Citi solar analyst Timothy Arcuri gives an update on the status of the Spanish solar subsidy cuts. The worst-case scenario (a 300MW cap) seems to be getting closer to reality, but there is some good news, too. The cap will not begin until next year, which could provide a temporary boost to stocks levered to Spain:
Spanish newspaper reports indicate that Spain’s Ministry of Industry moved one step closer to finalising a new Royal Decree for solar PV on the current draft proposal to the National Energy Commission (CNE). Current legislation expires at the end of Sept with a program cap of 1.2GW. While this has driven a sharp slowdown in Spain installations for risk of overshooting the cap or deadline – it now appears likely that there will be an uncapped “stub” period from October to December ’08 in which project developers could continue to reap feed in-tariffs at current generous levels before the new lower feed-in-tariffs (€0.29 for ground-mount, €0.33 for rooftop) and much lower program cap (300MW ) take effect.
So Arcuri believes this development could cause some “near-term re-acceleration in module demand and keep a solid floor under pricing for another Q.” However, he warns, this short-term ramp up just sets up the end of the year for another falloff in demand, perhaps creating even more turbulence in stock prices.
Citi believes MEMC Electronic Materials (WFR) stands to gain the most:
…we think WFR is the clearest near-term beneficiary as cell/module makers would likely make a strong push to buy product on the spot market to meet any short-term flurry of renewed
demand from Spain. This should put upward pressure on spot poly prices against a
model where expectations have now under-shot following the recent miss.
Citi again reiterates that First Solar (FSLR) is largely unaffected by the political risk in Spain. First Solar (FSLR) and MEMC Electronic Materials (WFR) remain Citi’s top solar-related picks.