x Abu Dhabi, UAEWednesday 17 January 2018

Shadows obscure solar industry

A rally in share prices of companies making solar equipment at the start of the year prompted some to say the industry was finallly pulling itself out fo the doldrums.

A SunPower employee checks panels in Milpitas, California. Warren Buffett bought two California SunPower projects for $2.5bn. David Paul Morris / Bloomberg News
A SunPower employee checks panels in Milpitas, California. Warren Buffett bought two California SunPower projects for $2.5bn. David Paul Morris / Bloomberg News

Solar stocks kicked off the year with a sharp rally, prompted in part by the news last month that a company controlled by Warren Buffett's Berkshire Hathaway had bought two SunPower solar projects in California for US$2.5 billion (Dh9.18bn).

But there are still clouds on the horizon that are prompting concern that there is not much warmth due for the industry just yet.

"The Buffett-SunPower deal is good news … but individual investors should not interpret it as a buying signal for solar stocks," says Yves Vaneerdewegh, who manages the $14.37 million Quest Cleantech Fund based in Luxembourg. He adds the sector's recovery may take much longer and that stocks could tumble dramatically once again.

The rally, which started in November as China signalled willingness to prop up its ailing solar sector, was bolstered last month by the resolution of the US "fiscal cliff" as well as a slight upturn in the price of polysilicon, the key raw material in photovoltaic solar panels.

Christopher Blansett, a JPMorgan analyst, said in a research note viewing SunPower's deal with Mr Buffett's MidAmerican as a positive development for the whole industry "doesn't make any sense … no other solar PV company will benefit from this sale". He advised clients now was "a good time to take short positions" in solar stocks.

Diminishing government support in the world's top solar market, Europe, and a huge oversupply of panels that sent selling prices into a tailspin, have slammed the solar manufacturing industry in the past two years. That crisis has forced many players to file for insolvency, notably the former sector leaders Q-Cells and Solon in Germany.

By the end of last year, there were fewer than 150 global solar module and cell companies, down from more than 750 in 2010, the research firm IHS says, adding this year would see further consolidation.

"We need to see more consolidation in the sector to get more optimistic. There is far too much capacity in the market," says Alastair Bishop, a fund manager at BlackRock, the world's largest money manager.

That consolidation could be delayed, analysts say, by efforts of Chinese provincial governments to support their cash-strapped solar manufacturers in order to preserve jobs. Such moves would help individual companies and stocks but keep pressure on the broader solar panel market.

Oversupply has sent solar module prices down 66 per cent in the past two years, according to GTM Research, and manufacturers have struggled to cut costs to keep up with those declines. GTM estimates global solar product supply will exceed demand by about 35 gigawatts (GW) annually over the next three years.

Investors in solar stocks, the darlings of Wall Street five years ago, have been burned. The MAC Global Solar Energy index slid 80 per cent from the beginning of 2011 until the end of last year, with many stocks now trading below book value.

"They have become an easy playing ball for traders and hedge funds," says Thiemo Lang, who manages $900m in cleantech assets at Sustainable Asset Management in Zurich. "I don't see the profitability of the companies improving much."

But after months upon months of weakness, some in the market say the solar sector could at least start to recover toward the end of this year.

"The turn is coming," says Shawn Kravetz, the president of Esplanade Capital in Boston, which invests in solar stocks.

He points to December's announcement by Hanwha SolarOne that Bank of Beijing would provide it with a credit line of about $475m. He also cited firming polysilicon prices and last month's projection by the US installer SolarCity that its deployments would rise 60 per cent this year.

"We love businesses that benefit from pain," he says.

Meanwhile, China's pledge to reduce pollution after air-quality in Beijing hit hazardous levels on 20 days last month spurred China to announce plans to raise its solar-power installation target for 2015 by 67 per cent, as smog covering the city of 20 million people forced factory closures and people to stay indoors.

"All renewable equities and bonds are increasing in price on anticipation of further support plans for the environment," says Charles Yonts, an analyst at CLSA in Hong Kong. He adds there are "increasingly clear indications from Beijing that they will keep these companies alive".

China, which surpassed Japan in 2010 to become the world's second-biggest economy, has also grown to be its biggest emitter of greenhouse gases.

The nation added 15.1 million new cars last year, a number that exceeds the total number of vehicles on its roads in 1999. It has 16 of the 20 most-polluted cities globally, according to the World Bank.

Exposure to PM2.5 pollution, fine air particulates that pose the greatest risk, contributed to 8,572 premature deaths in Beijing, Shanghai, Guangzhou and Xi'an last year, according to estimates by Greenpeace and Peking University's School of Public Health.

Beijing's daily average for last month, based on the US embassy readings, was 196 micrograms per cubic metre, compared with an average of 167 measured last year in 16 US airport smoking lounges by the centres for disease control and prevention in Atlanta.

Hu Jintao, set to step down as president next month, called for ensuring "ecological progress" and creating a "beautiful China" when addressing the November congress where Xi Jinping succeeded him as the head of the party. Li Keqiang, in line to replace Wen Jiabao as premier next month, said on January 15 that environmental laws must be enforced.

Shi Dinghuan, an adviser to the cabinet and president of the Chinese Renewable Energy Society, said the government planned to increase its target for solar-power installations by 2015 to 35GW from the 21GW set last year.

"We've got more pressure to save energy and reduce emissions as smog worsens due to pollution," he says.

Solar panel manufacturers including Suntech Power Holdings and Yingli Green Energy Holding have faced weaker demand and a supply glut that has driven panel prices down by 25 per cent in the past year. GCL-Poly produces the polysilicon and solar wafers that are used to produce the panels.

The European Union is investigating anti-subsidy and anti-dumping complaints against Chinese companies by a group of European solar panel makers. China, in its turn, is investigating European polysilicon makers for the same practices, showing its backing of the industry.

"The solar industry is government-directed and Chinese policies are signalling obvious support, stimulating speculation that solar companies will benefit," said Wang Xiaoting, a solar analyst in Beijing from Bloomberg New Energy Finance.

"Global demand for solar panels will have quite stable growth this year especially because of China."


* with Reuters and Bloomberg News