Several more themes emerged from this week's Solar Power International show in Los Angeles, according to one analyst: Italy's solar market is revving up, poly-Si prices are going up, and big projects are back in style. He also gets an update on FSLR's 230MW AV Solar project in California.

October 15, 2010 -  Several more themes emerged from this week's Solar Power International show in Los Angeles, according to one analyst: Italy's solar market is revving up, poly-Si prices are going up, and big projects are back in style. He also gets an update on FSLR's 230MW AV Solar project in California.

Italy booming

Italian demand is "shifting into overdrive" as 2010 closes and 2011 begins, notes Credit Suisse analyst Satya Kumar in a research note. He cites a conversation with one major global polysilicon panel distributor that Italy made up a third of its 120MW panel volumes in 2010, but will account for almost two-thirds of its projected 2011 volumes (220MW out of total 360MW) -- 5x-6x growth vs. the supplier's own 3x growth. That includes a 120MW purchase order for 2011 deliveries to Jinko Solar at €1.35/W ($1.89 at current exchange rates). That volume and flat pricing from one large distributor suggests others probably feel the same about the Italian market for PV, he writes.

Pricing zooming

With current spot prices for polysilicon at $80-$85/kg (up to $100/kg in small volumes), $1.80/W panel prices going into early 2011 could push poly prices to $120/kg. That helps more upstream-focused suppliers including Daqo and LDK Solar, which Kumar notes is ramping polysilicon production from 1200 tons in 3Q10 to 2000 tons by 1Q11, half of which is going to the spot market. Also ramping capacity in 2011 is Renesola, as some factory problems have been resolved more quickly than anticipated. And Trina Solar's pricing and volume assumptions for 2011 now appear to be conservative, he writes.

First Solar, meanwhile, has been building customer goodwill thanks to its "very reasonable" prices (as Chinese competitors raise theirs); Kumar suggests the company has been locking in €1.00-€1.05/W pricing in 2011 for recent module contracts. Installers in Germany, he notes, say prices of €1.00-€1.20/W (ground-mount) and €1.20-€1.25/W (rooftop) are needed to keep the German markets viable in 2011.

Embrace positivity, watch the negatives

While this year's SPI was a boom of positivity -- "easily the largest show we have witnesses in the US" -- there are some key concerns as well. Expect those rising polysilicon prices to dent midstream cell and panel companies' gross margins. And wafer/cell supplies are rising rapidly, possibly as much as 2GW/month, something to watch "at some point" in the next few quarters, he points out.

On the incentives front, successful passing of California's Prop.23 could slow utilities' renewable energy programs "by a few years," he says. German subsidies are also in flux, though "we are not assuming an adverse outcome," he added. While 1Q11 shows strength, it's still not a lock; "some installers and [distributors] are holding out," and note that German seasonal demand will weaken starting in December. And any hiccup in the Euro's rebounding appreciation could soften sentiments. "It is looking increasingly likely that if you were looking for a big negative signal to emerge from earnings, it looks less likely than it did a few weeks ago," Kumar writes; instead look for "rather significant positive earnings momentum for solar stocks over the next three earnings seasons."

Big is beautiful

Sluggish financing for larger commercial and utility systems has given residential systems a little more attention during the financial slump -- but downstream players clearly are shifting their focus to larger systems. Some installers (SPG, Boreego, Westinghouse Solar/Akeena) have either given up that sector or consolidated to focus on those larger projects, notes Kumar. And larger project finances are recovering; he heard at SPI about $0.11-$0.12/kWh commercial PPA rates and 11%-14% unlevered equity IRRs. Module supply is tight in the US, but opinions differ as to when it will soften, from a few weeks all the way to 2H11.

Other energy questions may help utility-scale solar growth in California. Seems there are some environmental concerns about using sea water for cooling at existing coastal electricity generation facilities. That could drive closure of >1GW of capacities in California by 2020, and that will need to be made up by new generation capacities, Kumar notes.

Wrangling FSLR's Antelope Valley project

Another interesting takeaway from SPI was an update on First Solar's 2100 acre, 230MW AV Solar Ranch project in Antelope Valley, a greater-LA bedroom community. On Nov.23 the LA County Planning Commission hears an appeal from Northrup Grumman which is concerned for its nearby radar testing facilities, whose relative secrecy and uniqueness causes some doubt about the projected impact of nearby solar energy generation. (Similarly, a wind installation in nearby Kern County had to be modified and downsized.)

The planning commission also noted some "sticking points" on the permitting process, including conditions of decommissioning end-of-life solar projects, desire for underground transmission (more costly than above-ground), water use, and biological impact. Projects are preferred to be on disturbed, already-commercially-used land (e.g. agriculture, zoned A2) for which the permitting process is much faster and less expensive than "raw land" (zoned A1), which must be rezoned for any use as electricity generating facilities e.g. solar. Much of the Antelope Valley region has proposed or existing ecological areas that also require longer, more costly permitting, according to the officials. FSLR has modified its AV Solar Ranch One plans to avoid one of these zones.