Another Brutal Year for Solar and Wind Stocks in Offing Despite Growing Demand

1 Feb, 2012
Solar Energy,Wind Energy

Solar and Wind Stocks have been massacred in 2011 mainly due to the following reasons

1) Chinese oversupply which is outcome of its massive industrial overcapacity and investment. This has decimated wind and solar companies in the West while also leading to margins and profits collapsing

China’s rise in solar manufacturing has been nothing short of spectacular.From less than 5% of world marketshare it has gone to more than 50% in the current quarter.Some of its companies like Trina and Yingli are the lowest cost producers of solar modules in the world today.The Europeans like Solarworld and Q-Cells which were dominant until 2 years ago have been swept aside with Q-Cells bleeding red ink . Even in wind energy , China’s growth over the last 2-3 years has been awesome with more than 100% CAGR . It has helped in growing wind turbine manufacturers through domestic content requirements.Now that these companies have sufficient technology and are able to leverage their low cost advantages , China has removed the restrictions in Jan 2010 to attack other markets. Vestas the leading European turbine manufacturer like the solar makers has fallen into the red. The only way for these companies to survive is to move their manufacturing to Asia . Ultimately the technology will also follow ( Applied Materials has also move its R&D to Shanghai). Just like the semi and electronics industry,Europe will start looking like a marginal player in the global alternative energy industry. Despite strong domestic  demand and policy support , the European industry has been outsmarted and outplayed by  the Chinese

2) Commoditazation of Technology and Erosion of Entry Barriers

3) Massive and Irrational Subsidies by Asian countries to support  Green Industry

Despite both Wind and Solar capacity growing strongly in 2011 the stocks have been punished.

2012 has a good chance to be another bad year for these stocks because

a) Wind Power in China has reached a plateau installing almost 50% of the global wind turbine installations

China Wind Power Market has become the biggest in the world with more than 18 GW of capacity installed in one single year, Note China has managed to double its capacity each year since 2005 and at the end of 2010 Wind Capacity totalled 44 GW which makes China the biggest Wind Power country in the world overtaking the USA.China has now got 7 of the Top 15 Global Wind Turbine Manufacturers and 2 of the Top 3 WTG Companies.China’s Massive Demand for Energy has made power plants mushroom in the country where more than 70% of the electricity is met by Coal.Wind Energy still forms only a small part of the power mix at less than 7% of the total power capacity and serves only a fraction of the Kwh of electricity given the lower load factor of Wind Power.Note Wind Power has grown in China as its Advantages as a Clean Source of Energy far outweigh its Cons.However the rapid demand growth has made a top inevitable as a country can only install that many megawatts in a year.

The 2 Biggest Signs of Trouble for the Chinese Wind Power Industry have been seen in the last couple of days.

1) Sinovel has canceled shipments of Electrical Control Systems (ECS) for its Wind Turbines from American Superconductor due to high inventory levels and refused past payments as well.With the biggest Manufacturer of Wind Turbines reporting inventory problems,the situation of the rest can’t be that good

2) The Chinese National Energy Bureau was considering tighter procedures that would include requiring local governments to get the written approval before going ahead with wind projects with installed capacity of less than 50 MW.Earlier it used to be more than 50 MW

3) Hundreds of Wind Turbines have not been connected to the Power Grid due to lack of capacity or transmission lines.China emphasises on investment without factoring in returns is one cause of these orphan wind turbines.

b) Solar Energy Growth may slowdown as well after a blistering 35% growth in 2011 as European countries slow / kill subsidies under the Debt Crisis.

c) Industries have too many players many of which are small and uncompetitive. Though a lot of solar companies have become bankrupt, there still exist too many.

Now a new wave of bankruptcies are on the way with Q-Cells likely facing a credit event as it needs to roll over convertibles which come due in February. Note Q-Cells has fallen a long way from being the biggest solar cell company in 2008. Miasole and Nanosolar were Private Equity backed CIGs darlings that were supposed to become the biggest thing following Firsst Solar . Now Nanosolar faceds executive exits while Miasole has fired large number of its workforce failing to find a big parent to support it. Note the smaller companies like Ascent Solar have found backers in Asia . Solar Technologies are seeing Darwin Survival of the Fittest with crystalline silicon solar panel technology beating out thin film solar and solar thermal technologies

APPENDIX

Wind Energy Stocks

1) Vestas – Vestas the largest Wind Turbine Company in the World has been facing one setback after another.The Danish Company which used to be a Green Investor Favorite till a couple of years can’t seem to find a buyer these days.Stiff competition from China,Slowdown in Wind Energy Farms in the West and now  Wind Blade Problems have formed a perfect storm for this company.

2) General Electric (USA) - General Electric is looking to Invest Heavily in the new Age Green Industry like other Industrial Giants like Siemens,ABB etc.General Electric or GE as it is popularly known is one of the biggest players in the Green Industry globally.It generated $18 billion in Ecomagination revenues in 2009 with $1.5 Billion in Investment.General Electric like other industrial conglomerates like Siemens,Areva and others are in fact low risk plays in the Green Investing sector.GE is strong across most of the Green Sectors today particularly in the area of Smart Grid and Energy Efficiency.GE has a 40-50% marketshare of the US market which is the 2nd largest in the world.Due to its vertical integration,it has one of the highest margins in the industry and remains a formidable player with its acquisition Enron’s Wind Turbine arm proving to be a masterstroke.

