Solar Weekly: Rising US Installations And China’s Subsidy Boost

The solar sector had a mixed week with reports of declining polysilicon production in China, upbeat solar installations in the United States, and news that the Chinese government would be boosting solar power subsidies. Companies that were in the news included Yingli Green Energy (NYSE: YGE) which is likely to see a boost from the Chinese subsidies and Suntech Power (NYSE: STP) which garnered new panel supply contracts in emerging markets. Here’s a quick take on the news that mattered and its implications for solar companies we cover.

Rising US Rooftop Solar Installations

According to a report by the Solar Energy Industries Association (SEIA), a solar industry trade group, photovoltaic installations in the United States grew by 44% in Q3 compared to last year as falling panel prices and the availability of attractive solar leasing programs are lowering the cost of installing solar systems. ^[1] The rooftop market saw particularly strong growth, with residential installations touching a quarterly record high of 118 MW, growing 12% sequentially. Commercial installations came in at 257 MW, displaying a 24% sequential growth.

SunPower (NASDAQ: SPWR), one of the world’s largest monocrystalline solar panel manufacturers is likely to be the biggest beneficiary of growth in the rooftop market considering the firms portfolio of high efficiency solar panels, strong US distribution network. ^[2] The firm also introduced a solar equipment leasing scheme last year, and is now the market leader in residential solar leases.

Chinese Polysilicon Industry Ramps Down Production

According to reports in the Chinese media, around 90% of the country’s polysilicon producers have suspended production as they grapple with inefficient manufacturing processes that put them at a disadvantage compared to established European, US and Korean rivals. Polysilicon is a key raw material used to manufacture polycrystalline solar panels. Polysilicon imports into China have risen by about 26% this year as panel manufacturers prefer to use higher quality feedstock from abroad. Average selling prices on the other hand have declined by around 60% due to overcapacity in the industry. ((Report: Around 90% of Chinese polysilicon producers stop production, PV Tech))

LDK Solar is one of the firms being severely impacted by the downturn in the Chinese polysilicon industry, given that the firm invested heavily in increasing production capacity to around 17,000 metric tons (MT) last year. Given the massive capacity and declining demand the firms investment is looking like an increasingly bad bet, at least in the short term. In Q2 the firm produced just over 500 MT and production was negligible in Q3 as the firm is retooling its production lines to improve efficiency and cut costs.

Suntech Power Panel Supply Contracts

Suntech, one of China’s largest solar panel manufacturers has won a contract to supply 100 MW of panels to two utility scale solar projects in South Africa and 25 MW of panels to a project in Romania. We believe that the South African deal is important for Suntech given that the two projects are among the first to be given licences under the country’s Renewable Energy Independent Power Producer Program (REIPPP). The REIPPP targets a construction of 1.45 GW of solar plants by the end of 2014 and 8.2 GW by 2030.

Solar power looks quite promising in long term in South Africa, given that the country has among the best solar resources in the world, with average insolation levels in the region being nearly twice as much as Europe. ^[3] Growing environmental concerns have also prompted the government to look towards renewable resources since the current energy consumption is dominated by highly polluting fuels like coal, which accounted for more than 70% of energy consumption. ^[4]

Chinese Solar Subsidy Boost

The Chinese government has always been a strong benefactor of  the country’s ailing solar sector, and this week news emerged that the Chinese Ministry of Finance plans to double its subsides for solar projects to $2 billion, channeling these funds to construct around 5.2 GW of demonstration solar capacity across the country. The incentives under this scheme are as high as 25 yuan (about $4)  per watt for independent power plants. ^[5] While we believe these these subsidies will serve to boost domestic demand for solar products and partly alleviate the industries pain, they will not be a panacea for the industries woes given the extent of dependence of  the Chinese firms on the export market. About 90% of Chinese solar production is exported.

Separately, China’s Ministry of Science and Technology announced that it has selected projects with a total of about 2.8 GW of capacity to receive subsidies under the country’s Golden Sun Program.  The payouts could total as much as $2.5 billion if the projects are completed by June 2013. Yingli Green Energy is expected to supply about 10% of the panels for the projects. ^[6]

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

1. SEIA Press Release [↩]
2. See Also: US Rooftop Solar Boom Will Help SunPower [↩]
3. Solar Power, South African Department of Energy [↩]
4. South Africa Country Analysis, EIA [↩]
5. Solar Surges on Reports China Increasing Subsidy Support, Bloomberg [↩]
6. Clean Technica [↩]