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German Subsidy Fears Trigger Solar Downgrades

by: Tiernan Ray May 29, 2008 | about stocks: AKNS / AMAT / CY / ESLR / FSLR / SPWRA / STP    
Tiernan Ray

Tiernan Ray

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Shares of solar power technology firms are tanking following a note from Merrill Lynch analyst Mark Heller cutting his rating on SunPower (SPWR) and Evergreen Solar (ESLR) from “Neutral” to “Sell” because Germany’s government may cut subsidies for solar by as much as 25%. Subsidies are currently necessary to goose investment in solar power in many countries.

According to the Bloomberg account of things, Heller thinks analysts’ expectation of a 16% cut is too low. “An increasing number of politicians are advocating a bigger cut to the German solar subsidy due to the escalating cost,” Bloomberg quotes a Merrill analyst, Matthew Yates, as writing in the report. The note follows another note that came out yesterday from Calyon Securities analyst George Kotzias that claimed the escalating burden on taxpayers was prompting the German government to consider cutting the subsidy by 15%, according to the Associated Press. The US’s own investment tax credit is a looming issue for solar later this year and next.

Update: In the Merrill Report, which just appeared over the transom, I note that First Solar (FSLR) is kept at a “Buy” rating, while lowering the bank’s price target on the shares to $325 from $360. First Solar is somewhat insulated from subsidy cuts, think Heller & Co., because its superior cost structure “is at least 2 years ahead of the competition,” including Applied Materials (AMAT) and German manufacturer Q-Cells [QCE.DE]. Heller & Co. now think FSLR should trade at a multiple of 50x 2009’s projected earnings, down from a multiple of 55x the analysts assigned back on May 12.

Nevertheless, the entire solar universe is feeling the, uh, heat, today. As of 1:30 p.m.:

First Solar is down over 6% at $256.51;
SunPower is down 6.7% at $77.42;
Evergreen Solar is down 7.5% at $10.42;
Suntech Power Holdings (STP) is down 6.27% at $41.59;
Cypress Semiconductor (CY), which has a large stake in SunPower, is trading down 4.5% at $26.76;
Applied Materials is actually up .7% at $19.67 (I guess it’s not really a solar stock yet);
Q-Cells is down almost 6% at 71.19;
Akeena Solar (AKNS) is down 5.7% at $6.57.

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This article has 24 comments:

  •  
    May 29 03:01 PM
    STP issued $500,000,000 in convertible notes. That's a good reason for it to go down. As for this Germany solar policy speculation. It is just that so far. Germany has many things to consider. If Germany does not encourage the adoption of solar, they will have to pay for oil or uranium or natural gas in the future. Any of those alternatives will likely cost their tax payers more than the solar subsidy. Those alternatives are all likely to increase in price over time. Germany would likely be better off in the long run not to decrease the solar subisdy. Of course, you haven't even mentioned the Kyoto issues at this point, which are still yet another good reason for Germany to keep their solar subsidy.
    Reply
  •  
    May 29 03:13 PM
    When you look at the amount of the U.S. trade deficit due to oil importation (and this seems to be growing quickly to the glee of the arab nations), you quickly see what a slippery slope not encouraging alternate energy is for a net importer of oil and gas. Germany likley will decide it needs to keep its subsidy policy in place (or perhaps even better it). The U.S. certainly needs to encourage solar much more than it has. We all know why the dollar goes down in relation to the Euro when the price of oil goes up. I find it hard to believe the Germans are foolish enough to back away from a policy that is clearly working in their favor.
    Reply
  •  
    May 29 03:58 PM
    US FARM Bill is coming, which will support solar industry.
    Reply
  •  
    May 29 05:02 PM
    Oil is down more than $4 per barrel today. This likely accounts for the big losses in most energy stocks. It seems likely there will be a slight bounce tomorrow in both oil and in energy stocks. FSLR is butting up against the bottom of its bottom Bollinger band. this makes the likelihood of a rally off of this point an even stronger possibility. Recent rallies of FSLR off of bollinger band bottoms have been 50 points or more within the space of about a month. Will this happen again?????
    Reply
  •  
    May 29 06:22 PM
    all i see is the solar stocks going down why does anyone act like they know anything positive about this sector?
    Reply
  •  
    May 29 06:23 PM
    david white are u the only one holding solar stock?
    Reply
  •  
    May 29 06:26 PM
    i guess david your the only one out there and out money. sorry
    Reply
  •  
    May 29 06:26 PM
    solar is the wave of the future but first they need to break anyone who believes that
    Reply
  •  
    May 29 06:27 PM
    if you invested a million to short solar stocks you would have double your money in the last month alone
    Reply
  •  
    May 29 06:29 PM
    merrill didn't know about germany when it downgraded the stocks
    Reply
  •  
    May 29 06:59 PM
    From my view, solar still will just increase. Due to they our sales doubled each year, and most of the solar companies already booked(sold out their products) for this year and next year.
    Reply
  •  
    May 29 07:00 PM
    I just bought shares on TSL, and Canadian solar.
    Reply
  •  
    May 29 07:40 PM
    buystocks why are you fighting the naqtec