3) Gamesa (Spain) - Gamesa the Spanish Wind Turbine Producer and Wind Farm Operator has faced the worst year of its history in 2010.Like Vestas and Suzlon,2010 has been a cruel year for the Wind Industry in the Western Markets and the WTG Players dependent on those markets.Gamesa is one of the worst performing Wind Energy Stocks in 2010.Gamesa is looking to restructure its operations and concentrating on the offshore wind market by focusing on higher megawatt turbines.Gamesa is leading a massive Spanish Research Effort to develop a colossal 15 MW Turbine meant for the fast growing offshore wind sector.But this is a long term plan with 2020 set as the target for the complete development of this new Turbine.Meanwhile Gamesa has become the target of takeover speculation by one of the bigger Chinese Wind Turbine players like Sinovel,Goldwind etc.Gamesa has seen its revenue fall by 28% and profits by  71% with Operating Margins of 4-5%.Things don’t look too good for 2011 either though Orders have started ticking up

4) Suzlon Energy is the biggest Indian Wind Energy Company by far with 4-5 Gigawatts of WTG Capacity per year.However Suzlon has languished in red ink since the beginning of the Global Financial Crisis in 2008.The company started by Tulsi Tanti in 1995 was a shining example of Asian CleanTech with a 10% global marketshare and ranking amongst the top 5 Wind Turbine Makers .Suzlon buoyed by its success had bought controlling equity stakes in Turbine Gears producer Hansen Transmission and European Wind Turbine producer Repower.Suzlon seems to be recovering with increase in orders particularly at its German subsidiary RePower,however a huge debt burden poses problems.

5) Siemens – The largest Green Company in the world,Siemens has a strong presence in the Wind Turbine Segment.The company is strong in Europe and is now expanding to emerging markets like Asia.Given its huge technological strengths in electrical equipment,power transmission and large project construction,Siemens is looking for a dominant role in the growing offshore wind market as well.

6) Goldwind - The Wind Energy Market in China has witnessed the growth of almost 90 companies with little differentiation competing fiercely on prices.This has led to low to zero margins for most of these companies.Goldwind has managed to rise above the competition by becoming the single largest Chinese player and looks to takeover the No.1 position in the world in the next few years.By taking bold risks and with the support of the government,Goldwind has become a threat to the established Wind Turbine Order

7) Sinovel – The 2nd largest Chinese Wind Power Company managed to do a successful IPO in Hong Kong last year despite long delays.The company is looking to expand in the foreign markets particularly the US market and has gotten a local management to help it penetrate the newer market.

8) Dongfang Electric - Dongfang Electric Corporation,China’s largest power equipment producer  is also the 3rd biggest Wind Turbine Producer in China as well .The company has managed to grow impressively like the rest of the Chinese and is looking to expand in foreign markets as well.Recently  bagged a 276 MW $203 million WTG supply contract with Abhijeet Group.

9) Ming Yang Power- Ming Yang is the only significant non-state owned Chinese Wind Energy Company with a 2009 marketshare of around 4%.The Company has a very short history installing its first Wind Turbine just 2 years ago and has seen an exponential growth riding on the incredible Wind Industry Growth in China.

10) Mitsubishi Heavy Industries , the massive Japanese Conglomerate is looking to overseas market for growing its Wind Energy Division.Mitsubishi like other Japanese companies are looking towards Green Industry for growth.Japan already possesses solid strengths in this area with its traditional focus on resource efficiency.While companies like Panansonic and Toyota looks towards Electric Vehicles and Batteries,Sharp and Kyocera towards Wind Energy,Mitsubishi is focusing its energy on the Wind Sector.

11) Enercon – Enercon is a privately listed German company which has almost 22 GW of Wind Turbine Installations in the world.Enercon was the first company to build a gearless Wind Turbine which is one of the biggest innovation in the Wind Energy Industry in recent times.

12) Nordex - Nordex is another German company in the Wind Turbine Industry which was the first one to build a 1 MW Turbine.The company has  not managed to grow fast as the other German companies like Enercon,RePower and Siemens.

13) United Technologies Corporation (UTC) - This US Giant Technology Conglomerate is still a small player in the World Wind Power Market.However it has increased its footprint by acquiring struggling independent US Wind Power company Clipper.

Solar Energy Stocks

Solar Cells Stocks

  1. JA Solar (JASO) ( The Biggest Solar Cell Producer in the World)
  2. Gintech (3514.TW) ( Biggest Solar Cell Supplier in Taiwan)
  3. Motech (6244.TW) ( Solar Cell Supplier in Taiwan with wafer and poly production as well)
  4. E-Ton (3452.TW) ( Survival is in question)
  5. Q-Cells (QCE.DE) The largest solar producer of cells in 2008 faced a horrendous 2009 running losses of as high as Euro 1 billion)
  6. Neo Solar (3576.TW)(Has been one of the fastest growing solar companies)
  7. Del Solar  ( Small Solar Cell Supplier)
  8. IndoSolar ( Small Solar Cell Supplier in India)
  9. Emcore (EMKR) ( Small Specialist suppliers of High Efficiency Multijunction Cells)

