Suntech Power's ( STP ) photovoltaic (PV) module sales have risen steadily over the years from around 358 million megawatts ( MW ) in 2007 to 674 million MW in 2009. We attribute this to various benefits and subsidies provided by governments on adopting solar energy and lower inputs costs, resulting in lower prices and higher demand for PV modules. Suntech mainly competes with Sunpower ( SPWRA ) and First Solar ( FSLR ) in the solar energy industry.
We expect Suntech's PV module sales to keep growing driven by environmental concerns that will spur adoption of solar energy systems and continued government subsidies that will keep prices affordable for consumers. While we expect Suntech's PV module sales will reach 4.35 billion MW by the end of Trefis forecast period, Trefis members predict the sales will reach close to 5.4 billion MW, suggesting potential upside of 13% to STP stock.
We currently have a Trefis price estimate of $10.68 for Suntech Power's stock , versus the current market price of around $10.
Government Subsidies on Solar
Despite all the positives, solar energy hasn't become as popular as other energy sources because of the heavy initial costs involved and its reliance on subsidies. As prices of traditional energy sources like coal and oil rise, government subsidies and tax breaks for investment in solar energy will drive growth in the renewable energy industry as alternative energy sources become a more economical alternative.
Japan, for instance, introduced incentives for solar energy in 1994. Due to this program, the solar energy market in Japan has expanded considerably in terms of availability and efficiency in distribution. The program has also cut the average cost of solar energy systems by more than 70%.
Other countries are following Japan's footsteps. Last year, the Indian government offered a 30% subsidy on rooftop solar panels for consumers. Europe has reportedly made investments of around $65 billion in solar plants including major markets being Germany, France and Spain while China is highly ambitious of increasing its solar power installations to 20 Gigawatts by 2020.
Environmental Concerns Will Push Solar Energy Growth
Fossil fuels are limited in supply and the reserves are depleting quickly due to rapid economic growth and a scarcity of new sources. As the world approaches peak oil (the point when highest level of oil production is reached) and as drilling becomes more expensive, oil prices will rise further. Such a scenario will spark the need for renewable energy sources. In addition, current energy production methods release pollutants like smog and carbon dioxide gas, which contribute to greenhouse gases and global warming. Solar energy production produces little, if any pollutions or emissions, making it one of the cleanest sources of energy.
Trefis Community Forecast
Trefis members forecast Suntech's PV module sales will increase from near 2,175 million in 2011 to 5,425 million by the end of the Trefis forecast period, compared to the baseline Trefis estimate of an increase from 1,825 million to 4,355 million during the same period. The member estimates imply an upside of 13% to the Trefis price estimate for Suntech Power's stock. Combined with our current forecast this translates to around 20% upside from current market levels.