If you’ve been following the solar panel industry’s stocks this year, one thing (and only one thing) is certain right now: Nobody really knows what’s next for these companies. Oh, that hasn’t prevented a myriad of assumptions from coming out of the woodwork, but the fact is, folks are jumping to conclusions first and finding out the facts later — if they care to find them at all.
Unfortunately, I can’t list all the relevant facts in a single article. But I can give you some food for thought.
Despite the incredible rally we’ve seen from solar stocks this year — the Guggenheim Solar ETF (NYSE:TAN) still is up 28% year-to-date even after the big pullback this week — the bulk of the outlooks remain pessimistic.
The arguments make sense on the surface, too, primarily suggesting the 2011 panel glut isn’t over yet, even though several of the solar panel race’s players have dropped out in the meantime. Energy Conversion Devices (NASDAQ:ENER) is one of the most recent bankruptcies, though hardly the only one. Several smaller names like Pennsylvania’s Suntricity Power and Evergreen Solar (PINK:ESLRQ) also bit the dust of late.
Why? There’s simply not enough profitable business to go around. Oh, there’s enough unprofitable business to go around, but only a select few manufacturers are able to clear a profit at the current “going price per kw” now that Chinese manufacturers allegedly are
dumping selling panels at below cost just to get some cash flow going.
That’s just one of several factors in play right now, however. And therein lies the problem. There are multiple pressures pushing and pulling these stocks, and it’s nearly impossible to hit the moving target these forces are creating.
To that end, here are my expected outcomes for all the major items in questions regarding solar’s present dilemma:
- The Germany subsidy cuts are coming, and they will hurt. Some think the subsidy cuts will only be a 10% reduction, while others think they could be axed by 35%. That’s harsh either way, but the number gets downright scary knowing Germany is the biggest solar power consumer within the biggest solar panel market (Europe). Last year, Germany installed 7.5 gigawatts of the world’s estimated 28 gigawatts of solar power installations.
- China really is going to ramp up its usage of solar, even if only to soak up its own excess. After installing only 2.2 gigawatts last year, the pros think the country is on pace to add between 3 gigawatts and 5 gigawatts this year.
- The United States will install 4.4 gigawatts of solar power production capability, up from 1.8 gigawatts in 2011.
- Polysilicon prices will rebound this year. It won’t be a huge rebound, but they’ll end the year better than the recent price of $28 per kilogram. As such, this aspect of the manufacturer-supply business will stabilize.
(Note that the expected installation demand this year is largely the result of low polysilicon prices, so the two are interdependent.)
- The import tariff on Chinese solar panels being discussed by the Department of Commerce just isn’t likely to happen. It’s most likely just saber-rattling to prompt a heart-to-heart discussion with China regarding its alleged panel “dumping.” There’s simply too much at risk for American companies to actually pull that trigger. Case in point: The recent deal between Yingli Green Energy (NYSE:YGE) and DuPont (NYSE:DD), in which Yingli agreed to buy $100 million worth of solar panel manufacturing consumables. There are countless other supply deals like it that we rarely hear about.
- We’ll continue to see attrition and consolidation within the solar power industry … though more attrition than consolidation. The survivors — and suitors — will be the outfits that know how to produce panels or polysilicon for less than their average selling price (which largely is a function of size and scalability).
The Truth of the Matter
Yep, a lot is going on, and those predictions aren’t even the whole story. They’re the bulk of the story, though, and if we can get our arms around those details, the rest becomes academic.
There’s one final philosophical idea that needs to be added, however …