Solar Boom in 2012?

Alex Morales and Jacqueline Simmons of Bloomberg report, Solar CEOs Predict Boom in China Will Ease Glut in 2012:

China may double its installations of solar panels this year, absorbing excess production that depressed prices and margins in 2011, chief executive officers from two of the industry’s top five manufactures said.

Suntech Power Holdings Co. CEO Zhengrong Shi estimated the nation may add 4 gigawatts or more of panels, and Trina Solar Ltd. (TSL) CEO Jifan Gao expects 5 gigawatts. That compares with about 2.2 gigawatts installed in the country in 2011, more than double the capacity of the average nuclear reactor in the U.S.

The cost of solar panels fell 47 percent last year as Chinese manufacturers led by Suntech boosted production, winning market share from Western rivals such as Q-Cells SE and First Solar Inc. With China’s government pushing to consolidate the industry, the remarks from Shi and Gao suggest rising demand may support the biggest panel manufacturers.

“It’s a huge market,” Gao said through an interpreter in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “Excellent companies with good technology, balance sheets and also brands will win out. A lot of companies without those advantages will be taken away.”

Those forecasts are more optimistic than the projections of Bloomberg New Energy Finance, which expects Chinese installations of 3 gigawatts this year and world demand from 25.5 gigawatts to 32.8 gigawatts. Trina expects global demand of 30 gigawatts to 35 gigawatts.

Solar Rebound

Solar shares have rebounded in recent weeks, driven in part by politics in Germany, the world’s largest solar market. After adding a record 7.5 gigawatts of panels last year, more than double the government’s target, lawmakers proposed cutting subsidies. A meeting Jan. 25 ended without an agreement and solar stocks climbed.

The Bloomberg Large Solar Energy (BISOLAR) index of 17 companies, which lost more than two-thirds of its value in 2011, gained 1.7 percent yesterday and has increased 20 percent this year. In New York, Suntech rose 2.7 percent and Trina by 5 percent. 30. An index of eight Chineses solar companies rose 5.4 percent, more than five times the pace of the NEX index of clean energy shares.

In Britain, the government estimates that capping subsidies in December would have saved 1.5 billion pounds ($2.4 billion) over 25 years. A court ruled it illegal to end the support then, ahead of schedule, and developers are rushing to complete new solar plants that will earn the old tariff before officials decide when to scale them back.

Chinese Demand

Suntech’s view shows that growing demand in China may also drive a solar recovery this year.

“I’m hearing a lot from on the ground in China about how hopping demand has been,” said Aaron Chew, an analyst with Maxim Group LLC in New York. “China could surpass Germany” as the world’s largest solar market.

Prices of polysilicon, the raw material in most solar panels, rose in four of the past five weeks after falling 65 percent in 2011.

The Chinese government is spurring clean energy to diversify away from coal, which fuels 70 percent of the economy and is blamed for pollution blanketing industrial areas from Hong Kong to Beijing. Renewables currently account for less than 1 percent of supply, which is growing faster in China than anywhere else in the industrial world, according to data from the oil company BP Plc.

Jenny Chase, head of solar analysis at New Energy Finance, said the forecasts assume China will meet and not surpass the government’s target to have 15 gigawatts of solar capacity by 2015. The estimates from Suntech and Trina suggest that China, like Germany, Spain and Italy, may have trouble keeping a lid on installations once developers start understanding how subsidies will apply to their projects.

Supply-Side Push

“Many other governments who have tried to limit their markets have failed,” Chase said in a phone interview from Zurich. “There could be a supply-side push that pushes this equipment out incredibly cheaply without the need for the federal subsidy.”

Solar panel prices have fallen so quickly that the technology is near reaching parity with fossil fuels in terms of the ability to supply power to national electric grids at a competitive price, said Gao of Trina.

‘Grid Parity’

“We have confidence that we will reach grid parity in several years in China -- like in three to four years,” said Gao, adding that Trina had about 10 percent of its sales in China last year. “In places like Australia, this year they will reach grid parity. Next year, it will be Italy and in 2014, regions like California.”

For now, falling prices are hurting companies throughout the industry. Trina cut its forecast for shipments last year along with First Solar, SunPower Corp., Yingli Green Energy Holding Co., Renesola Ltd. and JinkoSolar Holding Co.

Gao also predicted consolidation in the solar industry, and said that while the 10 biggest panel makers now account for just over 55 percent of the market, by 2015, that proportion may reach more than 80 percent.

“Although the industry faced some challenges, if you look at the trend, it’s growing,” Trina’s Gao said. “We expect that by 2015, the new installations that year will be about 50 gigawatts, so it’s constantly growing.”

China, the manufacturing hub for seven of the eight biggest solar panel makers, until 2010 accounted for less than 3 percent of the market for photovoltaics, with 490 megawatts installed. Installations more than quadrupled last year.

Shi of Suntech said China’s market was “exciting” and the market there this year could be “4 gigawatts or more.” Suntech is the biggest supplier of solar photovoltaic panels, and Trina is the fifth largest.

Solar stocks got clobbered in 2011 largely because of euro woes. Germany recently announced it would speed up subsidy cuts and all the solar bears are warning that the solar industry is in trouble.

Rubbish, total rubbish! First, Germany’s solar subsidy program is now the subject of dispute between two ministers in Chancellor Angela Merkel’s Cabinet. But beyond Germany, China is a powerhouse in the solar industry and they are increasing their demand. Moreover, in India, falling costs of solar energy are making it a viable alternative to power generated by fossil fuels.

In fact, Bloomberg reports that India is producing power from solar cells more cheaply than by burning diesel for the first time, spurring billionaire Sunil Mittal and Coca-Cola Co. (KO)’s mango supplier to jettison the fuel in favor of photovoltaic panels.

But solar skeptics abound. Investors prefer listening to bears like Jim Chanos who is shorting China and solars. I prefer looking at what top hedge funds and long-only funds are actually buying. I pay attention to charts, see if the pullbacks are being bought hard and see if fundamentals are gradually improving.

I also love reading articles on the most shorted solar stocks. Why? Just look at Netflix (NFLX), up over 75% this month, and ask those bears on Zero Hedge how their "short Netflix" position is going (LMAO!).

Here is a snapshot of the 10 most shorted solar stocks at the close today (click on image to enlarge):

Bunga Bunga! Keep on shorting those solars, baby, will only make the solar melt-up that much funner for us solar longs! And if the Greek gods are smiling, a debt deal over the weekend will help propel all risk assets, including solar shares, much higher.

Below, Suntech Power Holdings Co. Chief Executive Officer Shi Zhengrong talks about the outlook for solar energy prices. He speaks with Maryam Nemazee and Matt Miller on Bloomberg Television's "Countdown" on the sidelines of the World Economic Forum's annual meeting in Davos, Switzerland.