Solar Panels Stocks

  1. Suntech (STP) ( The biggest Chinese solar panel producer in the world)
  2. Trina Solar (TSL) ( The most valued Chinese solar panel supplier)
  3. Yingli Green Energy (YGE) ( Top 3 Chinese solar panel supplier)
  4. Jinko Solar (JKS)
  5. Canadian Solar (CSIQ) (Despite Canadian in the name is one of the biggest Chinese solar panel suppliers)
  6. Sunpower Corporation (SPWRA)( Makes the Most Efficiency Solar Panels,bought by French Giant Total)
  7. Hanwha Solar One (HSOL) ( Earlier known as Solarfun,bought by South Korean Conglomerate Hanwha)
  8. Sharp ( Biggest Japanese Solar Compan)
  9. Sanyo Panasonic( Sanyo plans to invest more than  70% of its total investment over the next  3 years in its renewable energy and energy storage segment)
  10. Kyocera(Kyocera is Japan’s second largest solar panel producing company)
  11. Mitsubishi( Mistubishi is another old time Japanese solar company which has a low profile solar module and system business)
  12. LG (It is selling solar modules in the South Korean and European markets and has 240 MW capacity)
  13. Samsung ( The company makes silicon solar cells and panels,will start making poly with MEMC)
  14. Hyundai ( The first South Korean company to move int solar panel production)
  15. Solarworld (SWV.DE)- Solarworld is the Biggest German producer of solar panels,the company is one of the few to still have operations in Europe and USA)
  16. Bosch (Automotive company,made expensive acquisitions,now moving production to Malaysia)
  17. Shanghai Chaori Solar Energy (Listed in China,integrated producer of solar panels)
  18.  AUO ( AUO has a  JV with SunPower’s to build 1.4 gigawatt third solar cell fabrication facility  in Malaysia)
  19. China Sunenergy(CSUN) (A Small China Solar Energy Cell and Panel Supplier)
  20. Arise Technologies (Canadian small suppliers of solar panels)
  21. BP (Outsources production of solar panels,sells under brandname )

GE View

General Electric Co. expects increased competition and a reduction in subsidies by cash-strapped governments to lead to more companies exiting the wind and solar power businesses, but the industrial behemoth still sees growing long-term demand.”There’s going to be a lot of casualties in the wind and solar businesses, there already are in solar,” John Krenicki, who leads GE’s energy division, told Reuters in an interview on Monday.

Wind Industry Oversupply , Sinovel Profits to Halve in 2012

Sinovel Wind Group Co., China’s biggest wind-turbine maker, expects its 2011 earnings to fall by more than 50 percent as heightened competition at home and abroad dragged down prices.

Rivalry within the market depressed prices, trimming revenue and profit margins, the Beijing-based company said yesterday in a statement. “Cyclical fluctuations” in the world economy also delayed some projects, curbing income, it said.

“It’s difficult for these guys to drive costs down at the same pace as revenue, so margins are getting squeezed,” Aaron Chew, an analyst with Maxim Group LLC in New York, said by telephone. Sinovel may still fare better than European counterparts such as Vestas because of lower labor expenses and more advantageous government subsidies in China, he said.

Lower Support

Vestas has cut sales forecasts twice since October after Asian competitors grabbed market share and U.S. and European governments reined in support for renewable power to curb budget deficits.

A tighter government approval process for projects in China has intensified competition further, spurring domestic companies to study expansion elsewhere. “We do not expect growth in wind installations in China in 2012 to 2014,” so growth abroad would allow the main Chinese players to boost sales, McLoughlin said.

Which,Why and If of Buying Solar Stocks in 2012 ?

27 Jan, 2012
Solar Energy

Solar Energy Stocks in 2011 had a very rough year with the 2 solar ETFs falling by more than 50% as the industry went into massive oversupply leading to crashing solar panel prices,revenue,profits,margins and everything else that you could think of .  Many of the industry stalwarts that had been around since the inception of the solar industry like Solon, Evergreen Solar bit the dust. Even the much hyped solar startups like Solyndra is bankrupt while others like Miasole,Nanosolar will share the same fate soon. Even now big companies like LDK and Sunpower are only running because of the government or parent company largess. The carnage would have been much greater if free market operated in the global solar industry . Instead the solar industry is a mish mash of free markets, government subsidies , feed in tariffs , irrational support etc. This makes investing in the industry really challenging even though the industry has grown by an astounding 200% in the last 2 years in terms of volume even though prices have come down by around 70%.

While below is a list of all the solar stocks ,most are dead investments as few solar companies will see 2013 given that the oversupply of polysilicon will stay here till 2012 as more and more companies get weeded out.

So what are the criteria for staying alive in 2012

a) Government Support in Some Form – Most of the Tier 1 Chinese Solar Companies will fall into this bracket. However given that there are so many you would have to look at the biggest like Suntech,  LDK, Yingli for survival in any case. LDK is a BANKRUPT COMPANY ,the only reason it continue to produce a solar panel is because of the Chinese government support

b) Low Cost – Though seems like an obvious idea, there are still companies existing which have high costs like Q-Cells, REC. You just can’t invest in them given that even low cost is a necessary though not sufficient condition to survive

c) Branding – Very necessary to get financing for solar projects as without a brand you are not bankable and will have to sell at a 10% discount in a market which is already selling at below cost

d) Efficiency and R&D Dollars – If you sell a low efficiency multicrystalline solar panel ,then you are toast given that the market is now only looking at higher efficiency stuff given that choice that buyers have. You also need to spend sufficient R&D dollars to get ahead of the competition in reducing costs and increasing efficiency. Smaller solar companies are at a disadvantage here.

f) Low Debt – Not Necessary if you are LDK and have a Sugar Daddy like the Chinese Development Bank but very important for every other solar company.Trina Solar shines in this respect ,Suntech does not.

