my jeffolie view: 2013 arrived and my
2011 prediction became true " ....
I expect the US solar industry to collapse in 2013 to 2015. ...." US solar collapse 2013 to 2015. « Thread Started on Dec 3, 2011
JANUARY 5, 2013 More Clouds Gather Over Solar-Power Producers
An early bear on the industry thinks the forecast is even worse now than it was prior to 2011's heat stroke for the stocks.
In recent years, overly optimistic analysts cost investors a pile of money in solar-energy stocks. Don't blame Gordon Johnson. In a Sept. 28, 2009, interview, Johnson warned Barron's readers that a glut of solar panels would flatten profits at market darlings like First Solar (ticker: FSLR). Anyone who paid heed escaped big losses when solar stocks collapsed in 2011. Now that investors are starting to revisit clean-energy names, including First Solar and electric-car play Polypore International (PPO), we decided we'd revisit Johnson—who today heads research on alternative-energy stocks at the New York-based broker Axiom Capital Management.
Barron's : We've got to pat you on the back with both hands because when we interviewed you in 2009, you were bearish on just about all solar stocks. First Solar was 150 bucks a share then, and it went to $11 before recovering to a recent $34. Suntech Power [STP] was $16, and it is now under $2. SunPower [SPWR], $30, now $9. Trina Solar [TSL], $6, now $5. Yingli Green Energy [YGE], $12, now $3. MEMC Electronic Materials [WFR], $17, now $4. But even with the solar stocks so humbled, you are still bearish. Why?
Johnson: The bearishness I feel now is the most pronounced since I've covered the stocks. The reason is simple. Since 2008 we've been calling for Armageddon, because supply massively exceeded demand. But in 2008 and every year through 2011, you had miracles in some end market.
In 2008, Spain decided that they were going to end their solar subsidy. But they announced it ahead of time, and that caused a massive demand rally before the end of the year. In 2009, Germany decided they were going to cut their incentive and caused a spurt that made demand look much better than it actually was. It happened again in 2010, when Germany, the Czech Republic, France, and the U.K. all said that they were going to make incentive cuts. And again, in 2011, Italy announced it would make a Draconian cut in its incentive at the end of that year.
"In 2013 you will have a full year of European incentive cuts impacting global solar demand." -- Gordon L. Johnson II
.Finally, in 2012, you actually had the cuts in the key European markets. Germany and Italy were roughly half of aggregate solar demand in 2011. In the third quarter of 2012, big incentive cuts took effect in those markets. In 2013 is you will have a full year of these incentive cuts impacting global solar demand.
We've seen estimates for the global supply of solar panels at upward of 100 million gigawatts (that is, billions of watts). What's your forecast for supply and demand?
In China alone we think there was over 40 gigawatts of production capacity at year-end 2012, while aggregate global demand was just about 24 gigawatts. We recently went through all 95 companies in our Chinese solar-supply model, to reflect recent announcements out of these companies, many with negative cash flow. Though some 30 companies left the business, China was adding roughly five gigawatts of capacity in 2012 and plans to add roughly two gigawatts in 2013. Capacity is not being rationalized in China.
Where do they get the capital to expand capacity if their cash flow is negative?
That's a great question. LDK Solar [LDK] was recently on the brink of going out of business. The government and banks came in and bailed them out, to the tune of hundreds of millions of dollars. The same thing happened with Suntech.
The oversupply in solar is coming primarily from the Chinese economy. Local and national Chinese governments, via their local and national banks, are keeping companies around that should be going out of business.
When we talked a couple of years back, spot market prices for the raw material polysilicon had spiked into the hundreds of dollars per kilogram, but then came down to $50 or $60. Now where are they?
