When it comes to China, the country has long delayed on introducing a national feed-in tariff that will be required to really stimulate rapid growth in its solar market, and recent commentary from Chinese officials indicates that they might delay by a year in setting a national solar policy that takes into account the problems with policies in Europe. Additionally, the profit margins on Chinese solar projects to date have not been comparable to profits for solar companies in markets like Europe. There has been analyst conjecture that Chinese solar companies will sell modules at a loss in China just to secure the long-term opportunity.
"China lacks an FIT system, which has been successful in most of Europe, and initial projects won through a tender process have been at very low ASPs/margins. In addition, China's underdeveloped grid could hinder market growth as transmission upgrades are not keeping pace with renewables deployments," wrote Wells Fargo analyst Sam Dubinsky on Wednesday. Chinese officials could be looking at additional solar installations because China has ramped solar capacity so rapidly that if it doesn't increase its own domestic take as Europe declines many Chinese companies will be out of business after significant investment by the Chinese government.
The analyst added about some specific implications that are positive for Chinese solar stocks, "On a positive note, the Chinese market favors scaled/low-cost/integrated domestic manufacturers such as
Yingli Green Energy
(YGE - Get Report)
, which won 70% of panel contracts in the last round of bidding, and Trina. Note that
, has also been gaining traction in China, though the company will likely need to move more integrated longer-term if it wants to scale the business."
At the same time, there are leaks from Italy regarding the official changes to its solar subsidy policy, which may have helped to drive trading in solar. The recent spate of articles saying the elements of Italian policy have been revealed have quoted the environment minister in Italy, who it should be noted is not driving the policy, but just one voice at the table broadly supportive of green energy.
"Italy's industry minister Paolo Romani is the one who really matters," said Dan Ries, solar energy analyst at Collins Stewart. Romani has not been quoted in the recent leaked reports indicating that a new Italian solar policy is in place. Ries said it was his understanding that meetings were still scheduled for next week to discuss the potential changes to solar policy in Italy and nothing had yet been set in stone.
In any event, solar investors should have learned from last year's events in Germany that betting on "leaks" when it comes to European solar policy is at best a tenuous trigger for trading, and at worst, a fool's game. This is not to say that when Italy announces its solar policy it won't lead to a rally in solar stocks. The uncertainty from Italy has been such a source of aggravation in the solar sector that a relief rally is possible for solar stocks regardless of the specifics of the Italian changes. One analyst who said he has been getting up at 4 A.M. to monitor news from Italy expressed the feeling of most solar watchers: he just can't wait for Italy to decide on something and for the waiting to be over.
Ultimately, if recent reports are to be trusted that Italy is leaning towards a monetary cap on solar subsidies, as opposed to an installation cap, it will come down to "doing the math" on how much the monetary cap will allow in terms of solar installations. No one can answer that question today, and none of the "leaks" provide an answer either. Recent reports refer to a monetary cap of roughly $6 billion euros per year for solar installations, yet the Collins Stewart analyst said this figure implies a level of installations that could represent a much higher level of annual installations than the "body language" of Italian politicians during recent solar debate would otherwise suggest. Furthermore, there is no way to specifically model what a monetary cap would mean for Italian solar market growth until a model is revealed by the Italian government for how feed-in tariffs are valued relative to the monetary cap.