I have only given hints and conditions of which solar stocks to buy in 2012 .For those who are saying this industry is not a good investment are wrong because a time will come when most of the weaker players are out and the winners will take all . Some companies which should see through these times without question are GCL Poly,Sunpower .What about the rest? Readers are invited to answer in the comments

 

SOLAR STOCKS BY SUPPLY CHAIN

Solar Polysilicon Stocks

  1. Hemlock (Private Company , JV between Dow and Shin-Etsu,one of the biggest polysilicon producers based in USA)
  2. Wacker ( WCH.DE) ( The company is the biggest European producer of polysilicon )
  3. OCI Chemicals (0100600.KS) ( This company is targetting to become the global No.1 producer of polysilicon,based in South Korea)
  4.  Tokuyama  This Japanese producer has been in the game for long but has been the slowest in expanding capacity
  5. Daqo New Energy (DQ) (Small poly producer based in China)
  6. Hoku Corporation (HOKU) ( Small poly producer based in USA)
  7. Timminco (TIMNF.PK) (Canadian company tried to make it big by Metallurgical Silicon,now a penny stock)

Solar  Wafers Stocks

  1. GCL Poly (3800.HK)( The biggest solar wafer producer in the world,trades in Hong Kong,makes polysilicon also)
  2. LDK Solar (LDK) ( The second biggest wafer producer,now a major solar panel seller as well,makes polysilicon also)
  3. Renesola (SOL) (One of the cheapest solar wafer manufacturers,makes polysilicon also)
  4. Renewable Energy Corporation (REC.OL)(Norwegian company producers poly,cells and modules in Singapore)
  5. Comtec Solar (0712.HK) ( A Small Wafer Producer in China which makes mostly monocrsytalline wafers)
  6. MEMC Electronics ( WFR) ( Company makes semiconductor wafers and is one the biggest US Solar EPC/Integrators)
  7. Woongjin Conway (016880.KS)( South Korean Wafer Producer in which Sunpower has a stake)
  8. Green Energy Technology (3519.TW) – This Taiwanese producer of solar wafers has left other domestic competitors behind in capacity increase
  9.  Sino American Silicon (SAS) is one of the oldest wafer producers in Taiwan and supplies to both semiconductor and solar industries)
  10. Wafer Works ( 6182.TWO) ( Taiwanese small producer )
  11. Danen Technolog (3686.TW)( New small producer of solar wafers)
  12. Nexolon  The company is based out of South Korea and is closely associated with the polysilicon giant OCI Chemcials
  13. SUMCO( Japanese producer of semiconductor wafers,produces some solar wafers as well)
  14. PV Cyrstalox Solar (OVCS.L)( Small German producer of solar wafers,survival in question)

Solar Cells Stocks

  1. JA Solar (JASO) ( The Biggest Solar Cell Producer in the World)
  2. Gintech (3514.TW) ( Biggest Solar Cell Supplier in Taiwan)
  3. Motech (6244.TW) ( Solar Cell Supplier in Taiwan with wafer and poly production as well)
  4. E-Ton (3452.TW) ( Survival is in question)
  5. Q-Cells (QCE.DE) The largest solar producer of cells in 2008 faced a horrendous 2009 running losses of as high as Euro 1 billion)
  6. Neo Solar (3576.TW)(Has been one of the fastest growing solar companies)
  7. Del Solar  ( Small Solar Cell Supplier)
  8. IndoSolar ( Small Solar Cell Supplier in India)
  9. Emcore (EMKR) ( Small Specialist suppliers of High Efficiency Multijunction Cells)

Solar Panels Stocks

  1. Suntech (STP) ( The biggest Chinese solar panel producer in the world)
  2. Trina Solar (TSL) ( The most valued Chinese solar panel supplier)
  3. Yingli Green Energy (YGE) ( Top 3 Chinese solar panel supplier)
  4. Jinko Solar (JKS)
  5. Canadian Solar (CSIQ) (Despite Canadian in the name is one of the biggest Chinese solar panel suppliers)
  6. Sunpower Corporation (SPWRA)( Makes the Most Efficiency Solar Panels,bought by French Giant Total)
  7. Hanwha Solar One (HSOL) ( Earlier known as Solarfun,bought by South Korean Conglomerate Hanwha)
  8. Sharp ( Biggest Japanese Solar Compan)
  9. Sanyo Panasonic( Sanyo plans to invest more than  70% of its total investment over the next  3 years in its renewable energy and energy storage segment)
  10. Kyocera(Kyocera is Japan’s second largest solar panel producing company)
  11. Mitsubishi( Mistubishi is another old time Japanese solar company which has a low profile solar module and system business)
  12. LG (It is selling solar modules in the South Korean and European markets and has 240 MW capacity)
  13. Samsung ( The company makes silicon solar cells and panels,will start making poly with MEMC)
  14. Hyundai ( The first South Korean company to move int solar panel production)
  15. Solarworld (SWV.DE)- Solarworld is the Biggest German producer of solar panels,the company is one of the few to still have operations in Europe and USA)
  16. Bosch (Automotive company,made expensive acquisitions,now moving production to Malaysia)
  17. Shanghai Chaori Solar Energy (Listed in China,integrated producer of solar panels)
  18.  AUO ( AUO has a  JV with SunPower’s to build 1.4 gigawatt third solar cell fabrication facility  in Malaysia)
  19. China Sunenergy(CSUN) (A Small China Solar Energy Cell and Panel Supplier)
  20. Arise Technologies (Canadian small suppliers of solar panels)
  21. BP (Outsources production of solar panels,sells under brandname )

Solar Integrators/Installers Stocks

  1. Toshiba ( Has  decided to become a big player in  the Solar EPC business
  2.  Mitsui (Mitsui,the giant Japanese tradings house bought Sunwize in 2006 to enter the solar system market in the US)
  3. Akeena/Westinghouse Solar (WEST) ( The first US Solar Installer to list on the US Stock Exchange)
  4.  Real Goods Solar (RSOL)- The second US Solar Installer to list on the Stock exchange
  5. Phoenix Solar (PS4.DE)(German installer with operations around the world)
  6. Conergy(Once the biggest solar installations company,now fallen on hard times)
  7. Juwi Solar (Another German installers,looking to expand internationally)
  8. Kerself (KRS.ME)(Small Italian Installer)
  9. Solaria Energie(Spanish installer )
  10. Solar-Fabrik (SFX.DE)(Small installer,which also makes solar panels and cells)
  11. Solon(SOO1.DE)(Another German solar panel and cell maker fallen on hard times)
  12. Sunways(SWW.DE)( German company making solar panels,cells and also doing EPC)
  13. POSCO (South Korean Steel Giant has started Solar EPC Operations)

Solar Inverters Stocks

  1. SMA Solar (S92.DE) The Big Daddy of the Solar Inverter Market with a   40% Marketshare of the Global Market
  2. Power-One (PWER)  The US power management company has shown the fastest growth in 2010
  3. Schieder Electric (This European Electrical Equipment Giant got into the solar inverter market by buying up Canadian Producer Xantrex.
  4. Advanced Energy( AEIS ) which is a US semiconductor company  is also a big manufacturer of solar inverters.
  5. Satcon (SATC) (Small USA based solar inverter supplier)
  6. Delta Electronics ( Taiwanese company bought Solon solar inverter division)
  7. ABB
  8. Sputnik Engineering (Swiss maker of solar inverters)

Solar Encapsulants

STRI Holdings ( STRI) ( The biggest suppliers of encapsulants used in solar panels in the world,based in USA)

Solar Material Suppliers

  1. 5N PLUS Inc. (VPN.TO) ( Supplier of Cadmium Tellerium which First Solar uses to make Thin Film Solar Panels)
  2. Giga Solar ( Taiwane supplier of metallic paste used in Cell Production)

Thin Film Solar Panel Stocks

  1. Saint Gobain  ( Sells CIGS panel in JV with Hyundai)
  2. TSMC  ( Sells CIGs Panels in association with Stion
  3. Solar Frontier - Solar Frontier is a subsidiary of Showa Shell Sekiyu and is listed on the Japanese Stock Exchange
  4. Ascent Solar (ASTI)  This US Based Company has a long history of making Thin Film Panels on Flexible Substances
  5.  Energy Conversion Devices (ENER) After First Solar,Energy Conversion Devices seemed the mostly likely viable company in Thin Film Technology
  6. Honda ( Small CIGs Panel Sellers)
  7. General Electric(GE) ( The company is not only a big Solar Developer but also going to sell Cd-Te Panels)
  8. Trony Solar (2468.HK)) (Trony Solar is the largest Solar Thin Film Producer in China)
  9. Kaneka (Japanese company producing amorphous silicon solar panels)
  10. Chint ( Producers Thin Film Solar Panels under Astroenergy Name)

Solar Equipment Stocks

  1. GT Advanced Technologies (GTAT) ( US based supplier of polysilicon and wafer equipment to Chinese companies)
  2. Applied Materials (AMAT) ( The biggest semicap company is also the No.1 solar equipment seller in the world)
  3. Meyer Burger (MBTN.SW) ( Swiss company recently bought Roth &Rau)
  4. Centrotherm (CTN.DE) ( One of the top 3 solar equipment sellers based in German)
  5. Manz Automation (M5Z.DE)( Another small German company
  6. Oerlikon  (Swiss company makes solar equipment for producing amorphous solar thin film panels)

 

Indian Renewable Energy Stocks – Bubble Bursting or Investor Panic

26 Jan, 2012
Energy,Orient Green Power,Renewable Energy,Solar Energy,Suzlon,Wind Energy

Quick quiz. What is common to Suzlon, Moser Baer, Indo Solar, Websol Energy systems and Orient Green Power? All these stocks had successful runs on the stock market and hyped as the next game changers in wind energy, semi conductors, solar power and hydel/geo thermal power. Valuations were more on growth stories than through an hard nosed DCF spreadsheet. But now, they trade at record lows(like other stocks but what is different is the pressing fundamental concerns in each case). Is this a bubble finally bursting, or are investors panicking?

