Solar Sector Remains Under Pressure as Analysts See German Cuts as Far Worse than Feared (TAN)

February 23, 2012 3:45 PM EST
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Stocks within the solar industry began trading down Wednesday asrumors Germany had plans to cut solar subsidies began to surface. After rumors were later confirmed, shares began trading down substantially in Thursday's pre-market session. The German government said it would begin to take significant steps in an effort to control the growth of solar installations to 2-2.5GW/yr. The government also stated a new law to cut subsidies by as much as 20-25 percent may be introduced to the cabinet next week.

While the development was telegraphed relatively well by solar traders, analyst comments this morning may be weighing on the sector.

Deutsche Bank said, “specifically, at the press conference today, the Environment minister suggested: pulling forward the July FiT cuts to March 9, increasing the magnitude of FiT cuts from 15% to 20-25% depending on the system size (19.5c/kWh or 20% cut for sub 10kW systems, 16.5c/kWh or 25% cut for 10kW to 1MW systems and 13.5c/kWh or 25% cut for 1MW+ systems), completely eliminating FiTs for systems above 10MW from July and also removing the self-consumption bonus, capping the subsidy per unit to 85% of electricity produced for small systems and 90% for large systems, and introducing additional FiT cuts of €0.15c/kWh per month from May.”

Both Deutsche and Citi called the proposed cuts a lot worse than originally feared. Deutsche believes German distributors may begin canceling orders soon to begin working down inventories, although no solar companies have yet to see any negative repercussions due to the announcement. This may begin to start as soon as next week.

Citi analyst Clyde Eltzroth pointed out proposals will negatively affect pricing across the solar value chain within the industry.

An analyst at Raymond James, Pavel Molchanov, sees global demand for 2012 down 8 percent as demand in Europe will be down roughly 15 percent. Molchanov also forecasts supplies will see a 9 percent increase as production capacity will outweigh demand by at least 50 percent.

Also contributing to some of the down side within the industry was fourth-quarter results from Trina Solar (NYSE: TSL) which were much worse than any analyst was anticipating. Earnings for the quarter came in at a loss of $0.93 per share, well below the $0.39 per share loss the Street was originally forecasting. The company also reported first quarter shipments are expected to be between 400 and 430 MW, while shipments for the entire year should be between 2 and 2.1 GW.

The biggest losers within the solar industry Thursday include Trina Solar, Yingli Green Energy (NYSE: YGE), Hanwha SolarOne (Nasdaq: HSOL), Suntech Power (NYSE: STP), Jinko Solar (NYSE: JKS), JA Solar Holding (Nasdaq: JASO) and First Solar (Nasdaq: FSLR). The Global Solar ETF (NYSE: TAN) is down nearly 6 percent this afternoon.

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