Monthly Archives: September 2013

Solar demand remains strong; EU and China settle solar trade anti-dumping dispute – August 12, 2013

Read report with graphs in PDF:  Solar-Update-Aug-2013

Solar Index Performance

The MAC Solar Index, which is the tracking index for the Guggenheim Solar Energy ETF (NYSE ARCA: TAN), rallied sharply from April through July, posting a new 1-1/2 year high in early August. The MAC Solar index was up by 75% on a year-to-date basis as of August 9, 2013.

The rally in solar stocks has been driven mainly by the stabilization of polysilicon and solar panel pricing (see charts on p. 3) combined with strong solar demand and improved profitability of solar manufacturers. In addition, the markets were pleased that the European Union and China came to an agreement on solar trade that averted punitive duties and a larger trade war.

Global solar demand remains strong

Global solar demand in recent months has remained strong, supported by increasingly attractive solar economics for consumers after the sharp drop in solar pricing in recent years. European solar installations have stalled due to reduced government support, but the slack has been more than taken up by strong growth in major countries such as the U.S., Japan, and China.

Regarding solar in the U.S., Goldman Sachs said in early July that their talks with solar companies indicated “strong U.S. demand across residential, commercial and utility channels, with solid visibility through the balance of 2013 supported by reports of effectively sold out U.S.-specific allocated capacity.” Goldman added that pricing appears solid and that their current forecast for U.S. PV installation growth of +30% in 2013 and +19% in 2014 appears “conservative given recent momentum.”

The U.S. reached a milestone of 10 gigawatts of installed PV capacity in the first half of 2013, according to NPD Solarbuzz. That gives the U.S. the fourth largest installed PV capacity in the world behind Germany, Italy and China. NPD Solarbuzz forecasts that cumulative PV installations in the U.S. will increase by an additional 80% over the next 18 months, surpassing 17 gigawatts by the end of 2014.

Meanwhile, solar continues to surge in Japan in the wake of the Fukushima nuclear disaster in 2011 and the Japanese government’s subsequent push to quickly install more solar to take up the slack from reduced nuclear-generated electricity. Japan’s PV installations in Q1-2013 surged by 270%, according to research firm IHS. Japan will be the world’s largest market in terms of revenue in 2013 with $20 billion of PV installations, according to IHS.

In China, the State Council, which is the country’s cabinet and the top governing body, officially approved the plan for China to more than quadruple its PV capacity to 35 gigawatts by 2015. That means China will add about 10 gigawatts of solar per year during 2013-15. The Chinese government’s target for solar installations represents a compounded annual growth rate of about 70% for the 2013-15 period.

Obama climate plan involves regulating carbon and promoting clean energy

President Obama in a major climate address on June 25 at Georgetown University in Washington DC outlined his new two-step climate action plan. Mr. Obama, recognizing opposition in Congress, said he would instead take executive action to promote his administration’s goals to reduce greenhouse gas emissions by 17% by 2020 and double renewable electricity generation by 2020. Mr. Obama said climate change is a very serious issue that requires an aggressive federal response.

Mr. Obama, noting that power plants emit about 40% of U.S. greenhouse gas pollution, directed the EPA to develop rules to start regulating greenhouse gas emissions from existing power plants. This rule-making will take a number of years but the expected result will be a crackdown on existing coal-based power plants in particular. Coal-generated electricity has already fallen to 37% of U.S. electricity generation from levels near 50% as recently as 2008, mainly due to tougher rules on new coal plants and due to the U.S. natural gas boom.

Many governments around the world continue to pay lip service to nuclear power, but the reality is that solar beat nuclear power last year by a factor of 26 to 1 regarding new installed capacity. Specifically, only 1.2 gigawatts of nuclear generation capacity was installed globally in 2012 compared with 32 gigawatts of solar, according to the World Nuclear Industry Status Report 2013.

Mr. Obama in his climate speech also set a goal of having the federal government obtain 20% of its total electricity supply from renewable resources by 2020. Mr. Obama directed the Department of Interior to grant permits for an additional 10 gigawatts of renewable energy on public lands by 2020, adding to the 10 gigawatts of permits already granted by 2012. Mr. Obama also directed the Department of Defense to deploy 3 gigawatts of renewable energy at military installations, including solar, by 2025.

