Italy’s new FiT, redux: Winners and losers

Industry participants and watchers react to Italy’s new FiT rules: some call them “unconstitutional” and “renewables killers,” some see a looming supply-demand-pricing emergency, but others still see a long-term growth market.

March 9, 2011 – We’ve known for weeks that Italy’s PV sector has been gaining steam — too much of it, probably, generating comparisons to Spain’s FiT surge-and-crash three years ago. And the country’s newly approved solar policy that removes a cap on incentives for solar power production, is fanning the flames of industry watchers.

“Never doubt the greed factor with feed-in tariffs,” quips Greentech Media Research analyst Shyam Mehta.

“Italy is taking panels at an unsustainable rate” (possibly 6GW-10GW on a sell-in basis), notes Satya Kumar with Credit Suisse, a pace that will have to be slowed. Meanwhile, panel supplies are growing sharply due to capacity additions. Net result is a growing supply/demand imbalance, leading to rapid price declines.

Italy’s solar incentive schedule with cut, in €/kWh. (Source: GSE, Credit Suisse estimates)

Several Italian PV industry associations (APER, Assosolare, Asso Energie Future, and Gifi) collectively call the FiT changes a “renewables killer” as well as “unconstitutional,” claiming that the government “fail[s] as yet to realize the economic and social consequences.” Among the casualties, they calculate: €28B in blocked PV orders and contracts, affecting >100,000 workers in the sector, as investors (national and international) stop activities pending the new incentive scheme.

Investors immediately soured on the solar PV sector as a whole, worried that a slowdown in Italy’s PV market is imminent. Some analysts have already started compiling winner/loser lists. First Solar (FSLR) and SunPower (SPWRA) source from other markets than Italy (e.g. Germany and the US), so they’re not as heavily exposed. Still, they’ll probably feel the squeeze from sector-wide ramifications in volume and pricing. On the other hand, LDK Solar is “poorly positioned” with its exposure to foreign cell makers and lower-tier module vendors (i.e. the spot market), notes Collins Stewart analyst Dan Ries. “LDK is at risk for a large volume and price pullback in the disrupted 2Q11 and the oversupply conditions likely over the course of CY11,” he writes.

Suntech and Italy: Not fully appreciative?

In Suntech’s just-announced 4Q10 results, the topic of Italy came up repeatedly. It represented 15% of the company’s 4Q10 sales, according to chairman/CEO Zhengrong Shi; it could slip to as little as 5%-10% this year, but he said the business will be redirected to other European markets. (“We spent a long time making sure that we could shift products on a moment’s notice, while they are waiting at the port in Shanghai for one market to another,” reiterated STP’s “chief commercial officer” Andrew Beebe.) The company has a pair of two-year deals totaling 175MW there, plus ~40MW of projects through the GSF aiming to be completed in 1H11 (i.e. before the current tariffs expire). What seems to be a goal of Italian authorities, he said, to emphasize rooftop installs (by limiting the size of projects usable agricultural land) — and that “suits our business model well,” he said. Beebe also pointed out that Italy is particularly attractive long-term to solar PV options in general, because its “extraordinary high cost of electricity per kilowatt hour” softens the need for subsidies to close the parity gap with other energy sources.

Satya Kumar from Credit Suisse, though, thinks STP is downplaying the near-term impact of Italy’s PV plans. The company’s unchanged 2011 guidance ($3.4B-$3.6B revenue, gross margins 20%-22%, shipments 2.2GW) is too aggressive “and does not take into account full impact of Italian slowdown and extra supply in 2H11,” he writes. Kumar calculates the company has completed 105MW of projects through GSF, and most of that (90MW) is completed but not yet grid-connected; some back-of-the-napkin math (incorporating assumptions about financing sources and cost projections) arrives at ~$6/W for the projects, but equity investors aren’t sold yet, and there’s risk to the cost model if it’s not all connected before June (especially the aforementioned 40MW extra).


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