China Solar Companies Gain on Europe Pain in Shift East
The world's largest solar-panel makers are boosting production this year on expectations that demand in China will double, a surprise shift as the $36 billion market migrates from Europe to Asia.
The five biggest producers of polysilicon solar modules, led by China's Suntech Power Holdings Co. (STP) and Yingli Green Energy Holdings Co., will increase shipments 27 percent to 37 percent from 2011 levels, according to the average of estimates compiled by Bloomberg. Chinese demand will partially offset declines in Europe that are driving the industry toward its first global sales decline since at least 1999.
China's efforts to stimulate its photovoltaic industry at home and a 48 percent drop in panel prices in 2011 are boosting sales. The nation, which trails only Germany and Italy for new installations, will dominate growth this year and become the top solar market in 2013, after European nations cut subsidies for new projects, according to Bloomberg New Energy Finance.
"Europe is going down and Asia is going up," said Matt Feinstein, an analyst at Lux Research Inc. in New York.
While the global demand shift eastward helps soak up excess factory output that is depressing worldwide prices, it may leave Western manufacturers with little hope to improve their profit outlooks and share prices this year.
The Chinese boom "will drive big shipment numbers from Chinese manufacturers, which are the only ones selling there," said Sean McLoughlin, vice president for clean technology analysis at HSBC Bank Plc in London.
Share, Margin Losses
Germany's Q-Cells SE (QCE) has dropped 75 percent this year, leading the Bloomberg Large Solar index's 30 percent decline, followed by Tempe, Arizona-based First Solar Inc. (FSLR), which has slumped 62 percent.
The 17 members on the benchmark on average lost money at the operating level last year equal to 7.6 percent of revenue, according to data compiled by Bloomberg.
"The Chinese companies are in a better position, due to their cost competitiveness, so they might gain market share," said Martin Simonek, a solar analyst at New Energy Finance. "Weaker players will leave and stronger ones will stay."
Suntech CEO Shi Zhengrong expects solar sales in China to exceed 4 gigawatts this year, and Trina Solar Ltd. (TSL) CEO Gao Jifan expects 5 gigawatts of installations. China's market totaled 2.57 gigawatts in 2011, almost 9 percent of what was sold worldwide, according to New Energy Finance.
China may install as much as 5.5 gigawatts this year and the same amount in 2013 while Germany may slide to 2.5 gigawatts next year, the London research group estimates. A gigawatt of capacity is enough to power about 800,000 U.S. homes.
The Chinese market may be even larger if the government creates new incentives to spur domestic demand and offset declining sales in Europe, according to Hari Chandra Polavarapu, an analyst at Auriga USA LLC in New York.
"Five gigawatts won't cut it," he said in an interview. "China could install 5 gigawatts to 8.5 gigawatts."
The five top companies by shipments of silicon panels last year were Suntech, Yingli, Trina, Canadian Solar Inc. (CSIQ), and Hanwha SolarOne Co. (HSOL) They expect combined sales of solar modules this year to range from 9.3 gigawatts to 10.1 gigawatts compared with 7.4 gigawatts in 2011, according projections made in company statements and compiled by Bloomberg. The ranking excludes First Solar, which makes thin-film cells and expects a decline in shipments this year.
As panel prices fall, PV developments are becoming more economical. That's increasing the chance that installation rates this year will be surprisingly strong, said Stefan Heck, a director at McKinsey & Co.'s clean tech practice.
"Good news will come on the deployment and demand side," Heck said in a phone interview from his office in Stamford, Connecticut. "Many places will exceed targets. We'll see more installs than expected."
Zombies Versus 'Dead Bodies'
He said he's still pessimistic about the profit outlook for panel makers, since lower prices have slimmed margins for the biggest manufacturers. At least 10 companies worldwide including U.S. Treasury-backed Solyndra LLC have gone bankrupt in the past year, and Heck expects more insolvencies to follow.
"Some of the zombies will turn into dead bodies," said Heck. "The winners half a decade from now are the players with big balance sheets or who have a big brother."
China isn't the only market headed for a boom. Japan, the sixth-largest market in 2011, starts a new solar incentive program in July and may install more than 4.6 gigawatts of solar panels next year, second after China, according to New Energy Finance. Saudi Arabia is seeking investors for a $109 billion plan to create its own solar industry.
These programs may not be reflected in forecasts for global demand, said Daniel Guttmann, head of renewable strategy at PricewaterhouseCoopers LLP, a consulting company. "In almost every year you look, forecasters' cost-reduction assumptions and demand forecasts are too conservative."
"China could be a 5- to 6-gigawatt market this year, maybe even larger," said Terry Wang, Trina's chief financial officer. "We could scale quickly," he said, adding that analysts, "might be underestimating our abilities."
Not all solar companies are projecting a surge in 2012. JinkoSolar, which ranked eighth in silicon-panel shipments last year, expects sales between 800 megawatts and 1 gigawatt, which is about the same as 2011's level of 950.5 megawatts. Its CEO Chen Kangping still said he expects China to be a "very, very important market in 2012."
Suntech, the world's largest panel maker, has the most conservative growth forecast of the top five. It expects shipments of 2.1 gigawatts to 2.5 gigawatts, compared with 2.1 gigawatts last year.
Suntech Chief Commercial Director Andrew Beebe said he thinks analyst forecasts for demand are "almost always" too conservative.
Protection From Creditors
Other PV manufacturers are failing. Germany's Q-Cells, once the world's biggest solar-cell maker, filed for protection from creditors on April 3, the fourth casualty in the country since December. Solon SE (SOO1), Solar Millennium AG (S2M) and Solarhybrid AG (SHL) have all filed for insolvency as Germany cut incentives and China's suppliers reduced prices.
Yingli Chairman Miao Liansheng said on May 30 that while first quarter shipments to China were "soft," they will "gradually pick up" in the second and third quarter and account for 30 percent of revenue this year. Germany and the U.S. currently make about 80 percent of Yingli revenue.
"Solar always surprises, usually on the upside," said Aaron Chew, an analyst at Maxim Group LLC in New York. "It's the usual ballad of optimism versus pessimism in the market."