Tea Party group expresses strong support for solar

In Georgia, the all-Republican state regulatory electricity commission approved a plan that requires Atlanta-based Georgia Power Co., a unit of Southern Company, to increase its solar power capacity by 525 megawatts by the end of 2016. The move was opposed by Americans for Prosperity (AFP), a group founded and funded by the billionaire Koch brothers, who are big fossil-fuel promoters. However, the Tea Party Patriots, a branch of the Tea Party in Georgia, accused the AFP of “putting out absolutely false data” about solar. Debbie Dooley, the national coordinator of the Tea Party Patriots, expressed strong support for solar as a matter of customer freedom over utility monopolies and said her group was forming a “Green Tea Coalition” to support solar. Ms. Dooley gave an interesting interview (link) to Chris Hayes on MSNBC.

There has been little roll-back of solar mandates at the state level, despite broad control of many state legislatures by Republicans, because many Republicans recognize that solar energy stimulates jobs and provides income to farmers and land owners. In addition, solar is a distributed electricity generation source that delivers electricity choice and freedom to home and business owners and that reduces their reliance on the monopoly grid.

EU and China settle solar trade anti-dumping dispute in a big plus for the solar industry

The European Commission in early August approved a EU-China solar-panel pact that involves Chinese solar manufacturers agreeing to a minimum selling price in Europe of 0.56 euros per watt and a volume limit of 7 gigawatts of Chinese exports to Europe. The deal averted Europe’s threat to impose anti-dumping duties as high as 67.9% on Chinese solar panels. As part of the deal, China froze its trade investigations into European wine and polysilicon exports to China.

About 90 Chinese solar companies agreed to the deal, whereas the other 50 Chinese solar companies that export to Europe will be hit with a punitive duty of 47.6%. The deal favors the large Tier 1 Chinese solar companies who sell high-quality and bankable panels at relatively low prices due to their technology and economies of scale. European solar panel manufacturers were highly critical of the deal, saying that the minimum price should have been set much higher. The deal is favorable for the solar industry in general since it takes some of the downward pricing pressure off solar panels in Europe. The China-EU deal will remain in force only until the end of 2015.

Meanwhile, other solar trade spats continued. Europe settled its anti-dumping solar case against China but Europe’s investigation continues on anti-subsidy claims against China. Moreover, China recently imposed tariffs on polysilicon exports to the U.S. and South Korea. Despite these trade spats, solar companies have various ways to get around solar trade restrictions over the longer-term by shifting production and sourcing channels.

Solar stocks rally on stabilized solar pricing and improved industry profitability – April 12, 2013

Read report in PDF format with graphs:  Solar-Update-April-2013

Solar Index Performance

The MAC Solar Index, which is the tracking index for the Guggenheim Solar Energy ETF (NYSE ARCA: TAN), rallied sharply starting in mid-November 2011 and posted a new 1-year high in mid-February. The MAC Solar Index lost ground from mid-February through the end of March on some disappointing company-level shipment and earnings news, but then bounced higher in early April after First Solar (FSLR) substantially raised its guidance.

The rally in solar stocks from mid-November through mid-March was based mainly on the stabilization of solar cell and polysilicon prices (see charts on p. 3), which suggested that the worst of the pricing pressure might be over. There was also positive demand news as the Chinese and Japanese governments pursued strong solar support programs. The improvement in solar demand was seen by the fact that Wacker Chemie, the world’s second largest polysilicon producer, announced on February 11, 2013, that is was ending short-time work schedules and increasing production to meet renewed demand.

Solar stocks were also supported in early January when Warren Buffet’s Berkshire Hathaway (BRK/A) subsidiary MidAmerican Holdings finalized the purchase from SunPower (SPWR) of the 579-megawatt Antelope Valley Project, the world’s largest PV solar power plant. That was a big vote of confidence for solar power from Warren Buffett and signified that solar economics are working in the U.S.. The purchase price was not disclosed but it was thought to be in the $2.0-2.5 billion range.

Solar stocks also received some support in mid January when President Obama in his inaugural address prominently mentioned the need to address climate change. Mr. Obama said that he would address climate change with executive action if Congress refused to address climate change with legislation. The Environmental Protection Agency in various Supreme Court and appeals court rulings has been authorized to regulate CO2 emissions. The EPA without additional legislation from Congress therefore has the authority to progressively clamp down on CO2 emissions, thus slowly regulating coal-fired plants out of business. The Obama administration has a goal of obtaining 80% of electricity from clean sources (including nuclear and natural gas) by 2035.

