Reporting from this year's Intersolar North America, which ended for the fifth time in San Francisco yesterday, the Germany-based bank's analysts said that the mood at the show indicated "increased uncertainty" for both photovoltaic margins and pricing in the third quarter (Q3) of 2012.
"Bullish" about the growth in China, players like Yingli Green Energy believe Q3 module volumes will be sequentially up, and market demand is expected to "remain as high as ~5GW." However, the analysts only expect Q2 volumes to increase by around 10 percent, compared to the around 15 percent companies have quoted in their financial guidance. They attribute the Q2 volume weakness for Tier 1 Chinese companies to the "slower than expected" market pickup in the country. Companies that are "not leveraged to the Chinese market are not experiencing Q2 weakness," they add.
They go on to say that Chinese companies are planning further capacity ramp ups, while capacity reductions are occurring at a slower pace than had been anticipated by investors. "Companies such as Canadian Solar plan to bring new capacity online next year. Some other tier 1 Chinese solar companies are looking at the used equipment market to add new capacity next year," they write.
In terms of pricing, the Deutsche Bank analysts expect photovoltaic module prices for Tier 1 Chinese companies selling into Germany to be in the low to mid US$0.70/W range in Q3. Meanwhile, in the U.S. prices will be $0.80/W, and in China, in the medium to high $0.70/W range. As such, margins for large, Tier 1 companies selling into China are expected to come under pressure. For example, they say Yingli's Q3 gross margin will likely fall from the mid single digit percentage range in Q2, to the low single digit percentage range. "Companies further down the solar value chain should be in a better position to protect margins than upstream/midstream companies in our view. Micro inverter companies for instance should see relatively modest pricing/margin pressure," they add.
Furthermore, due to the current module prices of around $0.80 in the U.S., and internal rates of return (IRRs) "north of 10 percent in several states without subsidies", the analysts believe photovoltaic project business in the county is "attractive". Downstream companies like SunEdison and solar leasing players like SunRun are said to be experiencing "strong momentum".
They conclude, "Although volumes in the U.S. market could be up sequentially in 2H versus 1H levels, a number of developers are using modules top [sic] from 1603 grandfathered projects earlier this year. In other words, the pace of module shipments growth in the U.S. market should be slower than the over end market growth, in our view."
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