Renesola forecasts 10% GM

The Chinese overcapacity  has made even the top Chinese solar players run for cover, given the disastrous decline in prices across the solar supply chain. Renesola (NYSE:SOL) said that it foresess a 20% decline in solar panel and wafer prices in Q3 of 2016, as compared to the first half of this year. A large part of the decline has already happened with PV insights showing a price of just 43 cents/watt for solar panels and just 15 cents/watt for solar wafers.

Also read Solar Panel Prices in 2016 from now on depends mainly on Chinese demand trajectory.

Renesola thinks that it can make a gross margin of just 10% at these prices. The main factor behind this dramatic decline in prices has been the drying up of Chinese demand, after the cut in FIT in June. Prices have been falling since July and have not stopped falling. While Renesola expects some stability in September, there is no guarantee unless the capacity goes away in China. With the Chinese government pumping credit and debt into the economy, it looks unlikely that Tier 2 Chinese companies are going to close due to these distressed conditions. Global overcapacity in solar panels has persisted since 2012, due to the strange government controlled capitalism in China which does not allow companies to go bankrupt easily. The government has also been funneling money into the banking sector, which allows evergreening on debt and prevents the weaker companies from folding up due to a lack of funding. That is the reason why you see dead companies walking in the form of Yingli Energy.

This sharp fall will result in additional difficulties for all companies and a number of them have already announced a halt to their capacity expansion plans, as companies hunker down to face another severe downturn. A gross margin of 10% implies a sharp negative net margin considering that operating expenses are itself 10% of revenues. The last downturn saw LDK and Suntech go technically bankrupt and this time another few large companies could go down.

Many companies are banking on project development to help them pass the downturn with Canadian Solar (NASDAQ:CSIQ) saying that it will sell more projects if it does not meet its revenue guidance, due to a slowdown in modules sales. Some like Hanwha Solar are not overtly concerned and have not reduced their shipment guidance, despite the severe slowdown. One of the things that will help companies is that demand will increase though with a lag. This will help reduce the overcapacity. However, it is to be noted that there are no large electricity markets which can absorb massive amounts of solar power. Unlike last time, there is no China, India and Japan which are relatively underpenetrated and can soak up 10-20 GW of solar power capacity this time.

China installed a gargantuan 20 GW during the first half, while Japan too wants to slow down given that solar power capacity already makes a large chunk of its power. India already has an ambitious 100 GW solar target and cannot take too much more.

Also read Solar Cell Price and Solar Panel Cost in India.

You’re all probably aware that conditions in the solar industry are challenging. Accordingly, we’re operating conservatively going into the second half of the year. Demand is slowing in most regions of the world pressuring sales growth and margins.

At this point in the quarter, we can see the slowdown quite clearly in China and other regions. Our strategy has always been to keep the company stable in tougher times and strive in good times. Again, we intend to be flexible and resilient as the industry cycles through a sluggish period in the next couple of quarters.

Source – Seeking Alpha Transcripts