    Reply
  •  
    May 29 07:40 PM
    buystocks i wish you well but you are the only one long on this site
    Reply
  •  
    May 29 08:21 PM
    MER LYNCH, GOLDMAN...etc... they still don't get it and quite frankly I hope they continue to not get it.

    These are the same co.s that bought into FICO scores and AAA rated tranches, etc. and created the whole subprimse mess.

    They're running a racket and solar is like a foreign language to them as well as any kind of alternative to mainstream. They don't like reliance on subsidies, they don't understand the big picture on energy.

    Solar is the future and both governments and free markets realize that. Will their be pullbacks on the way up? Of course. Some of those pullbacks will be induced by analysts who want to control these stocks like a yo-yo. That's their game.

    No worries. There's more than a few people long on solar...there will be many sunny days ahead.
    Reply
  •  
    May 29 08:52 PM
    i plan to make alot of money in solar and alternative energy stocks over the next few years. things are rocky now but as earnings are released the picture gets brighter. i have a hard time buying fslr. stp seems like a good fit they have thin film coming at parity to the grid. but merrill can not forecast anything that hasnt already happened. fslr is owned by the walton family. i wonder if this is why it is always recommended. the brokerages want those fees.
    Reply
  •  
    May 29 10:07 PM
    solar was a mess today. with tomorrow being friday, it doesnt give me alot of hope. but everytime there is a pullback like this and i load up it works out.

    -scott
    solarfeeds
    Reply
  •  
    May 30 12:35 AM
    analysts are self-serving. follow their advice and you will lose money.
    Reply
  •  
    May 30 08:49 AM
    i hope you r all right i have a lot long in solar stocks and have been shaken up the last 2 weeks
    Reply
  •  
    May 30 09:00 AM
    Kill gasohol - corn oil - pump solar.

    Alcohol is for drinking not mixing with gasoline.

    IMO
    Reply
  •  
    May 30 09:14 AM
    Looks like analyst expectations of a 16% cut turned out to be too high, instead of too low:

    www.bloomberg.com/apps...

    Solars appear to be rebounding in pre-market trading.
    Reply
  •  
    May 30 09:29 AM
    GERMAN SUBSIDY CUTS DON'T MATTER TO THIN FILM PV

    Worst case scenario: Germany cuts subsidy by the maximum discussed [30%]. Thin film avg sales price [ASP] is dropping to $2.00-2.20 ASP in 2009; $1.80-2.00/watt in 2010 due to new product from AMAT plants and CIGS companies, [Nanosolar, ASTI, Miasole, Global Solar].

    ***Bottom line: the subsidy was too high for product that at these prices is at grid parity with coal power.***

    WHAT THE MARKET MISSED YESTERDAY -- THIN FILM PV IS AT GRID PARITY

    Grid parity with coal power = installed cost below $3.50-3.75 -- this is possible with ASP below $2.20/watt. Every thin film mfgr will be selling below 2.20 in '09-'10.

    Now is the time to LOAD UP on thin film, particularly CIGS companies. ASTI is the ONLY CIGS public play. Thin film profit margins will be 50-70% and sales will be max-plant-capacity for more than 7yrs.

    Take advantage of the baby being thrown out with the bathwater; most on the street don't understand the difference between thin-film PV and c-SI -- take advantage of this opportunity while its available.
    Reply
  •  
    May 30 09:30 AM
    Growth in demand for solar energy is inexorable well into the future. It is arguably the best long-term growth story around and offers stocks that have extremely attractive PEG ratios. Yesterday's madness was a great buying opportunity, dropping stocks such as TSL, YGE and SOL into technical support areas.
    Reply
  •  
    May 30 03:57 PM
    The German subsidy cut is actually a good sign for solar in general. The renewable energy sector has created so many new jobs in Germany and it is certainly not the gov. intention to destroy the solar sector, rather to use money to help build the wind sector more quickly (Siemens AG, Nordex AG, + suppliers).
    Gov. believes German solar sector can stand on its own feet in the future, with Q-cells diversifying into thin film and Upgraded Metallurgical Silicon (solar grade, with 15 % cell efficiency, from Timminco for Malaysian wafering site to compete with Chinese (CSIQ).
    --------------
    Reply
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