Tuesday, April 28, 2015

Meeting Solar Challenge in the Courtroom

European solar manufacturers are once again complaining about China’s exports.  The new complaint made by industry association EU ProSun is that China manufacturers of solar cells and panels are circumventing Europe’s anti-dumping measures instituted a few months back by channeling their products through Malaysia and other intermediaries in order to disguise the China origin.  Europe’s anti-dumping duties do not apply to shipments coming into Europe from other countries.  Europe is home to over 300 solar cell and panel producers compared to nearly 600 in China.  There are about 275 solar producers in other Asian countries, making it easy to find a patsy to sneak cheap solar energy products from China into Europe without paying a duty.

A report by released last month by IHS provides some insight into why German solar equipment producers in particular are protective of their competitive position.  IHS forecasts global solar photovoltaic capacity could reach 498 gigawatts by 2019.  That call is a whopping 177% higher than capacity reported in 2014.  The dramatic increase in capacity signals a shift in the solar industry to a supply-driven dynamic that is accompanied by higher capacity utilization rates.

IHS also projected a dramatic increase in demand to 75 gigawatts per year by 2019.   That level is 66% higher than demand registered in 2014.  Buyers in the United States, Germany and the United Kingdom represent a quarter of total global demand.  If these numbers are accurate, even Germany with its eighty-plus solar cell producers might NEED China supply. 

Price still is a touchy subject.  The IHS report also takes a stand on solar cell prices, suggesting that average selling prices will experience deep declines in the next several years.  Prices for standard silicon modules are expected to decline by as much as 27% by 2019, reaching an average price as low as $0.45 per watt.  China had been selling solar modules at a loss for a little as $0.25 before the U.S. and European Commission slapped them with duties.  This was enticingly close to the $0.15 cost of residential electricity produced by utilities using conventional fossil fuel powered generators.   A Deutsche Bank analyst suggested in a January 2015 note to its clients that total module costs of China solar companies had declined to around $0.50 per watt by the end of 2014.   Another 30% to 40% reduction in costs is expected over the next several years that would bring Chinese producers to a cost level near $0.30 per watt. 

Patching predictions of the two solar industry experts together suggests solar module producers have more challenges ahead.  Expect EU ProSun and others to meet those challenges in the market place as well as the courtroom.


Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


No comments: