Report: Chinese solar firms plan to build overseas plants to avoid tariffs
Taiwanese solar industry sources tell Digitimes leading Chinese solar module vendors "have plans to set up overseas production lines to avoid US antitrust taxation."Believing a large gap exists between U.S. solar demand and what U.S. and European module makers can supply - trade group SEIA forecasts U.S. installations will rise from 6.5GW in 2014 to 8.5GW in 2015 and nearly 12GW in 2016 - some Chinese firms reportedly "plan to set up overseas module and cell production lines with an estimated total annual capacity of 2GWp."The report comes after the DOC made final decisions to impose new tariffs on Chinese module makers, and thereby close a loophole that allowed the companies to avoid 2012 tariffs (still in place) by using non-Chinese cells. The ITC is expected to rule on the DOC's decision by Jan. 20.Chinese module vendors: TSL, YGE, SOL, JKS, HSOL, JASO
| 5:16 PM|1 Comment
Don't waste your time on Demerson. I have had him on ignore. He suffers from grandiosity and a deep rooted need for validation. He obviously lacks a social network so he seeks validation from strangers on a message board. Sad. Put him on ignore. Eventually all will tire of his diatribe and he will slink off to another message board.
The Solar Industry: Upstream Vs. Downstream
Dec. 26, 2014 3:25 PM ET | 1 comment | Includes: FSLR, SCTY, SPWR, VSLR
Disclosure: The author is long SCTY. (More...)
The solar industry can be divided into its upstream manufacturing segment and downstream installation/finance segment.
There is a large disparity in gross margins between upstream and downstream companies.
Downstream companies enjoy higher barriers of entry in the form of brand and sector complexity.
The solar industry has gone through a painful period of extensive maturations in the past decade. Worldwide solar adoption growth has been absolutely stunning during this period, growing approximately 50 fold from 2003 to 2013. There are few if any industries that have gone through such a drastic change in such a short period of time. Now that the solar industry is finally getting its sea legs after experiencing such a chaotic ride, many trends within the industry are beginning to crystallize.
A graphical representation of solar growth in the U.S.
Source: GTM Research
The solar industry has divided itself into the upstream manufacturing segment and the downstream installation/financing segment. While upstream solar has been the historically dominant segment because of the proportionally smaller installation costs of solar, these costs are becoming a much bigger part of the total solar equation. This trend is largely due to the exponential cost reductions of solar panels, which have finally reached the stage where manufacturing and installation costs are roughly equivalent. While the emergence of downstream solar has given solar investors more options, closer examination is needed to determine which solar segment represents the superior investment choice.
The Case of Differing Margins
With the massive entrance of Chinese solar panel manufacturers, profit margins have been drastically cut down across the entire upstream manufacturing solar industry. A major contributing factor of this upstream margin squeeze has been the commoditization of solar panels. The Chinese companies have managed to produce panels much more cheaply (albeit with lower quality), which have forced other manufacturers to produce their own low efficiency/low margin commodity panels to compete. In fact, it was not uncommon to see panel efficiencies below 14% and margins below 10% during this tumultuous period. As Elon Musk, chairman of SolarCity (NASDAQ:SCTY) had once put it, "making standard efficiency solar panels is about as hard as making dry wall. It's really easy. In fact, I'd say dry wall's probably harder."
While the process of panel commoditization has slowed down, and even reversed with the introduction of international tariffs on Chinese panels, the Chinese manufacturers are still exerting a downward pressure on margins. Despite the powerful influence of Chinese solar manufacturers, the tariffs have provided U.S. companies like SunPower (NASDAQ:SPWR) just enough breathing room to focus more research on high technology/high margin panels. Many other companies have been following SunPower's lead by developing more efficient/high quality panels in order to move out of the low margins commodity market. In fact, even Chinese companies are starting to realize that the their method of manufacturing is unsustainable, and are starting to make the move to produce higher efficiency panels. While the current gross profit margins (averaging 10-20%) for the upstream businesses are certainly improving, solar manufacturing is still considered a somewhat low-margin business.
The downstream solar segment encompasses a wider range of products. Activities in the downstream segment include both installations and financing, with downstream companies usually involved in all aspects of this segment. So far, downstream companies like SolarCity or Vivint Solar (NYSE:VSLR) are enjoying extremely high gross margins. SolarCity, for instance, has enjoyed gross margins of around 50% for its lease/ppa products, and have enjoyed overall profit margins of between 30-40%.
Notice SolarCity's lease gross margin in quarter 3.