  1. Suzlon cherishes an ambitious vision of being the technology leader in the wind sector, and among the top three wind companies in all the key markets of the world. It expects that by 2015, total worldwide installation of wind energy would cross 442 GW which is almost 2.3 times of the current installation. This will cover about 7.5% of the global electricity supply by then, as opposed to just 4% now. But the solar bubble collapse in Spain, France and Germany(where subsidies were almost withdrawn) has put concerns on the very business model of solar(preferential feed in tariffs at peak hours(morning/noon)), as mentioned by First Solar in its 10K filing. So with gradual withdrawal of subsidies to wind energy generators, will Suzlon be able to regain pricing power for its equipment? Even in India, the most recent round of wind energy purchase tenders, saw bidders discount the CERC approved tariffs of Rs 17.91 by nearly 30%-35%, indicating that new players are willing to slash prices to gain market share. This would impact supplier pricing as well.
  2. Moser Baer, Indo Solar and Websol Energy systems, wanted to capitalize on the boom in demand for solar photovoltaic cells. Indo Solar wanted to take benefit of the 25% capital subsidy scheme for project capex over Rs 1,000 crores( as per the Special Incentive Package scheme announced by the Ministry of Communications and Information Technology, Government of India). But the global over supply(especially from China) backed by costs increases in key raw materials, led to EBITDA margin compressions, and short of domestic protectionism, I do not see a bright future for these stocks. While they are all trying vertical integration, entering into adjacent industries etc, the core business model is facing challenges due to global supply scenario, and price driven market.
  3. Orient Green Power is a slightly different proposition though. In 1H’12(Sep11 half year) alone, it added 80MW of wind energy, and had 300MW generation capacity(250MW wind+50MW biomass) in operation. However, with 250MW capacity wholly in Tamil Nadu and that State Electricity Board being in financial distress, investors seem to have discounted the stock which trades at P/BV of 0.5, despite its aggressive growth plans to reach 550MW capacity by Jun’12! At market cap of Rs 610 crores(with debt of Rs 190crores), the company had an EV of Rs 800 crores(assuming the Rs 170 crores of cash offset the current liabilities of Rs 195 crores, as the loans and advances of Rs 808 crores would presumably not be liquid), which would imply an EV of Rs 2.67 crores/MW, nearly half the estimated Rs 5.3cr/MW replacement cost of that capacity.

So have the factors affecting thermal power stocks(bankruptcy like status of SEBs, increased fuel costs, project execution delays) rubbed off disproportionately on these stocks as investors blindly herd together to sell power stocks? Or is it that the favourable economics may change? For export oriented equipment manufacturers like Suzon, the subsidy withdrawal story may play out, but for domestic generators, the national solar mission and other such plans would seem to give a secure price floor and assured market to sell the generated power.  These stocks are worth tracking though, as a hedge against the general power sector decline.

The paragraphs below features previous GWI takes on the above Green Stocks and is not part of Anand’s article

You can read about the GWI List of Green Companies in India

Previous GWI take on whether Suzlon is a falling Knife

Suzlon History

Suzlon,the Indian Wind Turbine making company has languished in red ink since the beginning of the Global Financial Crisis in 2008.The company started by Tulsi Tanti in 1995 was a shining example of Asian CleanTech with a 10% global marketshare and ranking amongst the top 5 Wind Turbine Makers .Suzlon buoyed by its success had bought controlling equity stakes in Turbine Gears producer Hansen Transmission and European Wind Turbine producer Repower.Suzlon wanted to leverage Repower’s technological expertise to enhance its own product offering.Like other Indian companies with global ambitions like Hindalco,Tata Steel and Tata Motors,it took on a lot of debt to buy these companies at the peak of the global economic cycle.The GFC resulted in a twin whammy for Suzlon.On one hand its end markets collapsed as project financing disappeared and on the other hand its huge debt burden became unsustainable.The company has failed to recover from the GFC as competition in the Wind Turbine industry has increased with the rise of Chinese players like Sinovel,Goldwind and A-Power.With the 2 biggest markets of USA and China dominated by domestic players,Suzlon has become a shadow of its former self.While other Indian companies have recovered strongly with the Global Economy,Suzlon continues to lose huge amounts of money.Its recent 2Q10 results were quite bad resulting in the share shedding 6% to Rs 50.This is almost 90% below its peak price in the heady days of 2008 .So is Suzlon a Fallen Angel which could turnaround to become a multibagger or a Falling Knife luring investors into further losses.Here are the pros and cons of the argument.

Orient Green Power IPO Analysis

Orient Green Power Ltd (OGPL) is India’s Largest Green Utility and is one of the areas that is a good way to invest in India’s Green Energy Sector.The company is owned by the Shriram Group and a couple of PE Players will issue around Rs 900 crores (~$180mm) which will result in a market cap of $450mm.OGPL is a relatively new company setting up and acquiring most of its 200 MW capacity in the last year which comprised of 152 MW of Wind Energy and the rest is Biomass Energy.The company plans to increase this capacity 4 fold to around 1000 MW in the next couple of years with Power Plants in  India,Europe and Sri Lanka.The centerpiece of this expansion will be a 300 MW Wind Energy Plant in Tamil Nadu for which $10 million has been already been spent.The company’s past profits and cash flow have been negative which is not exactly a concern given that most of the capacity was set up in the last year or so.I like the company’s growth plans and the sector in which it operates.India suffers from a huge power deficit and Renewable Energy is being heavily promoted through Government Subsides and Renewable Energy Mandates by the CERC.Trading of Renewable Energy Certificates (RECs) should start in a year or so giving additional revenue streams to Green Energy Producers.Here are the pros and cons of the issue

 

(The author Anandh Sundar is from the IIM Ahmedabad 2010-12 batch, and a ranker in CA/CS/CWA exams. He blogs at http://financeandcapitalmarkets.blogspot.com/, and http://specialsituationsindia.blogspot.com/  and has a keen interest in investing)

