Solar stocks such as Yingli Green Energy (NYSE:YGE) suffered a major fall yesterday as the German government revealed plans to accelerate subsidy cuts enjoyed by solar installations. The German Environment Minister Norbert Roettgen revealed that the mechanism to set feed in tariff prices for installations would now be altered to reduce subsidies every month.  Presently, subsidies are reviewed twice every year. The change in policy is to avoid year end surges in installations as seen in December last year when 3 GW of capacity was added to bring the total installations for the year to 7.5 GW. Other solar companies like Trina Solar (NYSE:TSL) and Suntech Power (NYSE:STP) will also be impacted by these developments.
We will look to revise our $5 price estimate for Yingli Green Energy in light of the recent developments as the German government finalizes its plans to lower support for the solar industry.
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The German government is targeting capacity additions of around 3 GW per year to keep subsidy costs under check.  The Economy Minister Philipp Roettgen had earlier indicated that rising costs associated with solar subsidies were threatening the economy with installations over the past few years exceeding the targets set by the government.
While subsidies have been cut in the past, the prices of solar panels have fallen faster making it economically feasible for developers to continue adding installations. More frequent subsidy cuts will help the government check year end rushes while ensuring that additions are in-line with its policy targets. The Economy Minister has indicated that subsidies for the solar industry would be phased out by 2017.
Last year’s rush was in part driven by fears that the German government would introduce a cap on the installations, which could be avoided by frequent revisions to the subsidy prices. Worldwide, solar panel installations increased by 50% in 2011 to touch 28 GW, led by falling panel prices.((ref:1))
Impact on Yingli
Germany is the largest market for solar panels in the world. Sales from Germany constitute a major bulk of the Yingli’s revenues. A 50% reduction in the market size of German sales in terms of modules could significantly impact its stock price. In addition, lower demand would push down module prices further, eroding margins. See our recent note German December Solar Installations Surge in Race to Beat Subsidy Cuts and SolarWorld Pursues Anti-Dumping Case Against Chinese Panel Makers in Europe.Notes:
- Solar Stocks Plunge as Germany Vows to Quicken Subsidy Cuts, Bloomberg [↩] [↩]