Jefferies & Co. renewable energy analyst Jesse Pichel today opines that a recent bout of short covering that has lifted shares of solar energy technology companies is destined to come to an end.
The “solar junk rally,”� as Pichel refers to it, is failing to price in some looming risks, such as the risk that companies may start to assemble solar modules outside of China to avoid import duties, which could raise prices for U.S. solar finished goods:
Chinese companies may begin to assemble non-Chinese cells outside of China to avoid duties.This will raise the cost of production for modules selling into the US market. Taiwanese cell companies may be the biggest beneficiary. Taiwanese cell companies just experienced a 25% m/m decline in December to record low levels � despite indication that German installations were strong. Possible expansion of the case to Europe may have a much greater negative impact. Solarworld has threatened to do so.
Moreover, Pichel thinks Germany is about to choke demand with a call to reduce subsidies — the so-called feed-in-tarriff. It seems that issue, which dogged solar companies for much of the first half of 2011, is destined to become an issue again this year:
Our sources in Germany believe the July 1, 2012 FIT reduction of ~15% will likely pull forward to April (or sooner) and resolution will occur quickly to prevent any pull-ins of demand. This additional 15% FIT cut, on top of the 15 cut on January 1 should adequately choke the market to the 3GW level in 2012. An acceleration of FIT reductions will remove the bull case of pull-ins. European declines from Germany and Italy in 2012 will mitigate growth from the US and Asia.
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