SPI rewind: Regional plays, downstream surge, cost/W marches on

Deutsche Bank’s Stephen O’Rourke saw several themes at this year’s Solar Power International show: Overall positive sentiment, especially for integrators; near-term challenges in the US market and uncertainty in Germany, hinging on the weather; and demand holding up “reasonably” at least through early 2010.

November 9, 2009 –  Deutsche Bank’s Stephen O’Rourke summarized his thoughts about this year’s Solar Power International show in a pair of research reports, noting the “strongly positive sentiment” at the show, likely attributable mostly to near-term business prospects. Among his observations:

Problems in the US. Credit availability, competition among developers, and long approval times for utility projects are all constraining factors, he notes. Credit terms are now typically <10 years, with few large-scale projects getting financing, and the “intense competition for PPA agreements” is resulting in bids that “are arguably below a level that makes economic sense” for the winners, so they are shelved hoping for future renegotiation or timed far enough out to hope for better prices – PUC projects in CA can be well over a year, he notes. That’s good for building a long-term pipeline of work, but “if these issues persist well into next year, 2010 could prove a disappointing installation year in the US,” O’Rourke writes, predicting 2010 installs to be “at the lower half” of a range of 600MW-1.1GWp.

Mixed forecast for Germany. Talks at the show suggest the German market still offers good near-term business, possibly better than a year ago, though module declines will continue. “While many have opinions on anticipated changes to the German FIT, no one knows for certain,” he writes. Demand “could hold up reasonably well” with attractive ROI on projects — if the weather is good; if not, “1Q could disappoint compared to expectations that seem to have ratcheted up very recently,” he notes. Nevertheless, he is bullish on Germany’s “reasonable growth expectations in 2010” — particularly with doubt creeping up about demand in the US and China in 2010.

The wildcard about Germany is the future of its FIT, for which O’Rourke notes a consensus of >20% cut in midyear for ground-mount systems and for roof-mount systems at year’s end. “However, cuts of such magnitude would hardly devastate the German market in 2010,” and would merely revert project ROIs back to historical norms, “and the German market would grow modestly in 2010.,” he explains.

Marching toward $1/Wp. Chatter suggests future module pricing (up to three years out) on large-scale projects of ~$1.25/Wp for c-Si modules, O’Rourke writes. This “presupposes some confidence in the “YingLi” manufacturing cost model approaching $1.00/Wp over the next couple of years.”

Best swimming is downstream. This year’s Solar Power International had prominent participation from developers, O’Rourke noted. And for good reason — as has been seen in recent M&A deals, solar firms are eager to establish a presence further down the chain to find the real touchpoint of demand, and thus build a sustainable pipeline of business and visibility. A recent example is MEMC’s purchase of SunEdison; also, Chinese manufacturers are “frantically trying to partner downstream with developers” in foreign markets like the US, O’Rourke notes. “We believe this downstream approach is strategically sound, but many companies may have difficulty realizing benefits over the near term.”

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