Signs of Improving Fundamentals, Demand Shift Spur Renewed Investor Interest in Solar Sector (TAN)

FREE Breaking News Alerts from StreetInsider.com!

TAN Hot Sheet

Rating Summary:
0 Buy, 0 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23

Solar stocks are continuing higher Thursday as word from a number of sources has recently hinted at renewed interest in the industry -- specifically within the Chinese market. In addition to improving fundamentals, prospects for upcoming favorable policy shifts seem to be another major driver of the move.

The Claymore/MAC Global Solar ETF (NYSE: TAN) is up nearly 10 percent this afternoon, extending a nearly 5 percent increase in the fund on Wednesday.

A note from Deutsche Bank's Vishal Shah Thursday morning highlighted some factors which point at a pick-up in demand:

Utilization rates are improving;
PV prices could further increase in February;
Multiple markets are showing similar signs of increased demand;
Tier 1 companies in China, Taiwan, Korea are all seeing increased bookings momentum, and are running at full capacity;
Downstream companies in Europe are also seeing increasing orders and are looking to accelerate orders by paying extra for air freight.

Shah said checks indicate German end customers are seeing such strong demand that they've nearly run out of rooftops to put panels on. "Some leading developers plan to increase installation levels in Germany by 30 percent YoY in 2012 and individual households also consider the current FiT levels attractive enough to initiate new installations (note that individuals also get 50 percent tax deduction on top of FiT). Discussions with industry participants suggest that although several proposals including a hard cap are being considered, a final resolution by April is unlikely," according to Shah. The analyst sees upside to his 3.5-gigawatt installation forecast for the German market.

Shah noted some Korean companies which have seen increased demand in the U.S. ahead of the solar grant program expiration: "...under the current cash grants provision, installers are required to purchase 5 percent of the product before Dec 31st in order to receive the grant. US installers have 105 days to receive product for which payment was made as of Dec 31st and as such the current production related rush from the US could continue until late Feb/early Mar."

Shah also pointed to upcoming talks between the White House and China. The analyst believes CEOs' from several Tier 1 Chinese solar companies appearing at the the discussions -- a recent unconfirmed rumor -- would be a positive. Shah's comments seem to suggest the CEOs' involvement could be a precursor to further solar policy development in China, with PV and Tier 1 solar companies to benefit.

Separately, a larger Norwegian solar company, Renewable Energy Corp., issued similar comments with its fourth-quarter earnings release late Wednesday. The company said demand is shifting from Europe to the U.S. and Asian markets. The company also noted the Chinese government is expected to double solar installations this year and set tariffs on developers and manufacturers aimed at shifting to solar power.

On January 11th, China's National Energy Administration website said China plans to develop 3-GW of solar capacity in 2012, though some speculate that number could increase to 4-GW before all is said and done.

Just about every solar out there is moving Thursday on the reports. Solars in the Chinese market are leading the way.

Trina Solar (NYSE: TSL) - up about 26 percent on the session;
Yingli Green Energy (NYSE: YGE) - up 19 percent;
LDK Solar (NYSE: LDK) - up 13 percent;
Suntech Power (NYSE: STP) - up 11 percent;
JA Solar (Nasdaq: JASO) - up about 12 percent;
Renesola (NYSE: SOL) - up about 12 percent; and
FSLR) - up 8 percent.