Solar Thin Film fighting a Losing Battle against Cheap Silicon Panels Onslaught ? (Solar Frontier)

18 Jan, 2012
Solar Energy

Cheap Solar Panels made by Chinese companies are putting other solar technologies under existential pressures. Thin Film Solar is no different as many smaller thin film companies Solyndra the most famous amongst them have gone under . Other companies in the stealth mode like Nanosolar, Miasole and others might never come out as the 80c/watt price of the cheapest solar module means that thin film solar panels have very little room to compete.l

First Solar the Big Daddy of Thin FIlm Solar Panels too is under pressure and if not for the DOE funded solar farms in California would have been facing a huge global marketshare loss. There are only a few thin film companies that can hope to compete . Those that can have big parents with massive balance sheets like Solar Frontier backed by Showa and Shell, Sharp ,TSMC and others . VC and PE backed startups have a snowball chance in hell of surviving because they need to get their costs to 50c/watt an impossibility even for First Solar leave alone poor startups.

However the reason that Thin Film Solar is the sheer amount of investment and R&D dollars that is going into crystalline silicon solar panels compared to that of other technologies. Besides the big solar panel manufacturers , big solar equipment firms like Applied Materials, GT Solar and others are spending hundreds of millions of dollars to improve the silicon solar technology. This gives a huge advantage to silicon technology compared to thin film technology

Solar Thin Film Companies under Siege

Solar Thin Film Companies are coming under siege again due to the relentless fall in the prices of crystalline silicon panels in recent months of 2011.Note large number of thin film companies went bankrupt the last time polysilicon prices fell off a cliff in the post Lehman crisis period in 2008 end.Applied Material the biggest solar equipment company killed off its SunFab Division which has a large customer list.Applied Materials saw the writing on the wall and concentrated its efforts on crystalline silicon equipment buying HCT Shaping and Baccini to become a billion dollar supplier of solar equipment.A number of weaker hands in solar thin film went out of business.However the prodigious growth in solar demand in 2010 saw large investments being made again.The biggest failure (not complete yet) seems to be the DOE and Obama darling CIGs startup Solyndra which has already used up a billion dollars with nothing much to write home about .Now Republicans are investigating whether the more than $500 million US government loan was done improperly.Abound Solar a CdTe startup has also managed a $400 million loan and  I doubt whether it will manage to ever pay off the loan given that the lowest cost manufacturer of solar panels First Solar itself is under pressure from sharp cost reduction by integrated solar panel companies like Trina Solar.

Solar Frontier has bagged a 150 MW deal to supply EDF for a project in California. Note Solar Frontier has a massive 900 MW facility in Japan and would need many such deals to survive .

With a new $100-million-plus contract to install its thin film solar panels in the Mojave Desert, Japan-based Solar Frontier KK is emerging as a formidable new contender in the crowded solar market.

EnXco, a subsidiary of EDF Energies Nouvelles Co., agreed to purchase up to 150 megawatts of the panels, in the largest deal ever for this type of thin film technology. The panels are using a semiconductor blend of copper indium gallium and selenium, or CIGS, which until now has been deployed on a much smaller scale.

The enXco deal is notable as it represents market acceptance of CIGS panels, which have had limited success to date. Last year First Solar abandoned its research and development effort in CIGS, and Solyndra LLC, which also used CIGS as the basis for its solar panels, saw costs spin out of control and declared bankruptcy.

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Solar Frontier

First Solar

 

Germany Solar Feed in Tariff may See 2% Cut each month 2012, System Cap at 3 kilowatts due to 7.5 GW 2011

16 Jan, 2012
Germany,Solar Energy

Germany has seen the biggest increase in solar installations in the history of solar energy with 3 GW in the month of December 2011 alone. For perspective this is almost equal to the installed capacity of the Chinese solar energy which has almost 6-7 times as much electricity generating capacity . The massive surge in solar capacity has made even the 15% cut in Feed in Tariff in Jan 2012 look too small. The reason for this huge increase in solar panel demand has been the reduction in solar panel prices by almost 60% which has led to 10% + returns for solar systems. While the existing EEG law will lead to another 15% cut in July 2012 , there might be another 5 GW of solar panels being installed in Germany in the first half of 2012 . Germany power grid is already being strained with 25 GW of solar panel capacity. More installations in such a short time could lead to damage to the grid. The German government wants 4-5 GW of solar installations while the industry is installing 7.5 GW in 2011 and 2010 . This is despite sharp cuts to Feed in Tariffs.

German December Surge in Solar Installations

The influx of cheap solar panels from China has let the December 2012 explode to almost 2-3 GW according to the German solar association BSW. The high rates of return of over 10% due to super cheap Chinese solar panels at 80-90c/watt has been the major reason for the explosion in demand which could be the biggest month in Germany ever. While German Solar Market has remained robust as ever,the German solar panel producers like Solon, Sunways have been vanquished with a number of major solar companies failing and getting acquired. The Asian solar companies have been the major beneficiaries of this demand growth in Germany and Europe.

The massive rise in demand will imply that according to the EEG ,t here will be a 15% cut in July 2012 after a 15% cut in January 2011. This would bring the solar FIT prices quite low and provide a restraint to the galloping German solar energy installations which is reaching more than 25 GW .

