Solarfun Power Faces Some Serious Clouds on the Horizon

Solarfun Power Holdings (SOLF) believes strong demand from China and fast-growing European countries such as Italy and the Czech Republic will boost its solar module shipments and stabilize prices this year. Management's guidance for 2010 could prove too optimistic, however, given larger than average exposure to the German market and questionable governmental subsidies for proposed new solar projects.

For all of 2010, the vertically integrated Chinese supplier of mono-crystalline and polycrystalline solar cells and modules expects almost a doubling in shipment volumes to approximately 600 megawatts. Although shipments to customers in the Czech Republic and China grew to 12 percent and 11 percent of total photovoltaic (PV) module sales in fourth-quarter 2009, Germany still accounted for 57 percent of all activity at year-end.

In part, due to a glut in solar panel inventories, the German government will likely rollback feed-in tariffs (the guaranteed rate paid to solar power providers) come July 1, which includes proposed cuts of 16 percent for rooftop systems and the elimination of open-field (farmland) subsidies, according to Bloomberg news.

German installations in 2009 should top 3.2 gigawatts, or almost 50.2 percent of total global demand, according to market research firm Solarbuzz.

Chief financial officer Gareth Kung noted on the fourth-quarter earnings call that 50 percent of shipments to German-based customers were, in fact, installed in other European end markets. Contrary to expressed optimism, megawatt volumes installed in these other markets may prove too small to offset lost sales in Germany through (at a minimum) 2012. In particular, proposals to decelerate subsidies or delayed feed-in-tariff initiatives in markets outside Germany signal less-- not more -- visibility in growth for channel demand of Solarfun's PV modules:

• Czech energy regulators have already cut feed-in tariffs for solar-generated power by five percent in the first-half 2010, but worries persist that Prague is readying further cuts, according to Reuters;
• The Italian government calls for planned tariff cuts of 16 percent (to 0.264 Euros per kilowatt-hour) at year-end 2011 -- followed by subsequent six percent a year subsidy declines in 2012 and 2013;
• Look for curtailment in demand from troubled Euro-zone markets. In particular, the notorious "PIGS" nations (Portugal, Ireland, Greece, and Spain), which are desperate to slash bloated federal budgets, will be unreceptive to solar subsidies vital to stimulating demand for renewables -- especially sunny Portugal, where public debt is forecasted to eat up about 91 percent of gross domestic product by 2011, according to the European Commission; and,
• Despite vendor talks of solar subsidies in China by early 2010, adoption of a national feed-in tariff program is being pushed out until 2011, according to administrators with the country's National Development and Reform Commission. Ironically, until the government kicks in with financial incentives, the economics of most utility-scale, domestic projects will remain unattractive, and the country will remain a net exporter of solar products. (China a low-cost exporter - how unexpected!)

Average selling price (ASP), excluding module-processing services, declined to US$1.95 per watt in the fourth quarter, from US$3.37 per watt a year ago. Along with higher capacity growth this year, the company expects ASP to weaken another 10 percent in first-quarter 2010 (assuming constant foreign exchange ratio of one Euro to US$1.35) before stabilizing in the second quarter, president Peter Xie said on the earnings call.

We are never deceived; we deceive ourselves. ~ German novelist Johann Wolfgang von Goethe (1749 - 1832)

Solar-panel image via Flickr user david.nikonvscanon, CC 2.0 Related Posts:

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