First Large Solar Plants Without Subsidies Seen in Spain
Comment of the Day

December 26 2012

Commentary by Eoin Treacy

First Large Solar Plants Without Subsidies Seen in Spain

This article by Marc Roca for Bloomberg may be of interest to subscribers. Here is a section:
Solar developers in Spain are trying to build Europe's first large-scale plants to sell electricity at market prices, taking advantage of a crash in equipment costs and some of the continent's highest levels of sunlight.

Builders have sought permits to connect 37.5 gigawatts of utility-sized projects to Red Electrica Corp. SA's transmission grid, company spokeswoman Susana Moreno said. While demand studies show that's far more new generation than the country needs, the first few plants could set a commercial precedent.

The companies include Gestamp Renewables Corp. and Solaria Energia Medio Ambiente SA, which only five years ago could earn about nine times more than fossil-fuel plants under one of the world's most generous subsidy programs. As photovoltaic-panel prices tumbled, the aid was cut several times and altogether killed in January amid criticism in Parliament for adding more than 2.5 billion euros ($3.3 billion) a year to consumer bills.

“Spain is probably set to have Europe's first utility- scale solar parks without subsidies,” according to Jenny Chase, the Zurich-based head of solar energy analysis at Bloomberg New Energy Finance.

Solar-cell prices have plunged about 67 percent in the past two years as Chinese manufacturers led by Suntech Power Holdings Co. ramped up production quicker than demand. The top five makers of traditional silicon-based solar cells expanded output by 55 percent on average last year, according to data compiled by New Energy Finance, an affiliate of Bloomberg News.

Eoin Treacy's view

My view – Generous subsidies in the renewable energy sector attracted Chinese manufacturers which led to a flood of new supply and much reduced prices for solar panels and wind turbines. As margins have come under pressure more than a few of the higher cost producers have been driven out of business and only the most efficient or innovative have survived. As with any other market, as supply increases and costs fall, demand recovers as economics improve. The fact that solar can now be justified without recourse to government support is a welcome development.

Solar related shares experienced a disastrous crash but those that have not gone bust have survived because they have been able to adapt. At least a short covering rally is underway across the sector. First Solar is a clear leader. The share bottomed in June, ranged in the region of the 200-day MA from late August and reasserted demand dominance at the end of November. A sustained move below the 200-day MA would now be required to question recovery potential.

Trina Solar hit an important low at the end of November and continues to unwind its oversold condition relative to the 200-day MA. Canadian Solar lost momentum last year and posted a failed downside break in November. It has returned to test the progression of lower rally highs and a sustained move above C$4 would reassert demand dominance beyond the short term. Abengoa found support above the July low in late November and rallied impressively from the €2 area last week. A clear downward dynamic would be required to check potential for additional upside.


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