Gloomy Outlook for Solar Panel Sales as Germany Cuts Support

FSLR: First Solar logo
First Solar

Solar panel installations may fall this year for the first time in more than ten years, as subsidy cuts continue to weigh on demand. [1] According to a Bloomberg survey, a total of 24.8 gigawatts of panels may be installed in 2012, which is 10% lower than the 27.7 gigawatts that came online in 2011. Demand is set to fall because of subsidy pull backs in Germany, the world’s largest market for solar power. Panel sales may drop in other European markets such as Italy as well. Falling demand is pushing players such as First Solar (NASDAQ:FSLR) to cut production targets for 2012 and plan for production down times. Chinese solar firms like Trina Solar (NYSE:TSL) and Yingli (NYSE:YGE) are forecasting rising sales, expecting local demand to offset exports to European markets.

We are looking to revise our price estimate for First Solar to reflect this near-term outlook. The stock is currently trading below $28, down from around $160 in April 2011.

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German exposure

Panel sales have risen steadily over the past ten years, driven by demand from utility and industrial scale plants in Germany and other European markets, where governments have offered subsidies to boost renewable energy production. The difficult economic conditions in Europe forced governments to cut support in 2011, pushing down panel prices. Despite the cuts, a drop in panel prices resulted in Germany adding a record 7.5 GW of capacity last year, more than double the government target. Reacting sharply, the German government is implementing plans to cut subsidies by 30% followed by another round of cuts in May, despite opposition. Declining sales in Germany could have a major impact on First Solar’s stock price.

A 50% drop in panel sales in Germany will exacerbate the oversupply situation, cutting panel prices even further. Panel prices have dropped sharply in 2011 because of excess production capacity, high inventory levels and declining demand from Italy and other European markets. Further declines in panel prices will result in a reduction in our price estimate for the company. Chinese solar players seem to be more insulated from the German situation as the Chinese government plans to boost local solar installations, easing the demand situation.

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  1. Solar Suppliers Head for First Demand Drop as Subsidy Cut, Bloomberg, March 2012 []