A New Year in Solar Energy (MTH, CSIQ, WFR, JKS, LDK, FSLR, SPWRA)

Forecasts for solar energy growth in 2011 generally noted that manufacturing capacity would increase and that margins would decrease. The outlook did not project a loss for solar energy players, but growth expectations were certainly cool.

Since the beginning of the year, though, some solid movement is pointing to what could be a better-than-expected 2011. Meritage Homes Corp. (NYSE: MTH) has given a boost to privately held PVT Solar’s solar PV system that claims to convert more than 50% of sunlight to energy by using the heat generated as well as the light itself. Canadian Solar Inc. (NASDAQ: CSIQ) has signed up to supply solar modules to SunEdison, a division of MEMC Electronic Materials Inc. (NYSE: WFR), for a 70 megawatt solar PV plant in Italy. JinkoSolar Holding Co., Ltd. (NYSE: JKS) has registered about $91 million in one-year bonds and issued about half that amount. The company plans to use the about 83% of the proceeds as working capital and the rest to repay higher-interest loans.

Globally, solar PV installations are expected to total around 16,000 megawatts for 2010, rising to about 22,200 megawatts in 2011, according to iSuppli.  In the US, solar PV installation is expected to double from about 1,000 megawatts in 2010 to 2,100 megawatts in 2010. Germany and Italy will continue to lead in solar PV installation

Of the 9,000 megawatts installed in 2010, about 72% of the solar PV modules were manufactured in China, yet China probably installed fewer than 500 megawatts of solar PV in 2010. China’s solar PV companies are quite optimistic regarding new installations in the country, but it could be another year or two before China really hits its stride.

In 2011, China’s production capacity could reach 35,000 megawatts, far above the 22,000 megawatts of forecast new installations.  Even if these projections are slightly off, oversupply of solar PV will drive down prices in 2011.

To try to maintain margins, Chinese producers could be beginning to look downstream at project development. Earlier this month, LDK Solar Co. Ltd. (NYSE: LDK) bought a 70% stake in a project development company, marking the first entry by a Chinese company in the project business. US solar PV makers First Solar Inc. (NASDAQ: FSLR), SunPower Corp. (NASDAQ: SPWRA), and MEMC have already bought into this area and it is expected to help them maintain growth in the face of module oversupply.

The new year will reward those solar PV makers that have acted to guarantee a market for their products. Those that rely on producing more modules could have a tougher time.

Paul Ausick