Renewables – Silent Spring for Solar
The investment community has almost never gotten it right on solar demand — forecasting woe in every out year since 2008 — until now, when the threat of a mid-year reset of the German subsidy program, combined with the just-passed demand-stabilization (read ‘regulated’) installation rate in Italy, has taken the beta out of half of world demand — after the Q4/Q1 inventory build cycle, with dire 2012 consequences. This has been evident in the broad swath of volume/guidance downgrades over the last month (First Solar one of few to avoid this fate – so far). The stall in demand comes just as new capacity goes onstream during 2H. The result is – first, lower prices as excess stockpiles work their way through the system, and — second, more lower prices as new capacity meets stable, not spiking, demand. So, now, while everyone scrambles to cut production or dump inventory, the best Hope is for better subsidy/demand visibility in 2012…or 2013… with the presumption that lower prices will continue to drive higher demand after clearing the channels. All eyes are on US utility installations (set to more than double this year and, probably, next), and China, where a more rational subsidy program is likely by 2013, with dramatic installation growth (8-9 new GW by 2015) and another 40 (!) by 2020. If wind activity is any indication (near zero in 2005 to over 18 GW in place this year), the solar forecast is probably conservative. By 2020, it’s likely that the Chinese policymakers will have ‘done it right,’ using global subsidies to build volume to get to scale economics, then deploy massive projects at ‘de minimus’ premium into the domestic grid. At that, the headline of the last week was the “news” that Jim Chanos, famed short seller, is bearish on the group (Barrons has been reporting this for a year), saying the industry has ‘failed’ to meet its promise. Hello? Module prices are over 50% lower than 2007-8. Balance of system costs are as much as 70% lower. Installations grew at 35+% rates until this year. 2014 parity is still in the cards. A handful of companies now earn their cost of capital, not a bad measuring stick for a high growth commodity in an oversupplied market, ahead of new growth prospects from the largest potential markets – China, India, and US.