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Dark Clouds Threaten Solar Makers' Future

Date: 17-Oct-11
Country: USA
Author: Matt Daily

Dark Clouds Threaten Solar Makers' Future Photo: Denis Balibouse
A worker installs solar panels on the roof of the Palexpo Exhibition Center in Geneva October 12, 2011.
Photo: Denis Balibouse

What a difference a year makes.

In late 2010, solar panel makers were sold out, Germany was gobbling up record numbers of the clean energy systems, and new markets were steadily growing.

Now, the erosion of subsidies in Germany and Italy, the world's two biggest markets, and rising production of the panels that turn sunlight into electricity has left the industry awash in a glut of equipment and driven panel prices down by some 35 percent this year.

That is good news for consumers and distributors who buy the solar modules, but has left manufacturers reeling as their profit margins shrink and their share prices plummet to multi-year lows.

Some companies have gone bankrupt, including Solyndra, whose demise after receiving $535 million in government loans triggered a scandal in Washington that has many politicians questioning whether the federal government should continue supporting the industry.

That black eye for the industry and the bleak market conditions for panel makers will be key topics at the Solar Power International convention, the solar business' biggest gathering in the United States, which is set to begin on Monday in Dallas.

More than 1,200 companies are expect to be on hand to exhibit their wares, each fighting for a share of the market in an industry that is growing increasingly competitive.

"You can walk around SPI and a bunch of the companies that are there this year won't be there next year," said Rob Stone, analyst with Cowen & Co.

Solar analysts have been quick to point out the young industry is now weeding out the weaker companies, and that prices for solar power are quickly approaching parity with electricity generated by fossil fuels, which is crucial for reducing its need for government subsidies.

That in turn is helping spur its growth in the United States, where installations could double this year to more the 1.5 gigawatts.

SHARE COLLAPSE

Still, the damage to profit margins and stock prices has been severe.

First Solar, the industry's lowest cost manufacturer, has seen its shares tumble 57 percent so far this year. They touched their lowest level in more than four years last week.

Shares in its U.S. competitor SunPower Corp, in which oil giant Total SA bought a majority stake earlier this year, have fallen more than 30 percent.

For the China-based manufacturers, the pain has also been acute.

Suntech Power Holdings and Trina Solar shares have dropped 70 percent this year, Yingli Green Energy more than 60 percent, and JA Solar Holdings nearly 73 percent.

But no country's solar producers have been as hard hit by free-falling prices as Germany's, by far the world's largest consumer of solar power.

Q-Cells, once the world's largest maker of solar cells, is now struggling to meet refinancing needs and took steps earlier this month that may delay its convertible bond that is due in February 2012.

Solon and Conergy have both been forced into restructurings, and last week developer Phoenix Solar issued a profit warning.

Some critics say the German industry relied on lavish subsidies for too long and were caught by surprise when the German government started to slash supports to force the industry to become more cost efficient.

But it was largely Italy's move to pare back its subsidies that dampened much of the demand during the early months of 2011, analysts said, and led to sharp increases in module inventories at many manufacturers.

In an effort to generate cash and reduce their inventories, panel makers began aggressively selling the excess supplies in May, June and July, driving panel prices sharply lower.

"They didn't have the credit to cover the working capital," said Theodore O'Neill, analyst with Wunderlich Securities in New York.

"If you didn't know it was an inventory flush you'd say the sky is falling."

The decline in panel prices has not yet spurred much new demand, according to Cowen's Stone, and real consumption growth may be several months away.

"It may well take till the second quarter next year," he said.

Still, the sell-off in solar stocks appeared to have fully reflected the weak environment, with most companies' shares trading below their tangible book value, Stone said.

(Additional reporting by Christoph Steitz in Frankfurt; Editing by Tim Dobbyn)

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