Solar Rebound Beating Dot-Com Recovery as Demand Surges
Solar industry manufacturers are rebounding from a two-year slump faster than technology companies recovered from the dot-com bubble of the late 1990s.
The benchmark BI Global Large Solar Energy Index of 15 manufacturers, which slumped 87 percent from a February 2011 peak through November 2012, has regained 55 percent of its value in the past year. The technology-dominated Nasdaq Composite (CCMP) index reached its post-bubble low in October 2002 and regained 37 percent of its March 2000 peak value in the next year, according to data compiled by Bloomberg.
Suppliers including California’s SunPower Corp. (SPWR), which has gained more than fivefold this year, and China’s Yingli Green Energy Holding Co. (YGE) are driving the rally as panel prices stabilize. Installations at power plants and on roofs will swell 40 percent this year from a 6.1 percent pace last year.
“The worst is probably behind us,” Jenny Chase, lead solar analyst at Bloomberg New Energy Finance, said in an interview. “We’ve just gone through a big trough in solar supply.”
Investors poured $205 billion into clean-energy projects in the past year, soaking up some of the global oversupply of panels. The recovery will continue in 2014 with prices remaining stable, Chase said. Manufacturers are “a lot less depressed.”
Analysts have become more optimistic about solar shares in recent months. The average rating for SunPower, the biggest U.S. supplier of polysilicon-based solar panels, is 3.5, up from 2.4 in December and the highest in more than two years, according to data compiled by Bloomberg. A 5 rating indicates investors should purchase the shares, and 1 means they should sell.
JinkoSolar Holding Co., the only Chinese solar manufacturer to report a profit in the second quarter, has an average rating of 3.7, up from 2.3 in May, data compiled by Bloomberg show. Its shares have more than tripled this year.
Investors have rushed back into shares of the biggest panel makers even before they’ve returned to profit. Yingli, which has more than doubled, is forecast to report narrowed losses compared with 2012. Canadian Solar Inc. (CSIQ), which has risen almost sevenfold, is forecast to return to profit of $27 million from a $195 million loss in 2012.
“It’s pretty clear over the last nine months that things have improved significantly,” Robert Petrina, Yingli’s managing director for the Americas, said in an interview.
Yingli, based in Baoding, China, was the biggest panel maker last year based on 2.3 gigawatts of shipments, and the company expects that figure to increase as much as 43 percent this year. The global photovoltaic industry may install as much as 42.7 gigawatts of panels this year, 40 percent more than in 2012, according to New Energy Finance.
The strongest companies are now selling panels above cost, according to Chase. A year ago, more than half the Chinese panel-makers in the Large Solar Energy index reported negative gross margins. That’s a strong sign that the industry is starting to turn the corner from the last two years, when factories were overbuilt.
The top 10 manufacturers boosted their total panel-production capacity 19 percent to 20.6 gigawatts in 2012 from two years earlier, according to data compiled by Bloomberg. Those factories came online as demand waned. Panel installations more than doubled from 2009 to 2010. The pace slowed to 58 percent in 2011, and then slumped to 6.1 percent last year.
Some of the “illogical elements of the market” have disappeared, Chase said.
Demand is climbing in Japan, where the country is promoting wider use of renewable energy instead of nuclear power, and China, where the government expects its installed capacity to double this year. The two countries will be the top solar markets this year, according to New Energy Finance.
The solar slump had casualties, driving more than two dozen manufacturers into bankruptcy, and some companies are still struggling, said Chase.
“I don’t think we’re out of the woods. There may still be some bankruptcies,” she said.
Those failures may benefit the industry as weaker companies are forced out and larger ones absorb their customers and assets, said Mark Mendenhall, president for the Americas at Trina Solar Ltd. (TSL) The Changzhou, China-based company expects to ship as much as 2.4 gigawatts of panels this year, up 50 percent from 2012, and its shares have more than tripled this year.
“You’re going to see a greater separation between the well-run companies from those that are trying to operate purely on a low-price basis,” he said. “This is an industry that’s gotten out of its childhood, emerged from adolescence and is poised to enter adulthood. That which doesn’t kill you, makes you stronger.”
Other potential threats to the solar rebound are increased costs for raw materials, including aluminum and polysilicon, he said.
Most of the companies in the Large Solar Index are still unprofitable. Only Jinko, SunPower and First Solar Inc. (FSLR) reported net income in the second quarter.
The oversupply drove down panel prices 52 percent in 2011 and 20 percent last year. That was bad for suppliers and better for customers, helping boost sales, according to Tom Werner, chief executive officer of SunPower. So far this year, prices have rebounded 9 percent.
The company, based in San Jose, California, expects to recognize sales of as much as 1.03 gigawatts of panels this year. The company said yesterday it will boost capacity by 25 percent.
“Cost of solar is more competitive with conventional energy,” Werner said in an interview. “Things are substantially different from a year ago. For us, sunnier skies started earlier this year.”
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