Deutsche Bank released some market analysis, addressing the concerns of North American solar investors, who fear a potential PV oversupply is on the horizon, changes to net metering policies, and rising Chinese competition.
After an extremely impressive start to 2016, when solar dominated new power generation in the U.S., North American investors have been expressing some concerns with what is to come in the second half of 2016 and beyond. Analysts at Deutsche Bank have addressed the major concerns and have given some forecasting about what may be to come.
The report begins by suggesting that the solar sector has not fully recovered from the SunEdision bankruptcy earlier in the year, which shook the industry to its core. However, SunEdison aside, the biggest concern for solar investors right now is the risk of an upcoming oversupply in the industry.
A dramatic drop in demand from China is expected to cause the oversupply, as PV installations are expected to fall by 80% in the third quarter, after the feed-in tariff in the country will be chopped on June 30. On top of this, huge cell and module production capacity increases in the country are expected to exacerbate the situation.
There is no market that is currently looking like it will fill the void left by China, while an expected rush for installations in the U.S. has been put on hold as the country’s Investment Tax Credit program has been extended past 2016.
Another emerging concern in North America, especially for the residential leasing sector, is related to changes over the net metering policy in certain states. The residential leasing sector remains the weakest in the U.S. and there are worries that the financing require to execute growth plans is not available.
“A combination of improving bookings momentum and execution on the financing front would be required for investor sentiment to improve,” wrote the research. “In the medium term, we also believe net metering policy overhang would need to be resolved for residential solar stocks to see meaningful share price appreciation.”
Increasing competition from Chinese PV companies is causing an impact on module segment margins for U.S. solar developer and manufacturers. This is causing a lack of profitability, which has caused investors to focus on the companies’ EBITDA outlook. However, Deutsche Bank have offered somewhat encouraging outlooks for large U.S. companies First Solar and SunPower, noting that fears over a 2017 earnings drop for First Solar are overblown, while the 2017 EBITDA for SunPower should be similar to 2016 “due to 600MW of capacity expansion as well as more diversified business model mix.”
And there are concerns about Chinese companies as well, as investors worry about peaking margins, rising receivables and subsidy payment delays. While the research also highlighted that it expects margin pressure in the inverter segment to also increase.