Eastern Europe Looks Promising For Suntech Power

STP: Suntech Power Suntech Power  each representing One Ordinary Share) logo
Suntech Power Suntech Power each representing One Ordinary Share)

Suntech Power (NYSE:STP) has signed an agreement with EDP Renovaveis to supply 39 MW of polycrystalline panels to four new solar power projects that are under construction in Romania. Suntech noted that the projects are expected to be connected between late 2012 and early 2013. [1] The company did not disclose the value of the contract.

The contract will have a positive impact on the company’s energy capacity of PV modules sold for the year. Moreover, given the relatively short lead time of the project, we think that it could help to liquidate some of the company’s inventory freeing up much needed cash.

We believe that the contract is a significant win for Suntech Power allowing it a head start in the rapidly emerging Eastern European solar market.

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Eastern Europe – A Bright Spot In the European Solar Market

Even though many Eastern European nations are rich in coal and natural gas, growing environmental concerns are forcing them to look towards renewable energy like solar power. Additionally, several countries in the region including Bulgaria and Romania offer excellent solar resources, making solar power a viable source of energy. Growth has been rapid in the region – for instance, Bulgaria increased its solar capacity from 35 MW in 2010 to 135 MW in 2011. Ukraine upped its solar capacity to over 200 MW in 2011 from a paltry 2.5 MW in 2010, and capacity is expected to double again this year.

Governments in Eastern European nations have also been playing their part to increase solar installations by providing attractive subsidies. Ukraine for instance, offers feed-in-tariffs for utility-scale projects amounting to 46 euro cents ($0.60) per kilowatt-hour, the highest offered by any European nation. These rates haven’t changed since their introduction in 2009, and are expected to be fixed until 2030. [2]

We expect to see the growth in Eastern Europe continue into the next few years as solar panel prices decline, and the costs of solar generated power approaches grid parity. Continued growth from Eastern Europe will help reduce Suntech’s dependence on Western European nations like Spain and Germany that have experienced sharp reductions in solar subsidies.

However Suntech faces one crucial challenge to its growth in Eastern Europe. Some nations including Bulgaria and Romania are member states of the European Union, which recently began a probe into the dumping of PV panels by Chinese manufacturers. Any imposition of tariffs, could impact the company’s cost competitiveness in these markets. To mitigate these risks, the company could  partner with European firms or consider shifting  manufacturing capabilities overseas.

We have a price estimate of $1.17 for Suntech Power, which is about 25% ahead of the current market price.

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  1. Suntech Power Press Release []
  2. Europe’s Biggest Solar Power Incentive Bolsters Ukraine, Bloomberg []