America Honda Motor Co. last week announced an incentive plan
offering new buyers of Honda or Acura cars money to help pay for
solar power installations from SolarCity.
The $65 million program is available to customers through
dealerships in the 14-state area whereSolarCity (
) operates. SolarCity andHonda (
) expect to accommodate "thousands of interested homeowners in
The deal bolsters Honda's environmental image as a developer
of fuel-efficient cars. SolarCity, which went public with a $92
million IPO in December, gets access to potentially thousands of
San Mateo, Calif.-based SolarCity is the largest residential
solar installer in the U.S. It also builds charging stations for
electric vehicles. The partnership is just one example of a solar
power industry working its way out of a difficult slump.
The solar business got a huge push in the past decade with
financial incentives from governments worldwide. Government
subsidies, generally in the form of tax breaks to solar systems
buyers, have helped the many publicly traded companies in the
space, among whichFirst Solar (
) andSunPower (
) have the largest market capitalizations.
Broken Tax Breaks
The economic downturn led to vast retractions of tax breaks in
countries including Spain and Germany -- both heavy early
adopters of solar power technologies. The subsidy cuts
short-circuited demand growth, leading to erratic quarterly
financial reports and volatile stock action as the industry has
been whipsawed by several years of boom-and-bust cycles.
That action has swept the 24-stock Energy-Solar group to
extreme rankings, high and low, among the 197 industries tracked
by IBD. It currently holds the No. 1 ranking. Six months ago it
ranked near the bottom of the list.
The trade's stumbling block for the past two years has been an
oversupply of solar panels. A rapid, state-subsidized expansion
of China's solar manufacturing capacity quickly outstripped
slowing growth of global demand. Prices tumbled and the price of
polysilicon wafers, the raw material used to make solar cells,
fell 73% from 2010 through the first half of last year, according
to Maxim Group.
says revenue derived from solar panel production and installation
will drop to $74.5 billion this year, down from $77.5 billion
last year and well below the $94 billion in 2011. That plays out
in companies like China-basedSuntech Power Holdings (
), which had revenue of $3.1 billion -- the highest in the group
--in 2011. Analysts see Suntech's revenue plummeting 44% for
IHS projects the industry's overall revenue will rise 19% in
2014 to $89.2 billion. It sees double-digit gains from 2014 to
2016, reaching $115 billion in 2016.
Total installed solar capacity, estimated at 97 gigawatts in
2012, is projected to reach 330 gigawatts in 2020, a compound
annual growth rate of 16.5%, according to research and consulting
One gigawatt is equal to one billion watts, or 1,000
megawatts. In a basic sense, a typical nuclear or coal power
plant generates about one gigawatt of power.
Satya Kumar, a research analyst with Credit Suisse, in
comments this month about the solar industry, said the damage
caused by overproduction of polysilicon-based solar panels is
subsiding. After years of pricing declines, "polysilicon and
panel pricing have bottomed for the solar industry," he
But the young industry still faces an intense shakeout.
IHS estimates there were 750 makers of photovoltaic products
in 2011. That dropped to 500 last year and is expected to drop
again, to 150, in 2013. As the excess supply dwindles, IHS
expects to see a firming of prices and more stability.
Excess panel capacity in China "needs to be permanently
retired," Kumar wrote. He also said several companies would need
to restructure and write down debt.
Ray Of Hope
The industry's production glut cloaks the fact that solar
demand continues to expand at a healthy clip.
Installation of solar photovoltaic panels in the U.S. doubled
in 2010 and doubled again in 2011, according to the Solar Energy
Industries Association. It forecasts a U.S. growth rate of 70% in
2012, a slowdown but well above the 14% global growth rate.
"This year is shaping up to be a difficult one for the solar
industry," Michael Barker, a research analyst at NPD Solarbuzz,
told IBD. "The industry is still growing, but it's lower than
what we've seen in previous years."
In 2012, about 29 gigawatts of solar photovoltaic power
production was created worldwide -- up just 5% from the year
before, according to NPD Solarbuzz. This is the first time in a
decade that growth has been less than 10%, due partly to the drop
in government incentives.
Europe remained the largest market for solar installation in
2012, but its share of demand slipped to 57%, vs. 68% in 2011 and
82% in 2010. The second-largest region was Asia, at 30%, led far
and away by China. The U.S. ranked third at 12%. More than a
third of U.S. demand came from California, underwritten by
government mandates and rebates.
Despite cuts to government incentives, NPD Solarbuzz forecasts
that the photovoltaic industry will see a more rapid expansion
this year, fueled by growth in Latin America, the Middle East,
Africa and parts of Asia. But that growth, which depends upon
government decision makers navigating economic, environmental and
other issues, is far from certain.
"The government incentives were designed to spur demand, and
they did that," said Barker. But as solar component costs have
fallen, so have government subsidies.
The key thing for solar energy firms now is to show they can
be cost competitive with other forms of energy, from coal and
natural gas to wind power and various forms of hydropower.
"Solar has to compete in many ways against every other energy
source," said Barker, "and that varies by the region, its climate
and government policy."
Solar Goes Toe-To-Toe
Scott Reynolds, a research analyst with Jefferies, in a
detailed research report published in January, said solar is
becoming increasingly competitive in many markets
He also said solar companies are changing business models to
deal with the oversupply. Of the companies he follows, SunPower
remains the most exposed to spot pricing.
SunPower designs, makes and markets high-performance solar
electric systems for residential, commercial and utility-scale
power-plant customers. In early 2012 it commenced a
reorganization to better align its business with the changing
When the company reported fourth-quarter financial results on
Feb. 7, it showed a 20% increase in revenue to $678.5 million,
reversing an 8% drop in revenue in the prior quarter and its best
performance in five quarters. Adjusted earnings per share rose
350% to 18 cents a share, its best showing in seven quarters.
"We continue to execute on our accelerated panel cost
reduction road map," said Thomas Werner, chairman, president and
CEO, in a conference call that day. He also described how the
firm made advancements in solar panel efficiency and longevity.
As the cost of solar power reaches parity with high-cost fossil
fuel resources, "We foresee that our power plant business will
become increasingly international in scope," he said.
First Solar plans to announce its fourth-quarter results on
Feb. 26. Consensus estimates of analysts polled by Thomson
Reuters is for earnings of $1.76 a share, which would be a strong
reversal from the loss of 46 cents posted in the same quarter a
year ago. Revenue is projected to come in at $1.3 billion, which
would be a 97% increase from a year ago and its strongest revenue
growth in 14 quarters.