Wednesday, March 3, 2010

European Solar New German tariffs – better than previously expected $YGE $ESLR $JASO $CSUN $FSLR

• A decision on mid-2010 cuts — has been approved by the German cabinet today . The tariff for roof-top systems will be cut by 16% and for ground-mounted systems by 15%. Ground installations on converted wasteland (dumps, former military sites etc) will see only an 11% reduction, however agricultural land will no longer receive feed-in tariffs. Electricity produced for own-consumption will receive anadditional €0.08/kwh from July onwards. Importantly, the cuts have been postponed to July for roof-top systems (rather than April), which should spur strong demand in 2Q10.

• The current feed-in tariff — is for €0.39/kwh for roof-mounted systems and €0.28/kwh for ground-mounted systems; with the new reductions these will now be €0.33 and €0.24 for roof-top and ground-mounted systems respectively and €0.25 for conversion sites. This would bring IRRs in Germany to normal historic levels of ~6%-8% down from the current levels of >10% in some regions.

• Positive impact on demand— The timing of the reductions is better than anticipated under the Environment Ministry’s previous proposal (reduction for roof-top from April). The additional 3months should allow another strong quarter of installations in the roof-top market where installations can be completed very quickly. We expect that under the new tariff structure the German market in 2010 will certainly exceed 3GW (previously we’d looked for 2.5 – 3GW) meaning global demand could grow at least 50% in 2010.

•Implications for solar stocks — Most companies are reporting that they are sold out through 1H10 and that market prices are currently stable. A July rather than April implementation will have a markedly positive impact on volume. SMA should benefit most directly from strong 1H demand in its domestic market. Better volumes should benefit SolarWorld, Q-Cells and REC, in particular SolarWorld which should see strong demand in its core market. From 2H10 the tariff reduction is bound to have an impact on all solar stocks as pricing comes under pressure in 2H10. For Q-Cells, the clampdown on use of agricultural land raises risks to its project pipeline. centrotherm is less directly affected by the tariff, but stronger demand should support the positive order trend seen recently. Wacker should also benefit from the stronger demand environment and, as one of the lowest cost polysilicon producers, should be able to keep margins up.

European Solar.pdf

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