Alt-Energy Watch: Grid Parity, or M&A, Coming for Solar (LDK, FSLR, JKS, TAN, SPWRA, TOT)

Last week we noted that parity pricing for solar PV generation was approaching much more quickly than anticipated.  Usually called “grid parity,” the term refers to the day when the unsubsidized cost of solar PV matches that of fossil fuels like coal and gas. The ironic thing about this is that as solar PV costs fall, the industry comes to depend less and less on government subsidies and more on competition in the marketplace.

A solar version of Moore’s law says that manufacturing costs will fall 20% for every doubling of manufacturing capacity. Estimates vary on when parity will be achieved, but there are some who believe that the end of 2012 or the beginning of 2013 are possible. Grid parity in Germany, Italy, Spain, and France could occur by 2015. If either of these projections comes true, grid parity will have overtaken earlier estimates of 2017-2020.

This could be good news for some solar PV makers and not-so-good news for others. Research firm Brean Murray recently dropped its target price for LDK Solar Co., Ltd. (NYSE: LDK) from $20/share to $12/share. Even that seems pretty aggressive when the mean target is $11.11 and the current price is $6.89, in a 52-week range of $5.00-$15.10.

Solar PV maker First Solar Inc. (NASDAQ: FSLR) is getting similar treatment from Credit Suisse, while JinkoSolar Holding Co., Ltd. (NYSE: JKS) is getting a boost. The difference is technology and capacity.

First Solar has long enjoyed a cost-leadership position based on its thin-film technology. But the ramp-ups in manufacturing in crystalline polysilicon modules increases competitive pressure from the silicon side. According to Credit Suisse, the company with the most to lose is First Solar and the one with the most to gain is JinkoSolar.

Credit Suisse has lowered its price target for First Solar from $115/share to $100/share. Shares are trading down about -1% today, at $116.02, in a 52-week range of $105.31-$175.45. If CS is right, look for a new low in First Solar shares fairly soon.

The bank’s rating for JinkoSolar has been raised to ‘outperform’ with a target price of $36/share. JinkoSolar’s shares are up about 4.5% today, to $23.19, in a 52-week range of $8.80-$41.75. Credit Suisse thinks that JinkoSolar, with its very low-cost manufacturing, stands to gain the most from the coming slide in solar PV prices.

For comparison, the Guggenheim Solar ETF (NYSE: TAN) is up about 0.6% today, at $6.64, in a 52-week range of $6.40-$9.34. A new low may be unavoidable here.

Unless demand really heats up enough to absorb all the new capacity, prices for solar modules are likely to continue falling throughout 2011 and into 2012. If Brean Murray is right, this could be a good thing for essentially all the solar makers. If Credit Suisse is right, there are going to be winners and losers.

We have already seen at least what is the first consolidating move in the sector.  When SunPower Corporation (NASDAQ: SPRWA) sold a controlling stake to Total SA (NYSE: TOT), what else is one to think?  Its shares even held up fine on what would have otherwise looked and felt like a bad warning on the earnings front.

Paul Ausick