Prices are at $15 a kilogram [2.2 pounds]. Polysilicon prices have never been this low. But the cash cost of making polysilicon is below that. Norway's Renewable Energy [REC.Norway] recently said their cash cost was around $11 a kilogram. All the entrenched players— Wacker Chemie [WCH.Germany], Hemlock Semiconductor Group, MEMC, Tokuyama [TKYMF], Sumitomo Electronic [SMTOF], Mitsubishi Materials [MIMTF], GCL-Poly Energy Holdings [3800.HK], and OCI [010060.Korea]—have cash costs between $10 and $15.
Is it viable for prices to stay this low?
It is viable for prices to fall even further. Just the entrenched players I named will have aggregate capacity to supply 44 gigawatts worth of silicon.But why isn't cheap polysilicon a good thing for solar-panel makers?
Well, it should be a great thing because their input cost is falling. But a lot of the bigger solar manufacturers sign long-term contracts with polysilicon manufacturers at fixed prices. So when prices start to fall, they are actually at a disadvantage. The smaller, incremental guy can go get poly in the spot market for $15, while you have a contract at $25.
Which is why all of the publicly traded companies in the Chinese market are losing money right now. Some of them are even losing money on a gross-margin basis. And they are all burning cash hand over fist.
If the Chinese companies are the low-cost producers and even they are in a bad way, what should we think of an American company like SunPower?
SunPower is in a bad situation, as is First Solar and anyone producing panels in the U.S. But the U.S. government has given these companies taxpayer money to build power-generation projects.
.We have given these companies cash grants, loan guarantees, investment tax credits. These companies could fund these projects from their own balance sheets. A 500-megawatt solar plant costs nearly $2 billion, but when construction is done, the number of permanent jobs created is like 20 to 25. It is a complete waste of taxpayer money.
And which public companies have benefited from these projects?
First Solar, SunPower, and MEMC. The U.S. taxpayer is paying $3 to $3.50 a watt to build these projects. However, if you look where First Solar panels are priced in today's market, you are talking about 60 to 65 cents. They are selling their modules into these projects at bloated levels. First Solar went out and acquired two of its competitors, OptiSolar and NextLight, which had projects they had been working on for years. The power-purchase agreements were struck in 2008 and 2009, when natural-gas prices were two to three times higher than what they are today.
Didn't Warren Buffett's MidAmerican Energy agree to buy two SunPower projects for over $2 billion?
Yes. Those projects enjoy power purchase agreements struck back in 2008 and benefit from government guarantees and grants that are no longer available. So he'll get returns that you can't get on new projects.
Wither First Solar?
Our price target on the stock is $9. First Solar shifted to percentage-of-completion accounting. So, in the quarter when they close on these projects, they recognize a huge percentage of the project revenue. In the third quarter of 2011, First Solar reported earnings of roughly $2 a share, because they closed on a project. Come Q1 of 2012, First Solar lost $5. But then they closed projects in each of Q2 and Q3 of 2012, so they reported roughly $1 each quarter.
People believe that these earnings are sustainable, but once these projects run out, First Solar will start losing money. They will have a couple of good quarters in 2013, and then they will burn cash, because they'll have to develop these projects on their own. The two biggest projects announced in the U.S. recently were won by Yingli. Why? Crystalline silicon modules are more efficient at converting solar energy to electricity—18% efficiency, versus 12.7% for First Solar's "thin film" technology—and they cost basically the same. Silicon modules are about 66 cents a watt, whereas thin film is about 60 to 65 cents. It does not make sense to use First Solar modules.
Not only is the taxpayer getting drubbed on the incentives, but the U.S. government is throwing incentives at thin-film modules that underperform.
Underperform?
They don't generate the power output that was promised by the company. So your project's internal rate of return falls. These are 20-year investments. In Germany, there were some 5,000 claims made against First Solar modules for producing less-than-warranted power. They only honored about 1,000 of the 5,000 claims.
I thought demand for solar panels was supposed to rise when they got cheap enough to sell power at price parity to the conventional grid.
