The Chinese government is reportedly considering a sharper-than-expected solar incentive cut, leading some industry followers to believe component demand will go up sharply in the near-term as customers rush to beat the deadline.
This is good news for U.S.-listed solar stocks, at least in the short-term, according to longtime industry bear Axiom Capital.
Axiom's Gordon Johnson said the firm is upgrading its sector rating to market overweight from market underweight and bumping the stock ratings of SolarCity (SCTY) , Trina Solar (TSL) , JA Solar (JASO) and Yingli Green Energy (YGE) .
Johnson wrote that a Chinese feed-in tariff, or FIT, cut for solar projects earmarked for Jul. 1, 2017, could shift demand up in the country by as much as 25 gigawatts through the first half of 2017, given that a similar cut that took effect Jul. 1, 2016, caused about 20 GW of increased demand leading into the cut.
The theory goes that this upcoming cut will provide solar companies building solar projects in the region less incentive to invest after Jul. 1, 2017, meaning a short-term frenzy to complete projects while incentives like the FIT are still high could occur.
Considering an anticipated 34 GW of demand from the rest of the world, an expected 70.5 GW of modules produced in 2017 and about 5.7 GW of excess inventory, an uptick in Chinese demand could move the solar market temporarily into a period of under supply, the analyst opined, in turn pushing prices for all solar components higher.