SUN NEEDS CREDIT TO SHINE

Change means new winners – and new losers. In the New Energy industries, financing will be the lifeline.

Solar photovoltaic (PV) industry players break down into 2 broad categories: Those who make and wholesale solar cells and panels and those who buy and retail them.

The former will need financing as oversupply and slow demand drive the prices they can charge down. The latter will need financing as slowed business activity cuts into their cash flow.

Goldman Sachs solar industry analysts: "In our view, too much solar capacity has been added relative to demand, and will lead to oversupply…"

The analysts expect prices to drop 15%.

The slowdown and price drop is seen as, on balance, a good thing, an adjustment in a market driven for several years by venture capital and expanding state and federal incentives.

If the analysts are right that there is an oversupply, the price drop will be good for consumers. It will move the cost of solar energy-generated electricity down, toward “grid parity” (where it matches the cost of electricity generated by fossil fuel energies like natural gas and coal).

It will not, of course, be good for solar energy industry companies without the financial or market resources to last out the downturn.

Robert Schramm, analyst, Commerzbank (Germany): "On a global average, three out of four (solar energy) companies will not make it…"

Asian solar companies are considered particularly at risk.

Recommended (by Goldman Sachs and Credit Suisse): Strong equipment makers (with market share, technology and take-over potential). Examples: Switzerland's Meyer Burger and Germany's Roth & Rau.

Some analysts think the timing is bad for any investment. Even those analysts, however, see long-term opportunity in New Energy.

Hans-Otto Truemper, managing director, Grossboetzl, Schmitz & Partner: "…in the long term, there is no way around it."

Another EU bank with a similar take. (click to enlarge)

Solar sector shakeout looms as credit crunch bites
Eva Kuehnen and Christoph Steitz (w/Will Waterman), November 4, 2008 (Reuters via UK Guardian)

WHO
Goldman Sachs analysts; Robert Schramm, analyst, Commerzbank; Evergreen Solar; Renewable Energy Corp (REC); Q-Cells; Karsten Iltgen, analyst, Credit Suisse; Suntech Power Holdings Co Ltd; JA Solar

WHAT
Both the credit crunch and falling market prices will make it hard for solar companies with weak cash flows and high debt.

click to enlarge

WHEN
- 2009: Financing needs for world PV projects will be 33 billion euros (20 billion in debt financing).
- 2009, 1st quarter and possibly longer: Very little debt financing for large-scale solar projects except in Germany.
- 2010: Evergreen Solar obligations may not be met due to the inability to finance a planned new plant.

WHERE
- Germany: The solar energy industry is so strongly protected by the feed-in tariff that financing is considered a safe investment.
- U.S. and other markets: Financing is tenuous.
- Renewable Energy Corp (REC) is based in Norway.
- Q-Cells is based in Germany.
- Suntech Power Holdings Co Ltd and JA Solar are based in China.

WHY
- The impact of limited financing will affect returns 7 times more than falling module prices.
- Evergreen Solar may not be able to fund a planned $400 million production facility which it needs to meet contracted future obligations.
- Evergreen Solar’s joint venture with Renewable Energy Corp (REC) and Q-Cells is at risk if it is unable to meet contracted production obligations.
- Thomas Weisel Partners downgraded solar cell makers Suntech Power Holdings Co Ltd and JA Solar due to anticipated decreasing demand.
- Grossboetzl, Schmitz & Partner manages 1.8 billion euros of assets.

click to enlarge

QUOTES
- Karsten Iltgen, analyst, Credit Suisse: "We think that about 10 percent of the companies may fall victim to the current financial crisis -- most of them in Asia…"
- Hans-Otto Truemper, managing director, Grossboetzl, Schmitz & Partner: "If you look at the current energy costs -- oil prices have practically more than halved -- then the competitiveness of solar and wind power needs to be called into question…However, I see opportunities in the sector…"