Solar Stocks Rally on German Installs, Chinese Plans to Double

Solar companies rose on optimism that stronger-than-expected demand at the end of 2011 will continue this year.

The Bloomberg Global Leaders Solar Index of 37 companies rose 7.2 percent to $47.93 at the close in New York, its third straight day of gains, led by Energy Conversion Devices Inc.’s 39 percent increase and Hanwha SolarOne Co., which gained 37 percent. The index has climbed 16 percent this year after falling 59 percent in 2011.

Surging installation in Germany and the U.K. and China’s plans to double total capacity this year are boosting demand for solar panels, said Aaron Chew, a Maxim Group LLC analyst in New York.

“I’m pretty bullish on demand in 2012,” Chew said today in an interview. “If pricing remains the same, I see 30 gigawatts this year and 40 gigawatts next year” of new solar installations worldwide.

As much as 29 gigawatts of solar panels were expected to be installed worldwide last year, according to estimates from Bloomberg New Energy Finance.

Germany installed 3 gigawatts of solar panels in December, the most in a single month, the country’s grid regulator said Jan. 9, driving the world’s largest solar market to 7.5 gigawatts of capacity installed in 2011.

U.K. installations reached 761.9 megawatts last year, up more than 10-fold from 2010, according to the country’s energy regulator.

China Doubling Solar

The head of China’s National Energy Administration Liu Tienan said yesterday the country plans to double the amount of solar capacity in operation by installing 3 gigawatts this year.

The final number may be even higher, Chew predicted. “I think China does north of 5 gigawatts this year with some people saying it will reach close to 7.”

Chinese solar makers climbed today. JA Solar Holdings Co. gained 35 percent and Trina Solar Ltd. rose 29 percent.

First Solar Inc., based in Tempe, Arizona, increased 7.8 percent to $41.80.

“It may feel like a bottom in solar stocks,” said Paul Clegg, an analyst at Mizuho Securities USA in New York.

Inventory levels at solar companies are now at “record low levels,” Vishal Shah, an analyst with Deutsche Bank AG in Frankfurt, said today in a research note. That may “create a sense of rush,” driving demand in the first half of this year.

Increasing demand may be driving up the price of polysilicon, Shah said. Prices for the main ingredient in solar cells rose 3 percent to $27.36 a kilogram last week from the prior week, according to New Energy Finance, only the second weekly increase since September.

The “encouraging poly pricing” may continue for the next month, Shah said, and will “likely drive solar stocks higher.”

‘Zero Margins’

Low panel prices and slim profit margins will continue to hinder earnings at solar companies, Chew said. “Higher shipments with zero margins are still zero margins.”

Prices for solar panels fell 51 percent in 2011 to 88 cents a watt as manufacturers increased production, according to data compiled by Bloomberg.

The gains in solar shares this week “may be more of a short-covering rally than a long-term shift,” said Clegg. “There’s still a lot of overcapacity that hasn’t been dealt with.”