2010/11 PV Demand Likely Stronger than Expected

The Solar Energy market experienced a roller coaster ride in the last six months, mainly because of the policy uncertainty from Germany. Although the German market is only 40% of the global market (probably less than 40% due to the growing shares from China, Japan and the USA), Wall Street analysts seem to only focus on Germany. The media sometimes also contributes to the speculation. When the German government discussed a likely cut to its FIT program. Reuters came out with a much larger cut even before any announcement from the government. That scared investors and caused a 35% hair cut in one week. However the latest report from German local newspapers is that the cut will likely be a much smaller percentage and delayed to September to give enough time for the market to respond, and policy exists to avoid any setback for the industry. While the original Reuters report sounded like the government wanted to kill the industry, there are many new developments lately signaling a strong global demand in Solar energy. Here are some:

1. FIT cut in Germany likely small and pushed to September
The ruling parties in Germany are facing tough protest ahead of the FIT modification. Recent polls show 83 percent of voters of the CDU and CSU are against the cut, while 88 percent of SPD voters are against the cut. The worry of losing the upcoming election likely results in a much smaller cut than the Reuters report. This explains why PV makers kept inking contracts in Germany, such as when Trina Solar (TSL) signed a 80MW deal with ITEC and AE Photonics. Maybe the high quality of Trina Solar's panels helped to win market share, but German demand is stronger than many expected.

2. New senate bill to boost PV demand in US
A new bill has been proposed in the Senate aiming for 10 million rooftop solar systems in the US. The Ten Million Solar Roofs and Ten Million Gallons of Solar Hot Water Act was introduced by Senator Bernie Sanders, chairman of the Senate's green jobs subcommittee. A rough calculation shows that 100GW of solar PVs will be installed under this plan, considering an average of 10K per rooftop system.

3. UK is picking up speed on FIT
UK announced a FIT program in January to focus on small projects under 5MW. This is a new market for the UK solar industry and we still need to see what the impact will be. Analysts hardly follow the small projects because it's difficult to track, however PV demand is expected to pick up in the UK this year.

4. China may exceed 5GW installation in 2010

Wall Street analysts can usually model the renewable energy markets in the U.S. and Europe quite accurately because the government policy is pretty transparent and easy to understand. So they can pretty much predict what's coming in the next 6-12 months based on the supply and demand equation. But when it comes to China, it is an unknown world. Especially if you don't read Chinese (to be clear, it is simplified Chinese), you really have no idea where to start your research. The government thinking of growing their economy is different from the West.

For these reasons, Wall Street models do not work at all on China. A good example is China's GDP growth in the last 20 years. Economists has been predicting Chinese economy crashes in the past, yet it grew at an average rate of 10% for that period. The planed economy seems to weather recession very well. China achieved 8.7% GDP growth in 2009 while the rest of the world economy shrank. Based on history, investors have the right reasons to believe China can achieve the goal of renewable energy faster than the rest of the world. One example is the wind energy. According to the global wind industry report, China has doubled wind power in 2009 to 25GW from 12GW, a total US$63B market. We didn't know the market was so big until it was built. However companies who entered China early scored big in the market. These include Siemens (SI) and General Electric (GE).

Solar energy is a newcomer compared to wind energy. The government not only promoted domestic PV makers, but also the overseas companies, such as First Solar (FSLR), and eSolar. Provincial governments played a big role to promote solar energy as well, many provinces came up with policies to match the funds from central government. It is believed that the final amount will be much bigger than the announced $454B. It is clear that some names are winners and gaining market shares significantly. Both Trina Solar (TSL) and Solarfun Power (SOLF) have won projects from local and central government as the technology in these two companies has clear advantage over peers. It is noteworthy that, in these days, the execution of Chinese policy is amazingly fast, unlike the U.S. When it comes to developing the economy, there are no politics in China. It is believed that at least 5GW of solar PVs will be installed in China in 2010, and the number will grow faster in the next 5 years.
Source : Seeking alpha, 8/2/10