The returns are still high in 2012 with existing FIT , so the German government may have to plan additional cuts with plans of

a) cut of 2% FIT every month in 2012 to slow down the installations and bring down the solar system IRR

b) a cap on feed in tariffs to solar systems of  3 kilowatts only .This will prevent larger solar installations and building of large solar farms

Note Germany Feed in Tariffs have always followed many twists and turns each time as installations have always exceeded expectations.

The German Solar Feed in Tariff cut scheduled for July 2010 has got another twist with the Upper House of German Parliament Bundesrat not passing the Law in its current form.The one-off German Feed in Tariff cut has seen enough twists and turns to make a person go giddy . It all started with the new German government deciding to cut the highSolar FIT which was leading to outsized returns for investors installing solar panels in Germany leading to a situation similar to Spain’s  2008 solar frenzy .The reason was that the solar module prices had gone down by almost 50% in 2009  with the FIT rate ( higher subsidized electricity rates given to generators of renewable energy) going down by the only scheduled 10% .So in addition to the annual 10%  2010 cut , the German government decided to add another 16% Feed in Tariff cut byMay 2010 which led to a huge uproar from the industry.This led to a lot of bargaining between the industry,the coalition partners of the German government and the various industry lobbies.Ultimately the law went in with almost the same percentage of cuts but the cut was delayed from May to July . With the German Lower House Bundestag passing the government proposal , the Bundesrat’s approval was only supposed to be formality.However it seems that the Eastern German states which have the most to lose in terms of jobs and taxes from these cuts want to reduce the quantum of the cuts which in their original form would lead to a ~35% cut in one year.The law which is supposed to go into effect by July 1 might see more delays as it leads to more negotiations.

Goldwind Wins 13 Wind Contracts in America as Chinese Extend Global Leadership, More Trouble for Vestas, GE

16 Jan, 2012
China,Goldwind,Wind Energy

Xinjiang Goldwind Science and Technology Co (Goldwind) is the 2nd biggest Chinese wind turbine producer and amongst the top 5 wind turbine companies in the world. Goldwind stock has been punished alongwith other Chinese wind turbine stocks as a fierce price war in the Chinese market has led to nosediving margins and revenues. There is massive overcapacity in the Chinese wind market as there are around 100 odd producers of wind turbines with 7 out of the 15 top global wind turbine makers. Chinese Government policies have been changed to weed out the smaller inefficient wind turbine makers, however the competition still remains quite high just like the Solar Panel Industry.

Other global heavywieghts like Vestas, Gamesa ,Suzlon are facing bankruptcy concerns as the 20-30% cheaper Chinese wind turbines take a big toll. Goldwind has been trying to expand internationally by doing an IPO to raise funds and has invested heavily in the North American market like USA which is the second largest wind market in the world. Its investments has paid off as it has managed to bag 13 wind farm projects and get marquee  customers like Enel Green Power. The prospect of western wind turbine producers remains bleak given the Chinese expansion in Europe and USA.

Chinese Wind Energy Dominance

The Chinese have not only captured most of the top rankings of the biggest solar panel producers in the world,they have extended their lead into Wind Energy as well.7 of the top 15 positions in Global Wind Turbine Producers are Chinese according to a new ranking.Sinovel and Goldwind have become the No.2 and No.4 rankers in the world with more than 10% global marketshare each.Dongfang is the other top Chinese wind power company with a 7% marketshare.United Power is at 10.Other top Chinese wind energy companies are Mingyang,Sewind and XEMC China.

Goldwind IPO Story

China has massively increased its wind installations to become the world’s second biggest market in 2009 . It has also managed to cultivate its local home grown industry to join the ranks of top 10 world turbine makers. Foreign dominance of China’s wind market has completely disappeared as the share had declined to 5%. Now Chinese wind equipment makers are spreading their wings outside their overcrowded home market with APower planning a massive wind farm in Texas.Both Sinovel and Goldwind which are the two largest wind equipment producers are planning IPOs to raise more capital and increase their visibility. Goldwind which was planning a HK listing since January has got regulatory approval to raise $1.5 billion in Hong Kong making it one of the biggest green offerings in the world this year .

Chinese Green Companies Price Wars

Chinese Green Companies are being forced to look at overseas market for Profits as their Domestic Market is being ravaged by fierce price wars.Wind,Solar and even Smart Grid Companies in China compete mainly on price as technology is not the strong point for these companies.Lots of these small companies are promoted through provincial government bodies with massive capital and other subsidies.With excess capacity and little technology,there is little incentive for consolidation in the Green Industry with the attrition the only way out.Even the bigger players like Goldwind, Suntech and Jinpan are facing huge pressure from these low margin,low cost small companies in China.The fierce competition in the domestic market has forced these companies to look at foreign market to generate revenues and profits.While the solar companies have succeeded in this endeavor capturing a massive 50% global marketshare,Wind and Smart Grid companies are still struggling to expand outside their home market of China.

Wind Companies looking to Foreign Markets to Avoid Domestic Competition

Like Solar,China’s Wind Sector has seen a massive boom with China installing a huge 13 GW of Wind Capacity in 2009 which is 1/3rd of the global demand.The Wind Energy Market in China has witnessed the growth of almost 90 companies with little differentiation competing fiercely on prices.This has led to low to zero margins for most of these companies.Even bigger companies like Goldwind and Sinovel which rank amongst the top 10 global wind turbine suppliers are feeling the heat.The 2008 GFC only exacerbated this trend with even more price cuts.The wind farm operators in China like Longyuan,Huangeng have been the major beneficiaries of these price war

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