Photovoltaic industry outlook

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After the chaos during several years, photovoltaic industry has become a more mature industry worldwide. A number of solar stocks have seen tremendous gains in their share prices in 2013 after the bounceback of the sector, e.g., SunPower soared by 443% , Canadian Solar, which is the hottest stock in the pool, recorded a striking 812% rise.

Now we are in Q1 of 2014. How is it going in this industry? We first turn our clock back and focus in the last recession during which many suppliers especially Chinese companies had largely increased their manufacturing capacities in anticipating uptrend cycle. Nevertheless they were too optimistic in this promising but policy driven market. Problems began first in high production cost companies then propagated to the rest. PV Manufacturers found themselves exposed to big geopolitical risks when Germany cut its feed in tariff. The market kept collapsing in 2012 along with the China-EU solar trade war. Some giant players were out.

Market always has a reason. Supply surplus kept driving down module ASP while making companies with high debt equity ratio running out of cash and more difficult to get financing.

So what about 2014 and years coming after? Before answer this question, we should be aware that solar industry has changed considerably in four following aspects:

  1. Large numbers of manufacturers have been forced out and bankruptcies are still going on.

The most recent symbolic event is the ever glorious Chinese vanguard “Suntech Power” filing for U.S. bankruptcy protection after years of struggling. Its stock has been thought worthless with just around 40 cents traded in OTC market. High cost EU manufacturers are still in trouble.

(2) Market has been deeply diversified.

EU especially Germany and Italy used to be the prominent buyers. The slowdown of EU market has been one of the major causes of last recession while the rest of world did not compensate fast enough. Now China, Japan and United States are playing important roles with very big portions along with lots of other markets, which means there is lower demand risk.

(3) Module ASP almost stable in 2013

The ASP stability is one of the key factors that helped some companies to return to profitability. The market has seen its short term equilibrium in 2013.

(4) Downstream trend

Some major PV Manufacturers have adopted downstream strategy in 2013. They have explored their business scope and become Project Developers/EPC Contractors. Managing to sell the projects could produce a 30% profit margin, which is much more profitable than that of module &cell selling. The star mentioned above, Canadian Solar has benefited a lot from its project pipeline.

In conclusion, a healthier solar market is there. We expect to have a global demand of about 45GW this year and the effective manufacturing capacity will still be slightly greater than demand. Competitive PV manufactures will take their advantages and make M&A. Although the module ASP might slide down, the successful cost reducing leading manufacturers are always worth of investors’ attention.

Y.ZHU

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