Alternative Energy – Takeaways from Solar Power Int’l

Alternative Energy – Takeaways from Solar Power Int’l – No problems in the near-term, but 2011 likely a different story - We spent this week meeting with companies up and down the solar value chain at Solar Power International, the largest annual tradeshow for the U.S. solar industry. While data points mostly affirmed recent fundamental trends, our discussions provided additional visibility on 2011, particularly with respect to global demand expectations, pricing negotiations, and the risk of potential oversupply in the module food chain. C3Q is fine, but cracks starting to appear in German project activity. Our talks with European project developers suggest project activity in Germany will begin to wane meaningfully in mid to late November with December installations continuing to look soft at this point. This is in stark contrast to typical C4Q seasonality in Germany as it would appear projects were pulled in ahead of the two-step, midyear Feed-in-Tariff (FiT) cuts in July and October, unlike in previous years when installers simply tried to get projects in by the end of December before the annual FiT step-down in January. Pricing steady as she goes. Checks at the show suggest wafer & cell prices continue to tick up marginally while module ASPs continue to hug a flattish trend line through the end of 4Q10 (like-for-like currency basis) as supply conditions remain fairly tight even despite some emerging softness in Germany. Commentary around C1Q11 suggests module ASPs will see a reduction of ~5% on average with many module makers expecting ASPs down no more than 10% YoY for the full year. Visibility on 2011 growing, but still a lack of firm pricing. While many module makers suggested visibility into 2Q11 with some talking up their ability to “sell-out” 2011 capacity based on quoting activity today, we think pricing remains a key fly in the ointment. Our talks with downstream players suggest very little pricing is actually being locked down outside of C1Q11 deliveries, with most discussions focused primarily on volume needs based on project pipelines. We remain longer term cautious on solar stocks. We acknowledge that near-term fundamentals are solid, and a strengthening euro plus higher crude pricing will work in the group's favor near term. That said, we see big fundamental oversupply risk and ongoing subsidy digression in Europe weighing on the group longer term. Blansett https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-486277-0.pdf