The rapid rise in solar PV stocks (SPWR, STP, JASO, etc.) this year has been attributed to many things, from $100 oil to global warming euphoria. But in reality, the success of these stocks has been driven by just one thing...Spain.
First a little background. Think back to winter/early spring 2007. Solar PV manufacturers were in a rut...sales were sluggish, ASPs dropped 10% quarter over quarter, and inventories were skyrocketing. Many companies were brushing it off as "seasonality," but it was clear there was something wrong. Too much growth too fast, particularly by the Chinese firms, had begun to steal the profitability from everyone. The industry needed a quick fix, and fast.
And then came Spain.
Despite setting an official target of 371 mw by 2010, the new Spanish environmental "Royal Decree" set no actual timetable for installations, while offering an eye popping €.42 per KwH for large scale installations (In far less sunny Germany large scale installations receive €.38 in 2007). This allowed an investment return of over 10% for 20 years, guaranteed by the government, and so the GOLD RUSH began. By the time of this post (6 months later), the entire 371 MW appears to have been installed or under construction. And Spain even raised their target to 1200 MW by 2010.
Solar PV revenues started to boom again, and investors reacted with nothing short of euphoria, predicting that a solar revolution is just getting started.
So what's the problem?
Well, the demand from Spain came on so quickly it jarred the system...it sucked up inventory, and made even some questionable manufacturers financially viable. But in retrospect, it wasn't the size of the demand (~300 MW, a fraction of what goes in to Germany each year) that mattered, it was the speed...6 months.
BUT IT'S JUST THE BEGINNING, the analysts say!
That's where they're wrong.
First off, the Spanish Government, while raising their target out of necessity, has now admitted their policy was too generous, and they plan to fix it, although perhaps not until next fall.
So, sure, Spanish installations could grow again next year if the government really does wait until next September to reduce the tariff...the jury is still out on that.
But then what? Can it really keep growing after that? Not likely.
Spain is a much smaller country than Germany, it simply can't justify paying a billion Euros a year in subsidy for solar panels, especially when their climate is perfect for much cheaper large scale solar thermal plants.
And other EU countries like Italy and Greece are surely going to learn from Spain's mistake rather than repeat it.
Plus, the European economy is slowing, which could change everything.
So, anyone who is buying inflated shares of solar PV stocks on hopes that Spain will be the next Germany could be in for a rude awakening. In fact, since Germany is planning on reducing their solar subsidy starting in 2009, and the US does not appear to want to join the fray, it could turn out that 2008 is not the start, but the end of the solar revolution.
