The German government finally managed to get approval for its latest round of cuts in Feed in Tariffs (FiT) for solar power after toning down some of the aspects of the bill. The bill received approval last week after a plan to limit incentives for larger installations was deferred to 2014.  However, the main measures designed to lower solar installations have been approved and are expected to result in a sharp decline in the sales of solar equipment in the country. Lower sales in Germany and other European markets as well as certain changes to the structure of our model and our classification of the company’s cash items has resulted in a revision in our price estimate for Trina Solar (NYSE:TSL).
We now have a $6.20 price estimate for Trina Solar, which is at a 10% discount to its current market price.
The German government’s plans to introduce steep cuts in solar subsidies and other measures to lower new installations ran into opposition from members of the government as well as some states forcing renegotiations on some of the measures. Despite the opposition, the government has been able to force through the major changes and the 20-30% cuts on FiTs will remain in place.  The subsidies will also be revised every month to better control the capacity that comes online. The German government introduced these measures as installations in the country exceeded 7 GW last year, more than twice the planned target for the year. The cuts have finally received approval after negotiations.
According to the new measures, Germany will also introduce a cap of 52 GW on solar installations eligible for FiT subsidies. The country currently has about 28 GW of capacity and it is expected that solar power will become competitive with conventional sources by the time the limit on installations is reached.  However, the measure to impose a 90% limit on plants larger than 10 KW was dropped in the negotiations. Panel sales in Germany are expected to see a sharp fall this year because of these measures. Trina Solar is expected to be among the manufacturers affected by the falling panel sales despite its low cost of production and its experience in the market.