Solar Survivors As Cost/Megawatt Drops (FSLR, JASO, STP, TSL, JKS, SPWRA, TOT)

The oversupply of solar PV panels at the beginning of the year is slowly being wound down, but nearly every solar PV maker is also expanding manufacturing capacity in anticipation of increased demand. The current PV book-to-bill ratio is essentially flat, with $101 of new orders coming in for every $100 of actual revenue. In the second quarter of 2008, the book-to-bill ratio exceeded 2, with more than $200 worth of new orders for every $100 of revenue.

The worse news is that for the rest of 2011, the ratio is expected to fall below 1. And the slowdown in new orders will be going on as the solar PV makers invest more money in capacity. From the first quarter of 2011 through the first quarter of 2012, capacity expansion in thin-film manufacturing is expected to add 4,800 megawatts of new capacity.

The growth in capacity stems from shipment growth expectations from leading makers of around 55% in 2011. Demand growth, however, is expected to be much more modest, currently estimated at 12%.

In order to survive the declining order rates, solar PV makers have to be financially solid, be either a low-cost provider or a significant technology leader, and, perhaps most crucial, have a captive project pipeline to absorb production. The companies most likely to get through 2011, and probably a soft 2012 as well, are First Solar, Inc. (NASDAQ: FSLR), JA Solar Holdings Co. Ltd. (NASDAQ: JASO), Suntech Power Holdings Co. Ltd. (NYSE: STP), Trina Solar Ltd. (NYSE: TSL), Jinko Solar Holding Co., Ltd. (NYSE: JKS), and SunPower Corp. (NASDAQ: SPWRA), soon to be majority-owned by the deep-pocketed energy company Total SA (NYSE: TOT).

The Chinese companies in this list all received billions of dollars in government loans to expand capacity. If any of these solar PV makers should run into serious difficulty, the government can step in and forgive the loan or pump more money into the company. This is a seriously huge advantage. All these companies are also low-cost providers, with JA Solar and Jinko leading the race to the bottom.

First Solar has also received a US-government backed loan, but that loan is going to construction of a large solar PV project in Arizona. First Solar could also benefit from Germany’s decision to phase out nuclear generation because the company has a substantial presence in Germany.

Sunpower, like First Solar, owns its own project development pipeline. The company’s technology leadership and Total’s financial backing give Sunpower a strong chance of surviving the downturn in solar PV installations.

Paul Ausick