For many solar stocks, the sun was certainly shining in 2013.
The industry was one of the best-performing sectors of the market, with broad measures like the Guggenheim Solar ETF (TAN) surging more than 120% throughout the year. A combination of dwindling costs and rising subsidies in key markets like China and Japan helped the fortunes of top solar stocks finally catch up to the their long-term promise.
However, the sector has recently met with some cloudy weather. And several solar stocks — particularly of the Chinese persuasion — may be in for darker times.
For investors, it may finally be time to cash in their Chinese solar stock bets and move on to sunnier pastures.
A Litany of Problems For Chinese Solar Stocks
The last few weeks haven’t been great for Chinese manufacturers of photovalic (PV) panels. Share prices for key solar panel producers like Trina Solar (TSL) and Yingli Green Energy (YGE) have basically imploded since reaching March highs. YGE alone is down about 40% since then.
And while you can make the argument that the Chinese solar producers were just caught up in the general momentum stock selloff we’ve been experiencing, something more sinister is afoot. I’m talking about a reversal of all the good fortune that has recently shined on the sector.
One of the key driving forces behind the solar boom has been the abundance of cheap Chinese-manufactured panels. Well, rising input costs — the cost of energy needed to run solar panel factories — along with supply constraints are lifting prices for Chinese-produced PV. According to Boston-based green think-tank GTM Research, the price of Chinese-made solar panels will rise about 20% this year.
And already, the price rise is beginning to take shape. According to its latest report, GTM shows that Chinese solar producers like JinkoSolar (JKS) have priced their modules at 80 to 85 cents per watt for new deliveries. That compares to just to 70 cents per watt at the end of 2013.
Historically, Chinese produced solar panels have been significantly cheaper than those produced in other Areas like the United States and Europe. That fact lead to several high profile-bankruptcies of developed market solar producers like Germany’s Q-Cells. All in all, GTM Research estimates that more than half of modules sold in the U.S. last year were Chinese-made.
The rub is that these higher-priced solar panels must now compete with all that ultra-cheap natural gas being produced in spades across the U.S.
And prices for Chinese-produced solar panels could rise even further in the years ahead. Here’s why…