Asia-Pacific Demand To Help Sector Re-Balance
Asia Pacific Market Demand By Region
|Source: NPD SolarBuzz: Asia Pacific Major PV Markets Quarterly|
New data published today by SolarBuzz in their Asia Pacific Major PV Markets Quartely points to a surge in new installations in both China and the Asia Pacific region as a whole. Indeed, the region seems likely to add a total of 2 GW of new installations in Q4 of this year. This is good news for the solar industry and could help bring supply and demand in the industry back into balance, particularly in light of the recent adjustments to capacity plans seen from Chinese suppliers.
Key take-aways from the report:
- The Asia Pacific Region is expected to generate 2 GW of new installations in Q4 - markedly increasing the region´s share of total global demand both for the quarter and the year as a whole.
- That level of new installations represents a 39% growth rate on the quarter and 130% on the year.
- In 2012 the region is now expected to grow by 45% - supported by new installation targets and support programs from a number of Asia Pacific governments.
- China generated over 50% of the region´s demand in Q3 and looks likely to generate 45% in Q4.
- That ongoing performance has of course been supported by the recent decision from China´s National Energy Administration to revise up its official solar installation target from 10 GW to 15 GW by 2015 on a cumulative basis.
- For 2011 as a whole China looks likely to have surpassed both the US and the Japanese markets in terms of new installations.
- Japanese demand, however, also remains robust. As we suggested would be the case in a previous article published on Seeking Alpha, following the Fukushima incident, government policy has also driven a significant increase in Japanese demand. Japan´s lack of domestic fossil fuels (see previous article) has been a key factor here driving policy.
A number of factors, however, now appear to be falling into place to allow a re-balancing in the industry:
- The affect of the reductions in the various European FITs is largely priced in. In terms of the most recent adjustment, which has been in the UK's FIT program, there is reason to believe that demand will nevertheless hold up quite well. For a more detailed discussion and an interview with one of the UK's leading players see our recent article here.
- The US pipeline remains large. However, financing remains a question mark and we face the issue of the expiry of the Section 1603 Treasury Grant Program at year end at a time when the politics surrounding the issue make the question of rolling over the program almost impossible. For a more detailed discussion see here and here.
- However, as discussed above, there is increasing evidence that Asia and particularly China will take up a good part of any slack going forward.
- Finally, the main Chinese players have announced plans to halt new capacity build out at least until the end of 2012. For a more detailed discussion see our recent article on the issue here.
These factors should allow supply and demand to re-balance itself over the course of 2012, creating a much healthier situation in the industry. The question for now is how forward-looking the market is prepared to be at a time when earnings in the solar sector still look negative, reflective of the current state of over-supply.
For anyone willing to take a long-term view, the bet would seem to be that the main beneficiaries from buoyant Chinese demand for solar will be the very much undervalued Chinese solar players. Given the pressure on margins, it would probably be best to stick to the main vertically integrated, low cost module manufacturers - a basket of Suntech Power (STP), Yingli Green Energy (YGE) and Trina Solar (TSL) would probably work over time.
In the short-term, the outlook is somewhat obviously more about the global stock markets and the European debt crisis. However, on a long-term view these stocks are undervalued and should come back as the demand-supply situation in the industry rights itself.
Disclosure: I have no positions in the stocks discussed.
About the Author: Clean Energy Intel is a free investment advisory service (available at www.cleanenergyintel.com), produced by a retired hedge fund strategist who also manages his own money inside a clean energy investment fund.