
France Cuts Solar Tariffs; Panic Averted
(French solar tariff story updated for closing prices)
PARIS, France (
) -- France today announced that it is cutting its solar feed-in tariff for rooftop systems from 55 euro cents to 42 euro cents, a 24% reduction in its solar-incentive system. Solar companies and investors have been in panic mode about an upcoming feed-in tariff cut from Germany, the world's biggest solar market by far, but the French reduction is significant.
Is the French reduction a harbinger of worse to come from Germany? The German environmental minister has been quoted recently as saying an announcement about the feed-in tariff cut could be made within days.
There are some important distinctions to be made between France and Germany's solar markets. First and foremost, France is a blip compared to Germany on the solar power global grid. Germany represents between 50%-60% of the global solar market, while France, even breaking into the Top Ten in 2009, represents a mere fraction of Germany's solar dominance.
However, France is a growing solar market, and an important one, so the feed-in tariff reduction is reason for solar companies to pause and reflect on the significance of a 24% reduction. It probably won't keep solar companies from chasing business in France, though.
The big solar players like
First Solar
(FSLR) - Get Report
,
SunPower
(SPWRA)
and the Chinese solar gang led by
Yingli Green Energy
(YGE)
,
Trina Solar
(TSL)
and
Suntech Power Holdings
(STP)
are all anxious to exploit new feed-in tariff geographies ahead of the German tariff reduction.
Solar companies were down by as much as 6% early on Wednesday, but by day-end, the losses had moderated.
Solarfun Power
(SOLF)
and Yingli were down more than 6% at mid-day, but closed on Tuesday down 4%. Trina Solar ended Wednesday down less than a percentage point after also being down close to 5% at mid-day.
While Tuesday's selloff in solar stocks mirrored the general market panic on a weak start to the earnings season, most of the major market indexes and the technology sector were up on Wednesday. Still, the good news on Wednesday was that the French tariff reduction did not set off the panic button.
The size of the moves down in solar stocks on Wednesday may have just suggested that the run-up in Chinese solar stocks that began the year was finally experiencing some pushback.
While First Solar is more immune to the French news since it has a big ground-based solar business -- the French move was aimed at rooftop systems -- First Solar also has not run up like the Chinese players to start the year.
Rob Stone, an analyst at Cowen and Company, said while it is uncommon for solar to trade away from technology generally, a decline of as much as 5% or 6% in one-day is not atypical for solar stocks, especially for solar players like the Chinese that have been up to such a great degree to start the year.
Some of those Chinese solar stocks even managed gains on Wednesday, showing that investors weren't issuing a short-term correction on all the Chinese solar high flyers.
Canadian Solar
(CSIQ) - Get Report
was up a little under 1%, while
JA Solar
(JASO)
was up close to 2%, for the best performance in solar on Wednesday.
In fact, the feed-in tariff original level of 55 euro cents was so outsized that France found itself in the midst of creating a speculative bubble, according to a French newspaper report. The government was receiving as many as 3,000 applications a day in the past two months from solar builders, versus 5,000 a month last summer.
France has cut the tariff as a way to mitigate the bubble, without bursting it. And that may be a reasonable thing -- which solar companies who were burned by Spain should see as proper government intervention. Spain originally placed its solar feed-in tariffs at such a ridiculously high level it also led to a solar rush into Spain. However, the Spanish government responded with a drastic capping of solar tariffs which burst the bubble it had created.
Andrew Kinross, director with
Navigant Consulting
(NCI) - Get Report
, who studies the solar tariff regimes, said it seemed as if France has reacted responsibly, and that the solar market should expect more governments to look at cuts in feed-in tariffs.
"People have been making a lot of money in France, among the best returns in the world, so it's not terribly surprising. Governments need to do price discovery," Kinross said. "You put the tariff in and see the way the market reacts, and adjust it up or down based on that trial-and-error process," Kinross explained.
While Kinross said the 24% reduction in the French feed-in tariff is significant, he does not believe it will keep solar players from making profits in the market - and in fact, the French government has adjusted the feed-in tariff with that goal in mind.
"The French market has been very strong this year, there has been a feeding frenzy, and 42 euro cents still sounds as if the returns will be sufficient, particularly since average selling price of systems has declined significantly this year," Kinross said.
The big issue is that as a relatively new market, France lacks the level of infrastructure to make solar installation inexpensive, and so it needs feed-in tariffs to bring on the early adopters. The only question would be if the infrastructure has developed enough already for 42 euro cents, and the Navigant consultant said he thought it probably had.
"My bet is that 42 euro cents is still adequate, certainly in the southern locations, and downstream companies will still be making satisfactory returns from the French tariffs," Kinross said. He noted that if France was getting 3,000 applications a day at 55 euro cents, a feed-in tariff of 42 euro cents is probably still going to encourage interest.
Overall, the French market may grow to the level of the low hundreds of megawatts this year, according to Navigant projections, and will be somewhere between the bottom half of the global top ten in solar capacity.
-- Reported by Eric Rosenbaum in New York.
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>>Solar Tariffs 2010: the Outlook
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