Grid parity is a farce. Solar is intermittent, peak-load power, meaning you don't get power when there's cloud cover or the sun goes down. It can't replace fossil fuel or nuclear base-load power, which is the same level, day or night. If you want to build an electrical grid based on solar, then right next to each solar plant you must have some type of combustion-based turbine that will turn on when the solar goes off. You also have to rebuild your transmission infrastructure.
They claim to be at grid parity in the Mojave Desert, Spain, and Italy, but without government incentives there's an inconsequential amount of solar being installed.
What other solar stocks should we discuss?
We should talk about Meyer Burger Technology [MYBUF], a Swiss company that makes saws that cut polysilicon ingots into wafers. And Amtech Systems [ASYS], which makes diffusion furnaces that help turn wafers into solar cells. They were plays on production growth in the solar industry. Now there's a slowdown, and you really need capacity to come off-line. Meyer Burger trades around seven Swiss francs
, and we think the downside is three to four. For Amtech Systems, we see 30% to 40% downside.
Tell us about Polypore International.
They make separator material for the lithium-ion batteries in consumer electronics and electric vehicles, as well as for conventional lead-acid batteries. Ions pass through the material as the battery discharges and recharges. Investors are excited about the electric-vehicle opportunity. Our key thesis is that you have an oversupply of lithium-ion material, and electric-vehicle demand isn't as robust as Polypore predicts.
When we initiated coverage, the stock was $56. The day after, Polypore's key customer announced they were going to make lithium-ion material for themselves, and the stock went from $56 to $38.
Now Polypore is spending $304 million to ramp up capacity to make separator material for electric cars. Why? They got incentives from the U.S. government.
But to use their 2013 capacity, there would have to be a fivefold increase in demand from their customers. The problem is, you have capacity being ramped by some 20 other guys, specifically for electric vehicles.
Yet electric-vehicle sales have disappointed expectations. General Motors had to shut down Volt production two times in 2012 to right-size the built-up inventory. GM also had to implement aggressive incentive programs to increase sales of the Volt, as did Nissan for its Leaf.
With Polypore shares at $44, what's the earnings multiple?
It is 23 to 25 times, depending on whose numbers you're looking at. The stock is up from $30 to $45 on hopes that electric-vehicle sales are going to re-spark and that earnings have troughed. Their free cash flow was negative for 2012 through September. They say they will be free-cash-flow positive in 2013. But we are highly skeptical. Our price target is $25—14 times our forecast of $1.68 in 2013.
Prices in the lithium-ion space are falling, and this has been reflected in Polypore's margins. The company missed earnings for the past five quarters. After every miss, they say, "Earnings have troughed."
Someone believes them.
Polypore has an extremely aggressive management team. They are marketing to a new set of investors, primarily European. Some European renewables investors have flowed out of solar stocks and into Polypore on the assumption that earnings have troughed.
But when I asked to be invited to their analyst day, they told me that I couldn't come. They've disputed my reports on their last two conference calls, but won't let me ask questions. This is reminiscent of the way First Solar treated me and other investors in the early days of its decline. If you don't have anything to hide, why not talk to me?
Must've been something that you said.
online.barrons.com/article/SB50001424052748704723404578207732007178380.html?mod=BOL_hpp_mag#articleTabs_article%3D1============================
US solar collapse 2013 to 2015.
« Thread Started on Dec 3, 2011, 3:35pm »
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I have made many solar industry threads.
I expect the US solar industry to collapse in 2013 to 2015.
Why? Because as in Spain (see below piece) funding sources will decline under government changes. I use the little 'g' for US government because many types of governments here aid, buy, zone, subsidize the creation of solar.
China's solar manufacturing will collapse if it does not find other place to export their panels or if their government decides not to buy their output. In the below piece Rios Renovables adapted to find other places to export their solar products and services.
Read more:
www.unlawflcombatnt.proboards.com/index.cgi?board=oil&action=display&thread=10013&page=1#ixzz2H9CFF9R1