have a budget figure; this estimate as such is not from the MOF (Ministry of Finance) or NEA (National Energy Administration) or the NDRC (National Development Reform Commission); but a view expressed by most industry contacts. Program took many by surprise. It appears that it was not just investors who were surprised by this announcement. Every solar company management we spoke with in China was unaware of this program until yesterday, even though the news was available was dated Mar 23rd, and had been available on the MOF website. This is somewhat inconsistent with the possibility that this was an important and substantial program, we would have expected China-based solar companies in that case would have known more about the program and not taken by surprise.
Implications to China solar demand.
At this point, our early read is there may be an incremental 100MW demand for solar in China, but we are not changing our solar demand estimates yet, as we suspect more information could continue to evolve. China deployed ~20MW of solar in CY07, ~50MW in CY08. One industry contact closely involved in monitoring China solar programs opined that the market may have been ~50-100MW if the program did not exist, and may increase to perhaps 100-150MW with this program as a lot of the details on implementation are still lacking.
Background on China electricity & renewable market.
China installed ~80GW of new electricity generation capacity in 2008, versus ~91GW in 2007; China had an installed base of ~793GW at the end of 2008. At the end of 2007, about 78% of the total installed capacity in China for electricity was thermal; wind was about 0.7%, nuclear was about 1.2%, and hydro was about 20.3%. China is a large market for power, and likely the country with the largest single year additions to existing power capacity. In particular, China is an important market for renewable electricity generation. China has installed about 12.2GW of wind capacity – of which, about 6.3GW was installed just in 2008. Of this 6.3GW, domestic turbine manufacturers, like Sinovel/Goldwind/Dongfang had 75% market share, while prominent foreign turbine manufacturers Vestas/GE/Suzlon combined only for 14% market share. If the deployment of wind is any indication, domestic panel producers may gain a disproportionate share of the market in China.
Conclusions for solar.
As such, given the centrally planned nature of Chinese economy, and a general desire from China to increase its renewable energy efforts, we would not treat this development lightly. That said, there is a significant lack of details on the program, lack of detail on the implementation timelines and a general sense of surprise expressed by even solar companies in China. Our preliminary read is the Chinese market may only add 100MW to solar demand in 2009, and will not meaningfully alter the near term supply/demand for stocks; which suggests some caution is warranted as stocks appear tactically overbought in the near term. China solar demand will eventually be an important catalyst to monitor, and datapoints may continue to evolve, but at this point, we do not expect this news will result in meaningful improvement to results in Q1/Q2. |
