Germany Pushes Ahead With Solar Cuts

TSL: Trina Solar logo
Trina Solar

The proposed subsidy cuts on solar power generation in Germany have moved a step closer to being implemented after Chancellor Merkel’s cabinet approved the plan to cut subsidies by up to 30% on March 9th. [1] The proposal backed by the German Economic Minister and the Environment Minister got the approval despite protests from various political leaders from the opposition as well as from members of the ruling coalition. The German government is looking to reduce the annual installations that come online to less than half of the 7,500 MW installed in 2011. It plans to do so by implementing a large one-time cut and making policy revisions more frequently to counter falling panel prices. Germany is the leading market for solar panel companies like Trina Solar (NYSE:TSL) and Yingli (NYSE:YGE).

We have a $10 price estimate for Trina Solar, which is at a 25% premium to its current market price.

Relevant Articles
  1. Do PERC Panels Pose A Threat To First Solar And SunPower?
  2. Key Takeaways From Trina Solar’s Q3 Results
  3. How Will The Slowdown In Chinese Installations Impact Trina Solar’s Q3 Results?
  4. Trina Solar Posts Solid Q2 Growth, But Downstream Projects Remain A Key Factor To Watch
  5. Why The Solar Industry Could Face Headwinds In The Near Term
  6. Going Private Is A Good Deal For Trina Solar Shareholders

Click here for our full analysis of Trina Solar.

Feed in Tariffs

The German government plans to cut incentive support to solar plants from Euro 0.2542 to 0.195 per KWh for plants smaller than 10KW. The incentives per KWh will be Euro 0.165 for plans up to 1 MW and Euro 0.135 for plants up to 10MW. In comparison, the average retail price of electricity in the country stood at around Euro 0.28 /KWh towards the end of 2011. [2] Subsidies for the sector have fallen drastically since last year, but falling module prices ensured that installations in the country continued to grow at a rapid pace. In order to limit its spending on subsidies, the German government is looking to limit new solar installations added to around 2,500 to 3,500 MW a year and is trying to make sure that falling panel prices do not result in excessive capacity additions. The proposal to cut support has met opposition from the local industry as well as from political figures. Now that the plan has received approval from the cabinet, it will be sent to the parliament’s lower house.

A 50% reduction in our German sales estimates for Trina Solar over the next five to six years could result in a 10% downside to the Trefis price estimate for the company’s stock. However, the proposed cuts will have deeper ramifications by exacerbating the oversupply situation in the market. The industry is hoping that the pricing environment will improve in 2012 driven by demand from emerging markets such as China. A pull back from the world’s largest market for solar panels could dampen these hopes.

Understand how a company’s products impact its stock price on Trefis.

  1. Merkel cabinet endorses steep solar power cuts, Reuters []
  2. Fuel Prices, []