Rumors Fly of Severe German Solar Cuts in the Offing

Deutsche Bank has indicated that Germany’s next cut on solar subsidies could be harsher than expected. According to the leading German bank,a a cabinet meeting is expected to discuss major cuts and drawbacks in the government’s subsidy policy. ^[1] Sources say that a 15% cut in subsidies is expected in April to be followed by a monthly 2% cut. This could be accompanied with a 800-900 KWh/KWp subsidy cap on new installations. KWh/KWp values are used for measuring the energy generated to the nameplate Standard Test Conditions rating. Such a sharp cutback could hamper the recent rally in solar stocks such as Yingli Solar (NYSE:YGE) and Trina Solar (NYSE:TSL) by pulling down demand.

We have a $5.1 price estimate for Yingli Solar, which is at a 10% premium to its current market price.

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German market

Germany is the world’s leading market for solar installations accounting for a major share of the global market for solar panels. The country installed 7 GW of capacity in 2011, largely because of a last minute rush from solar power utilities looking to beat expected subsidy cuts in January.

In December alone, around 4 GW of solar capacity came on line as systems installers sought to seek advantage of the sharp drops in panel prices that pulled down the cost of setting up solar installations faster than the government cuts in subsidies. The rush in installations was not taken well by members of the German cabinet as the country aims to cut budget deficits. Suggestions were put forth to make the subsidy cuts more periodic so that the government can control the capacity coming up more effectively. The latest proposal according to Deutsche Bank could hit the number of new installations coming up in the country.

Yingli Solar, among other Chinese solar companies, has a large part of its panel sales concentrated in Germany. Another sharp pull back in subsidies in the European markets could further hamper the outlook for these companies, which is already quite gloomy because of the drastic fall in panel prices last year. Industry executives are placing hopes on rising demand from China and the U.S. to offset the decline in European demand.

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1. Germany solar policy likely worse than expected says Deutsche Bank, Theflyonthewall.com [↩]