Monday, January 25, 2010

Germany's solar fallout

Several sources now report that Germany plans to decrease the (feed-in-tariff) FIT by ~15% starting April 1 for smaller installations (unless you also consume the electricity you produce in which case you get a 5 eurocent/kwh kicker which could put you roughly back to the current FIT) and the same -15% on July 1 for larger commercial installations. Also utility scale/farm field installations will see an extra 10% (for a total of 25%) reduction in FIT July 1.

I predict this will result in a continuation of current stampede on the German market for the next 5 months, and module prices to hold steady until summer. Expect at least 2GW to get crammed into Germany by midyear. In the second part of the year, either a) the German market will contract ~50% to 0.5GW/qtr or b) panel prices will drop up to 15%; or some combination of each. [A 15% price drop will be shared out with installers and others in the supply chain--so it probably won't be a complete disaster--just painful for all.]

If b) happens, panel prices in the second half of the year drop by up to 15%, this will be a record year in terms of GW installed worldwide, as several markets in Europe and Asia (not to mention the US) are poised to expand quickly. Margins of panel makers will dip in the second half, but revenue growth will still be double digits for the year.

If a) panel prices do not drop in the second half, then I expect there will be a boatload of pain as the solar industry hits a negative demand shock from Germany’s recent decision. In this scenario the tide of panels that is currently rushing into Germany gets diverted to any port in the storm and less mature solar markets like France, Italy, Greece, Ontario, Korea will be flooded with 100s of MW of panels and possibly scare these FIT paying market regulators into slamming their doors shut (as Spain did and now Germany is doing in a gentler fashion), until there is nowhere left for the panels to flow. Solar will be "hung out to dry" policy makers pull back from offering incentives and the quickly growing incentive driven industry crashes to earth (possibly even damaging prospects for other renewable industries).

My view is that less than a 10% cut in Germany’s FIT would have been business as usual (full steam ahead!) and that a 20% cut or more would have led to a year over year market stall/contraction. So a 15% cut will likely lead to moderating global growth (15% rather than 35% if Germany cut by less) for 2010 with wholesale panels at year end costing ~$1.70/W ($6/W installed) vs ~$2/W ($7/W installed) today.

This is basically guesswork looking ahead based on what we've just learned this week, there are so many variables...a big (10% or more) exchange rate move in any one of several countries could scramble these projections completely. But I see an 80% chance that scenario b) occurs and we get a profitable and growing--although much slower rate than it looked like just a month ago--leaner solar panel market emerging by the end of the year. Still there is certainly a modest chance we get a) and things turn out much rougher (and it will be tumultuous for those in the fray) than I am expecting--FWIW.

Friday, January 15, 2010

Germany poised to strangle nacent solar industry?

The strongest argument for German style feed-in-tariffs (FIT) is that they offer a financial incentive AND price certainty to investors--something solar market participants are not feeling right now. Yes I know the price-certainty is supposed to be for the buyers of solar panels not the manufacturers...yet you can't have one without the other.

A feed-in-tariff is a fixed price payment for energy produced, and when generous enough leads to a major boom like the solar industry has seen in Germany over the past several years.

In 2009 it was widely reported that Germany offered 43 eurocents/kwh for solar generated power--although Germany in fact offers mulitple solar rates based on the type and size of installation ranging from 43 (small residential) down to ~32 eurocents (ground mount utility). That rate is typically lowered annually and (if I did my math right) the top rate is currently 39 eurocents. But the substantial plunge in panel prices (40%+) led the overal cost of installed solar to drop (20%+) over the past year+ means the fixed rate in 2009 offered a phenomenal return to solar investors accelerating the German solar boom. The sensible thing to do (one might assume) would be for Germany to make a "one-time" extra 10% reduction to the solar tariff down to ~35 eurocents. Doing so would essentially restore the balance to what it was pre-financial crisis (i.e. it makes sense to reduce payments 20% when costs drop 20%).

Germany could still settle on this as no official announcement has been made, although recent news reports state that a ~17% one time reduction is in the works (implying ~32 eurocents/kwh). Such a sharp change from the worlds largest solar buyer (50% of the world market) in a short period of time (~100 days) would indeed damage the solar power industry. We just survived what happened when a 2.5GW market for solar collapsed overnight (Spain). Luckily Germany picked up much of the slack, while other countries began to implement serious solar incentives (including the US and China).

I will be stunned if Germany decides to stiffle their own 3GW+ solar market--as this is completly out of character with everything the government has said in recent months and years (not to mention shooting themselves in the foot). And it seems odd if they were willing to support the market so generously in the past why the sudden bout of penny-pinching? Still there has been no official comment or correction and solar stocks have continued crumbling since the Reuters report.

Wednesday, January 13, 2010

Another tragedy in Haiti

Poor Haiti. The island must be cursed. Yet it is heartbreaking to see and hear about the latest tragedy. Such complete devastation...

As soon as I heard that a 7.0 earthquake hit Haiti, I knew that thousands would die...perhaps tens of thousands.

At least technology is enabling faster response. Upon hearing that I could send a text message to donate to the Red Cross relief effort I did so immediately! (my first text message ever) I know that one has to be wary of scams at exactly times like this, when people universally let their guard down. Which is why I am gratified that the US Dept. of State posts this information on their website:

"For those interested in helping immediately, simply text "HAITI" to "90999" and a donation of $10 will be given automatically to the Red Cross to help with relief efforts, charged to your cell phone bill. "

And kudos to the Red Cross and the wireless foundation (or whoever it was) that came up with this simple way to help. Do other organizations take/accept donations this way?