(click to enlarge)
There are several reasons that could explain this margin disparity between the downstream companies and the upstream companies. A major difference is that the downstream solar business is a service more than anything else. Whereas individuals may view different companies' panels as substitute products (panels are mainly used for functionality), brand name plays a huge role in the downstream markets of financing, leases/ppa, etc. This makes sense as a lot of downstream product services are long-term in nature. Brand matters much more to individuals when they know they will be stuck with one company for a 20-30 year period. Because of brand importance in the downstream segment, this acts as an economic moat for downstream solar companies.
Another reason for this margin disparity is the complexities of downstream solar. Whereas manufacturers only have to focus on manufacturing, downstream solar companies often have to integrate the headaches of financing with the intricacies of installations. In terms of financing, the larger, more established companies often have access to cheaper capital, which give large downstream companies a competitive advantage over smaller competitors, once again raising the barriers of entry in the downstream segment. In addition, while the installation side of downstream solar seems straightforward, there are a lot of moving parts associated with it, such as permitting, inspections, inverters, balance of systems components, crew labor, etc. Because of the surprisingly high barriers of entry in the downstream segment, it is only natural that margins are superior on the downstream side.
Although there is currently a disparity between the two segments, it is not clear how the future will play out. While downstream solar companies enjoy ridiculously high gross margins, the downstream industry is still extremely young, which means that future competition could potentially drive margins down. In addition, upstream solar companies are starting to emphasize more intently on the technology aspect of solar manufacturing, which implies that future gross margins for panel producers will likely rise.
While the difference of margins between these two solar sectors will likely decrease in the future, these sectors' margins are not likely to converge. It seems pretty clear that the downstream solar sector enjoys inherently higher barriers of entry. While the upstream solar sector has been subject to an admittedly unnatural depression of margins due to the entrance of Chinese manufacturers, solar manufacturing companies still do not possess the economic moats needed to have comparable margins with upstream solar companies.
Although a pattern of vertical integration across all solar segments is starting to occur, solar companies are still largely split between the upstream and downstream camps. Because solar investors are generally stuck between choosing either upstream or downstream companies, it seems more reasonable for them to invest in the downstream companies given their relative advantages. Despite the current segregation in the solar industry, large solar companies already are starting to integrate across the upstream and downstream segments. SolarCity (largest downstream solar company), for instance, is planning to produce the largest solar manufacturing plant by 2017, which will boast an annual production capacity of 1 GW.
For those unwilling to wait for the solar industry to go through further maturation via vertical integration, downstream power players like SolarCity or Vivint Solar are likely superior investment choices to solar manufacturers such as SunPower or First Solar (NASDAQ:FSLR). The stock valuation of downstream companies clearly do not fully account for the industries higher barriers of entry. This is not to say that solar manufacturers are a bad investment either, and diversification could certainly be achieved through investing in both sides of the solar industry.
oil keeps going down and SUNE is heading higher. It's about time sanity was restored to the energy space.
oli ETF's are flat today and SUNE up over 2%. I hope this is a sign that the illogical connection between oil and alternative non fossil fuels has run its course.
WE need to close above $20 today to get a good confirmation for a rally.
It seems to me that oil prices can fall until all but that largest oil producing companies can afford to continue extracting oil from developed and new wells. Assuming the largest oil producers are extracting at maximum capacity, the overall supply would be diminished. Lower prices of oil theoretically would create more demand, increasing the value and price of oil on the market. Oil prices go back up and the irrational relationship of oil prices to alternatives causes an increase in value for solar and wind manufactures and installers.
That being said, SUNE and most of the solars I follow went up on yesterday in spite of a steep decline in oil prices. Perhaps the market is starting to discount oil prices as a metric for alternative energy pricing.
SUNE is just starting to build international relationships with India, China, Europe and ROW
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SunEdison: Strong Prospects In Wind And Solar Energy Make It A Good Investment
Dec. 23, 2014 5:19 PM ET | About: SunEdison (SUNE)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
•The adoption of solar and wind power is growing across the globe, and SunEdison is well-positioned to make the most of this opportunity with its global presence.
•SunEdison has a strong project pipeline, and the acquisition of First Wind will improve its prospects further.
•SunEdison's diversified and integrated business will allow it to benefit from the growing demand for renewable energy sources.
•SunEdison has entered into contracts with governments in many regions, indicating that the company's products are gaining acceptance.