Natural gas-fired power plants are likely to take up much of the slack as coal-fired plants slowly die out, but there are still significant concerns about natural gas. Natural gas raises environmental concerns due to (1) the fact that there are still CO2 and other emissions from burning natural gas, and (2) concerns about fracking stemming from ground surface damage, heavy water usage, possible ground water contamination, and even earthquakes in some regions. In addition, as the U.S. moves towards exporting liquid natural gas (LNG) in coming years, the price of natural gas is likely to rise and make natural gas a more expensive option. Solar energy, by contrast, is one of the very few energy solutions that offers zero emissions and a free source of energy (the sun) after the up-front fixed equipment cost.

In his State of the Union address in February, President Obama stressed his administration’s goal of doubling renewable electricity generation by 2020. The President called on Congress to make the renewable energy Production Tax Credit permanent and refundable as part of comprehensive corporate tax reform.

The solar industry is fortunate that a 30% solar investment tax credit (ITC) has been in place since 2002 and will last through December 31, 2016 under current legislation. However, the sequestration that took place on March 1, 2013, did result in a reduction in the amount of funds that are available under the 1603 Treasury program that gives solar developers a direct federal grant in lieu of the ITC (see for a comprehensive overview of solar energy tax policy).

China’s aggressive solar program

Solar stocks received a boost in January after China’s National Energy Administration announced on January 8 that the government is targeting the installation of 10 gigawatts of new solar power installations in 2013. That would be a 43% annual growth rate from 7 gigawatts of installed solar in 2012 and more than three times the 3 gigawatts of installed solar in 2011. In late January, Chinese officials raised the nation’s solar target for 2015 to 35 gigawatts from the previous target of 21 gigawatts. The government’s targets for solar installations represent a compounded annual growth rate of 70% for the 2013-2015 period.

In order to support this rapid growth rate, the Chinese government has a feed-in tariff (FIT) program in place that specifies what electric companies must pay for solar power. The Chinese Ministry of Housing and Urban-Rural Development in January approved a plan to provide subsidies for roof-top solar that totaled 1.82 billion yuan ($300 million) for a group of 126 approved projects. The Chinese government in December that it would adjust regional feed-in tariffs for solar and give solar PV preferential value-added tax policies similar to the policies available for wind farms. In addition, the Chinese government in December 2011 announced an additional $1.1 billion of subsidies to the solar sector, thus doubling its support for 2012.

Europe and China near the end of their respective trade investigations

Europe is due to rule soon on whether it will levy tariffs on Chinese solar panels due to charges of dumping and unfair subsidies. Meanwhile, China has threatened to levy a tariff on European polysilicon. The U.S. last year levied tariffs on Chinese solar cells, but the net effect was minor since global solar companies have a number of ways to circumvent the tariffs. The solar trade investigations have had a negative effect on solar stock prices, but once the trade tariffs are settled the global solar industry should then be able to adjust through outsourcing and regional manufacturing.

Industry Consolidation

The solar industry over the past two years has gone through a difficult period of consolidation due to severe over-capacity caused by too many solar companies (primarily based in China) flooding into the market. The solar industry is slowly seeing rationalization where the weakest and the high-cost producers have been forced to close their doors. The reduction of capacity will eventually allow profit margins to recover with an industry that is dominated by a limited number of large players with the lowest costs and the best technology.

An example of the solar industry consolidation process was seen in March when Suntech, the world’s largest solar panel maker, was forced into bankruptcy. Suntech’s bankruptcy had generally been expected after Suntech was unable to renegotiate the $540 million in convertible bond payments that were due on March 15. Suntech continues to operate for the time being and the regional Wuxi government in China is expected to eventually take over control of the company.

While solar manufacturers have been hard hit by the industry glut in the past two years, the process has been imperative for the long-term health of the industry. The price of solar panels has plunged in the past two years, thus making solar much more affordable and bringing it close to, or even below in some regions, the cost of other types of electricity generation. Solar pricing will continue to fall in coming years from improved technology, economies of scale, lower balance of system costs, and more efficient financing options. As solar pricing continues to fall, solar demand will increase as solar power becomes more competitive and attractive. This steady decline in pricing should allow the solar industry to enter its long-term growth market without subsidies.

Solar Pricing

Prices for solar cells and modules hit record lows in late 2012 and then moved sideways to slightly higher in early 2013. The price of multicrystalline solar cells hit a record low of 39 cents per watt in late 2012 and then moved slightly higher to a 5-month high of 39 cents per watt by late March, according to survey data provided by Bloomberg New Energy Finance. Multicrystalline solar cells are manufactured from wafers that are cut from pure polysilicon. The cells are then assembled into a module assembly that includes a frame, an encapsulate, and wiring. Meanwhile, solar module prices hit a record low of 68 cents per watt in January and are currently bumping along sideways near that level.

Spot polysilicon prices hit a record low of $15.83 per kilogram in late December 2012, according to survey data from Bloomberg New Energy Finance. The spot price of polysilicon prices then rebounded mildly higher in early 2013 by 11.1% to post a 4-month high of $17.59 in the week ended March 18.

Solar pricing has stabilized in the past several months mainly because production has slowed as smaller and high-cost producers have been forced out of the market. In addition, the large players have stopped building new capacity and most are running production below their current capacity.

Solar-grade polysilicon is manufactured in huge chemical plants that take common-place silicon and refine it into very high purity using one of several main processing techniques. Polysilicon is also used to manufacture semiconductor chips for the computer industry. Thin-film solar modules made by First Solar and others do not use polysilicon and instead use a different process to place a semiconductor PV coating on a substrate backing.

Solar PV Annual New Installations

Global annual solar PV installations in 2012 grew by +4.7% y/y to 30.1 gigawatts, slowing sharply from the growth rates of +58% in 2011 and +135% in 2010, according to Bloomberg New Energy Finance. Nevertheless, the 2012 installation level of 30.1 gigawatts was more than ten times the 2.8 gigawatt level seen five years earlier in 2007.

Germany was once again the country with the largest amount of new solar PV installations in 2012 at 7.604 gigawatts. However, that was only a small 1.6% increase from 2011’s pace of 7.485 gigawatts as Germany cut back on solar incentives. There were sharp drops in 2012 of -58% for installed solar in Italy, -45% in France, and -67% in Spain. The weakness in European solar was offset by increases elsewhere such as in the U.S. (+71%) and China (+24%).

For 2013, IHS is forecasting that the rankings for annual new solar PV installations will be: China, U.S., Germany, Japan, and Italy. Solar installations in general are expected to be more evenly spread across the world, as opposed to the years of 2004-2011 when Europe dominated installations. This will be a healthy development for the solar industry, which will have a more diversified customer mix and will not be as vulnerable to subsidy shifts in specific countries.

The U.S. had a huge year in 2012 with new solar PV installations growing by 71% to 3.150 gigawatts from 1.845 gigawatts in 2011. Solar energy economics for customers substantially improved with the average price of a completed system in 2012 dropping -27% y/y, according to Solar Energy Industries Association (SEIA). The states with the largest PV solar installations in 2012 were: California (1,033 MW), Arizona (710 MW), New Jersey (415 MW), Nevada (198 MW), and North Carolina (132 MW), according to the SEIA.

The amount of cumulative PV electricity generation capacity across the world exceeded the 100 gigawatt threshold to hit 103.8 gigawatts (a gigawatt is 1 billion watts) by the end of 2012, according to data from Bloomberg New Energy Finance. In just five years, global cumulative solar PV electricity generation capacity has increased by ten-fold from 10.4 gigawatts in 2007 to 103.8 gigawatts in 2012, representing compounded annual growth of 58%.

Germany at the end of 2012 had the world’s largest amount of cumulative installed solar electricity generation capacity by far at 32.2 gigawatts, according to Bloomberg New Energy Finance. Germany had 31% of world solar capacity at the end of 2012. Italy by the end of 2012 had the second highest solar capacity at 16.1 gigawatts representing 15.5% of the world total. The countries having the next largest solar capacity by the end of 2012 were the U.S. at 8.1 gigawatts, Japan at 7.4 gigawatts, China at 6.5 gigawatts, and Spain at 6.2 gigawatts.

U.S. cumulative solar electricity capacity rose to 8.069 gigawatts at the end of 2012, representing 7.8% of the world total. That is enough to power about 1.3 million households. U.S. cumulative solar electricity capacity over the past five years rose by more than six-fold from 1.267 gigawatts in 2007 to 8.069 gigawatts in 2012.

China’s cumulative solar electricity capacity in 2012 rose to 6.539 gigawatts, representing 6.3% of the world total. China’s cumulative solar electricity capacity in the past 5 years has risen by 65-fold from 100 megawatts in 2007 to 6.539 gigawatts in 2012.

MAC Solar Index June 2013 Quarterly Review Changes

As of the close of business on June 21, 2013, three stocks were added to the index: Enphase Energy (ENPH:US) with an Exposure Factor of 1.0, China Singyes Solar Technologies Holdings Ltd (750:HK) with an Exposure Factor of 0.5, and 5N Plus Inc (VNP:CN) with an Exposure Factor of 0.5. No other changes were made to the index.