After the first day of solar industry conference InterSolar 2008, Friedman Billings sees risks with warranties, cancellation policies, and emerging market demand.
We note that the current policies, set by end customers, such as PPA owners/residential customers, are for at least 20 years of warranties provided when PV systems are installed. What is interesting is that some module manufacturers are only providing 10 years of warranties…warranties are an important “risk” factor in project IRRs–yet to be fully understood throughout the supply chain …We expect module manufacturers with fewer numbers of years of warranty to be eventually forced to compensate for the risks taken by offering further ASP discounts.
To our surprise, we have learned that there are NO substantial material penalties for module customers who cancel contracts. In other words, even though most module manufacturers claim they are contracted (i.e., sold out) for CY08 and for at least 50% of shippable CY09 capacity, there is NO significant monetary penalty if such contracts are cancelled.
Emerging Market Risk:
As much as we continue to hear that emerging markets, such as Italy and Greece, will make up for the incremental decline in demand in Germany and Spain in CY09, we note that demand from such countries (8% of total demand, on aggregate) will most likely not be enough to offset an incremental decline in demand in Germany and Spain, which, on aggregate, account for 50% of the market [Remember, in 2007, Germany accounted for 91% of First Solar’s $504 million in sales].
Friedman Billings encourages profit-taking on First Solar (FSLR) and SunPower (SPWR), with MEMC Electronic Materials (WFR) as one of only two LONGs.
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