With wind and solar estimated to account for 30% share of energy by 2030, SunEdison (NYSE:SUNE) has a large addressable market after its power-holding company, TerraForm Power (NASDAQ:TERP), announced the acquisition of First Wind Holdings for $2.4 billion. This will make SunEdison a major player in the broader renewable energy sector, ahead of its solar power peers that are primarily plying their trade in the solar energy market.
Globally, renewable energy adoption is on the upswing. According to Bloomberg New Energy Finance's (BNEF) 2030 Market Outlook, solar energy share alone is projected to account for 18% of total electricity generation globally. Wind energy is poised to grow to 12% and fossil fuel-based generation will shrink from 64% to 44% by 2030.
Source: Global installed capacity mix and additions by technology chart via BNEF
To tap the end-market growth, SunEdison has built up a strong pipeline of projects that will aid its long-term growth.
How SunEdison plans to make the most of the end-market opportunity
SunEdison recently secured a $146 million loan for building 81.7 MW of solar power projects in Honduras. The three power projects will supply energy to the grid under 20-year power purchase agreements with ENEE, the state-owned electricity company. These projects are slated to go live by the middle of 2015.
The services segment of the company has over 3 GW of assets under its belt. This has robust long-term value with targeted gross margins of around 30%. SunEdison has significant exposure in solar technology and intellectual property. FBR polysilicon and CCZ are examples of the technological strength of the company. In addition, the company has a 50% stake in the 13,500 metric ton SMP joint venture in Korea.
In addition, the YieldCo vehicle, Terra Power, remains another growth driver for creating value for shareholders going forward, as the newly listed company increases its dividend. SunEdison targets gross margins of over 20% on all projects that it executes or drops down to Terra Power. SunEdison had 267 MW of non-Terra Power projects on its balance sheet.
SunEdison has a tightly integrated and well diversified business right from manufacturing of polycrystalline silicon wafers and to development, installation, financing, and services. The company is one of the largest solar power installers in the U.S. On the back of its diversified business model, it has successfully navigated through the troubled phase of the solar industry.
Looking ahead, the company has projected strong growth in the solar business. For 2015, SunEdison expects to install between 1.6 GW to 1.8 GW. This is an increase of 200 MW at the mid-point of 1.5 GW, compared to what the company had announced earlier.
A strong and diversified project pipeline
SunEdison exited the third quarter of fiscal 2014 with more than 600 megawatts (NYSE:MW) worth of projects under construction in over two dozen countries. The company's strong presence in key solar markets globally will now enable it to tap the potential of the wind power sector. For example, according to the GWEC, by the end of 2018, installed wind power capacity will be double of what it is today, with Asia, North America, and Europe being the major growth drivers
SunEdison already has its presence in these major growth regions through its solar power projects, and hence, the First Wind acquisition will be a growth diver going forward. The company predicts that solar power growth in China, India, Africa, and South East Asia will outpace the overall market.
Prospects in India and China are strong
India's push for solar power is ambitious, with a projection for 100 GW by 2022. During the third quarter, SunEdison signed up an MOU for 5 GW solar power facilities with the government of the state of Rajasthan, besides 150 MW in Karnataka. In addition, India's wind energy generation capacity is poised to grow to 165 GW by 2030, as shown in the chart below:
Source: India's wind power growth projections.
In China, the company announced a joint-venture agreement with JIC Capital for 1 GW of solar projects to be executed over the next three years. China has pledged to increase solar power generation to 100GW by 2020. China is also targeting 90 GW and 200 GW of wind power by 2015 and 2020, respectively.
With presence in China and India, the First Wind acquisition will provide an additional growth driver to SunEdison going forward.
SunEdison already has a solid footing in the fast-growing solar energy segment in major markets, and its recent acquisition of First Wind Holdings will consolidate its position further. The company is already present as a solar energy installer and developer in areas where the growth opportunity is tremendous. The company's tightly integrated business and its launch of the YieldCo platform as an independent company will be long-term growth drivers, creating value for shareholders going forward.
It must be an epic flop. It's advertised at least 20 times per day for the last 6 months.
Solar mentioned. We need rely on alternative energy
In summary, unlike residential solar, which is likely to be not economical for another decade, we believe off-grid commercial customer defections are likely to cause much consternation and heartburn to utilities by the turn of this decade. The beneficiaries of this emerging market are likely to be low cost solar panel makers like First Solar (NASDAQ:FSLR), JinkoSolar (NYSE:JKS), Trina Solar (NYSE:TSL) and commercial focused installers like SunEdison (NYSE:SUNE).