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Solar Stocks Rally on China Policy of Distributed Production

Zacks Equity Research

China, the world’s prime manufacturer of solar panels, is gradually emerging as the leading market for solar photovoltaic (PV.V) to meet the growing need for clean energy. The Chinese government announced new policies to encourage local governments to promote more solar installations on home and business rooftops, and ground mounted plants of up to 20 megawatt (MW).

The latest news has pushed the stock price of Chinese solar companies like Yingli Green Energy Holding Co. Ltd. (YGE), ReneSola Ltd. (SOL), Canadian Solar Inc. (CSIQ), JA Solar Holdings Co., Ltd. (JASO), Trina Solar Ltd. (TSL), Hanwha SolarOne Co., Ltd. (HSOL) and Enphase Energy, Inc. (ENPH) higher by 6.4%, 1.4%, 1.2%, 2.5%, 0.6%, 6.7% and 4.7% respectively, yesterday.

Distributed Solar Power in Focus

China’s National Energy Administration has called on local governments of all regions to focus on distributed generation, to reform and reinforce feed in tariffs, provide additional financial incentives, and fast track connections.

This will be done through identifying ventures where power can be delivered to nearby customers, by offering added subsidies to public organizations and in rural regions. The government has also eased the path for allowing more projects to qualify for subsidies.

This push will likely back China to reach its target of installing 8 gigawatts (:GW) of distributed solar this year and may accelerate orders for solar equipment. The country’s target for utility-scale solar projects stands at 6 GW. China targets installing solar power of a cumulative 13 GW or more this year.

Last year, China had introduced a subsidy of 0.42 yuan (7 cents) per kilowatt-hour of output. The grants run for 20 years. The projects having capacity of less than 20 MW and grid voltage having lower than 35 kilovolts in regions without electricity will get the same subsidy as local ground-mounted plants.

The latest policy puts more emphasis on solar panel installations on public infrastructure including railway stations and airport terminals. Industrial and commercial companies with large rooftops are also encouraged to utilize this plan. Moreover, solar projects that will be connected to grids with low voltage built on deserted regions, hills, agricultural greenhouses, inter-tidal zones, fishponds and lakes will benefit from preferential tariffs. Big users of power will also be encouraged to build solar projects as a way to reduce power costs.

The government will also persuade financial groups to offer discounts on loans and longer loan terms for distributed projects. The government is also upbeat about the formation of more PV industry investment funds among insurance companies and trusts. It would lead to more industrial and capital resource sharing, egging on downstream and distributed solar projects.

What is Distributed Generation?

Distributed solar has been receiving more attention and incentives from the Chinese central and local governments in recent times. Distributed generation occurs at or very close to the site of use. For solar, distributed projects comprise rooftops or ground-mounted panels near facilities like municipal buildings or major sports venues.

First Half 2014 Update

During the first half of 2014, China added 3.3 GW of solar capacity, as per the National Energy Administration statement. This includes 2.3 GW of utility-scale capacity and roughly 1 GW of distributed-generation PV. Looking at the figures and the set expectations, the first half of 2014 was disappointing for the country’s solar power installation.

Anti-dumping duties against Chinese solar modules in the U.S., Europe and Australia have spurred China to speed up the domestic Chinese market for rooftop solar more rapidly. China, the world’s largest carbon emitter, has set a goal of 35 GW of installed solar power by the end of next year.

Top Markets: China & US

After suffering from a two-year slump given the global supply glut, the solar industry on the whole is now largely recovering. Globally, China leads the world in total electricity generation from renewable sources, helped by its increased allegiance in recent times to the alternative path.

Notably, total electricity production from solar power more than doubled in the first half of the year in both the U.S. and China thanks to a solar revolution. As per Lux Research, annual installations of new PV solar capacity in the U.S. saw a five-fold increase over 2010-13 and are expected to increase another 38% this year.

China is also seeking new ways to bolster the pace of solar power installations in the coming years. The government here is playing a proactive role to make China not only the largest solar panel making nation but also its largest market.  

Chinese Solar Stocks in Focus

The leading Chinese solar stocks are sure to make the most of the favorable government stimulus.

Yingli Green Energy Holding Co. Ltd. saw higher demand for PV modules in the second quarter of 2014 from its key markets – China, Japan and U.K.

Trina Solar generated a profit in the second quarter, reversing the loss incurred last year. This came on the back of improved margins and revenue growth amid higher shipments on strong demand for panels in China, Japan and the U.S. The company increased PV module shipments by an impressive 69.1% in the second quarter.

JinkoSolar Holding Co., Ltd. reported upbeat second quarter 2014 results, primarily driven by higher revenues and a rise in total solar product shipments. The company has posted a positive earnings surprise in three of the past four consecutive quarters, with an average beat of 76.41%. This was again fueled by growth in China, Japan, U.S., South Africa and India. Its total solar product shipments grew 34.8% year over year, primarily due to higher shipments of solar modules, silicon wafers and solar cells.

JA Solar Holdings’ total shipments in the second quarter 2014 increased 47% year over year and lifted its full-year cell and module shipment guidance to 2.9–3.9 GW from its earlier expectation of 2.7–2.9 GW. The revised outlook includes 200 MW of module shipments to the company's downstream projects.

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