China fuelled a big rally for solar stocks this week. The Red State announced a big subsidy for solar installations. The nation will chip in about $3 for every watt installed.
When the program was announced on Thursday solar stocks soared to the heavens, with big double digit gains. Chinese companies in particular were up large. Trina Solar (TSL) and Yingli Green Energy (YGE) were over 40%. China Sunery (CSUN) was up 30%, SunTech (STP) was up 44%.
But the rally couldn’t last forever, especially since the Chinese program might not be all that. FBR Research released a note that said the governent program will only cover a sliver of the overall solar market, so don’t get too excited. Other research firms weren’t of the same mind, with many refuting the idea.
FBR pt out a second note reiterating their position, saying “The fear of the central government is to see a “repeat of Spain”, a market that grew too fast before hitting a cement wall by October 1st, 2008. Assuming RMB 20 per watt of incentives, and that the central government provides 70% of the subsidies, we reached our best case projection of 180MW of installations in CY09.”
Barron’s Eric Savitz checked in with some analysts and came up with this hazy explanation:
The issue is what types of installations are included in the program: as I noted in my rundown on Street reaction to the news, Hapoalim Securities analyst Gordon Johnson asserted that the program only covered what are known as “building integrated photovoltaic panels,” or BIPVs. That interpretation would suggestion the program is primarily targeted at new construction, rather than after-market installation on existing commercial buildings. (The program clearly does not address residential or utility applications.)
The focus on BIPV would explain the continued strong performance of Suntech (STP), which Johnson notes is the primary BIPV player in China.
Research firm Wedge Partners asserted in a research note today likewise asserted that the 20 RMB/watt subsidy program is specifically for BIPV installations of at least 50 KW. Wedge contends the program is focused on off-grid installations, and that “grid connection for solar power will not be feasible in China for at least two more years,” asserting China’s power grid is “poorly equipped to manage the variable power generated by solar installations. Wedge likewise noted that Suntech and Yingli Green Energy are the leading China-based BIPV players.
As hard as it might be to believe, getting a straight answer from the Chinese government isn’t that easy. As a result Friday’s stock moves were mixed. Some were up and some were down, but mostly down. Look for further resolution of the issue this weekend, or next week.
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