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China Solar: China May Not Meet 14GW Target, Says Deutsche

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By Shuli Ren

Shares of Chinese solar companies dipped in the last month, on concerns that demand from China may be weaker than expected. Trina Solar (TSL) fell 24% from its early March high. Yingli Green Energy (YGE) slumped 32.6%. JA Solar (JASO) lost 18.4%. Canadian Solar (CSIQ) was down 24%. Jinko Solar (JKS) retreated 16.4%.

Deutsche Bank met with over 20 solar companies and policy makers in China last week and said that “the 14GW solar target would be difficult to achieve without a major near term policy change”, in a research note published today.

Beijing will have to make policy changes to meet the 14GW target, according to analysts Vishal Shah, Michael Tong, Eric Cheng and Kai-Ting Wong:

Permitting process for utility scale projects is likely to slowdown once the 6GW target is reached and relatively low returns along with concerns over counterparty risk and lack of bank financing are likely to result in only 1-2GW of DG installations vs govt target of 8GW.

Government and industry groups are working on a number of different options.

Most people think any potential change is unlikely until Q3 timeframe and it is likely that the government does not meet the 14GW target (it has happened with wind once).

Not all companies will be able to achieve their ~500MW system installation targets in 2014 since we expect provincial permitting caps to be reached by mid 2014 timeframe.

So what do we do with the China solar stocks? “Concerns are starting to get priced in”, wrote the analysts. We should expect volatile trading in the next few months but the dust may settle in June:

Given the recent weakness and negative preannouncements from Trina Solar, Yingli Green Energy, we believe investor expectations have come down. Moreover, we believe there is still some possibility that the Chinese government increases utility scale installation target, changes utility scale/DG mix or demand from markets such as the US surprises to the upside.

We acknowledge that near term fundamentals in China could remain challenging and concerns over policy uncertainty remain the biggest near term risk to solar stocks. Some of the momentum drivers such as consensus estimate revisions could remain a headwind to the group in the near term, but we expect stocks to settle down once further clarity on Chinese policy emerges in late Q2 timeframe.

We believe the Chinese government is likely to fix the current DG policy later this year, rush in markets such as the US could keep pricing relatively stable, capacity utilization rates are picking up and some companies are running at nearly 100% utilization rates.

http://blogs.barrons.com/emergingmarketsdaily/2014/04/14/china-solar-china-may-not-meet-14gw-target-says-deutsche/?mod=yahoobarrons&ru=yahoo