Wednesday, April 18, 2012

(BN) Solar Shakeout Spreads With Most Job Cuts Since Solyndra: Energy

Bloomberg News, sent from my iPhone.

First Solar Latest Casualty in Renewable Energy Shakeout

April 18 (Bloomberg) -- First Solar Inc.'s decision to fire 30 percent of its staff and reduce production shows that even the biggest solar panel makers aren't immune from the shakeout that's bankrupted at least eight companies on two continents in the past year.

The largest thin-film solar producer said yesterday it will cut 2,000 jobs by the end of the year at a cost of as much as $370 million. It marks the biggest staff reduction for the industry since bankrupt Solyndra LLC, backed by U.S. government loans, dismissed its 1,100 employees on Aug. 31.

Solar manufacturers, which expanded rapidly to meet double- digit demand growth in the past decade, are struggling with subsidy cuts in Europe and plunging natural-gas prices that make renewable energy less competitive. The largest producers in China say their profits will slump this year as shipments grow.

"Oversupply has become a problem for the entire industry," said Ben Schuman, an analyst at Pacific Crest Securities LLC in Portland, Oregon. "China's manufacturers have not demonstrated rational behavior."

Solar panel prices have fallen 46 percent in the past year as manufacturers led by First Solar and Suntech Power Holdings Co., the world's largest solar company, boosted output. Germany and Italy, the two biggest markets, are cutting rates paid for solar power to curb an uncontrolled installation boom.

Shares Falling

The Bloomberg Large Solar index tracking 17 shares has fallen 74 percent in the past year and was little changed at 38.01 today. First Solar was up 1.8 percent to $23.35 as of 9:43 a.m. Gas futures fell to $1.951 per million British thermal units on the New York Mercantile Exchange yesterday, the lowest settlement price since Jan. 28, 2002.

Germany's Q-Cells SE, once the world's biggest solar-cell maker, filed for insolvency on April 3, becoming the fourth casualty in the country since December. Solon SE, Solar Millennium AG and Solarhybrid AG have all filed for insolvency as Germany cut incentives and China's suppliers reduced prices.

They join Solyndra and three other U.S. solar companies that have failed since August -- SpectraWatt Inc., Evergreen Solar Inc. and Energy Conversion Devices Inc.

Solar factories have expanded faster than demand and will be able to make as much as 38 gigawatts of panels this year, about 54 percent more than estimated demand, according to Bloomberg New Energy Finance.

Solar Glut

That excess supply will arrive on the market as Europe's largest economies, including Britain, Spain and France, follow Germany and Italy in scaling back incentives to curtail installation of power systems that are paid above-market rates.

"Demand is falling as governments, particularly in Europe, lose appetite for subsidizing the industry," said Theodore O'Neill, an analyst at Wunderlich Securities Inc. in New York.

The shifting support in Europe is particularly painful to First Solar because it favors rooftop power systems, which are more likely to use Chinese polysilicon panels. First Solar focuses instead on ground-mounted utility-scale plants that use its thin-film products, he said.

The U.S. Commerce Department, responding to complaints from U.S. solar manufacturers that Chinese competitors receive unfair government support, imposed tariffs last month of as much as 4.73 percent on panels made in China.

First Solar's Edge

First Solar's thin-film technology, which helped it become the lowest-cost panel manufacturer, generates less electricity than traditional polysilicon panels and doesn't perform as well for rooftop installations that are widely used in Europe.

"They don't have a good product for the rooftop market, and Europe doesn't have the big open spaces where their panels make sense," said Wunderlich's O'Neill.

First Solar said it will close its factory in Frankfurt an der Oder, Germany, in the fourth quarter. The company completed a 170 million-euro ($223 million) expansion there in November that doubled production capacity to about 560 megawatts of panels a year. It will idle four production lines in Kulim, Malaysia, this month, with about 144 megawatts of capacity.

The closures come about six months after First Solar ousted Chief Executive Officer Rob Gillette. Chairman and co-founder Mike Ahearn took over as interim CEO and announced plans to scale back or delay expansion plans in Vietnam and Arizona.

'Deteriorated'

"After a thorough analysis, it is clear the European market has deteriorated to the extent that our operations there are no longer economically sustainable," Ahearn said in yesterday's statement.

For China's manufacturers, higher domestic demand may help offset declining sales in Europe.

"China will be a very, very important market in 2012," Chen Kangping, chief executive officer JinkoSolar Holding Co., said in interview last week. "Some will gain share as others shut down."

Jinko, based in Jiangxi, China, expects global shipments to rise 50 percent this year from 950.5 megawatts in 2011.

"This is the problem about solar industry economics: there is just too much capacity out there," Aaron Chew, an analyst at Maxim Group LLC in New York, said in an interview. "In China, they're not any more competitive, they're just bankrolled."

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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Eugene.

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