By Sven Olson
The solar tax credit has been extended to 2016, but lawmakers are unsure of its future.
The investment tax credit (ITC) in the U.S. has been the driving factor behind solar installations across the nation. It has encouraged companies, homeowners and businesses to invest in solar. However, the future of the ITC beyond 2016 is in question, according to a report by Inside Climate News.
According to Inside Climate News, some lawmakers and analysts want to gradually phase it out, as they believe a strong solar industry in the U.S. can exist without it. “There will be a future for the [solar] industry post-ITC,” said Andrew Krulewitz, a solar analyst with GTM Research said in the same report. The investment tax credit gives residential and commercial solar developers tax breaks worth 30 percent of project costs. It has helped to increase annual solar installations by more than 1,600 percent since it was first adopted in 2006.
Impacts
According to the Solar Energy Industries Association, First Solar Inc. (NASDAQ:FSLR) has benefited from the government’s 30-percent investment tax credit. The company invested $32.4 million in the third quarter of 2012, or 3.9 percent of sales, to develop its new thin-film product with the help of the credit.
This is an important development in the fight against the huge inventory of cheap photovoltaic units, as higher efficiency cells are key to competing with Chinese solar manufacturers. The tax credit is cited as a key catalyst for plans to add 10 GW of power to the grid in the United States each year starting in 2015. However, the government included the credit in the sequestration package. It was supposed to be cancelled on January 1st, 2013, but action on the sequestration portion of the fiscal cliff was put off until March 2013.
What’s Been Happening?
First Solar (FSLR) has been courting clients outside the country, which may or may not be working with their own subsidies. One example is Chile. First Solar purchased privately funded Chile Solar for an undisclosed amount earlier this week, the culmination of a working relationship with the company since 2011. This is First Solar’s first jaunt into Latin America, but they say there are other prospects in Latin America, including Peru, Brazil, Mexico, Panama and the Caribbean.
Although subsidies in Europe have been slipping due to economic weakness, particularly in Germany, there have been signs of improvement. England has adopted clean energy plans that incorporate photovoltaics, although the investment is expected to be cut by 20 percent in April 2013.
The aim is to construct rooftop solar units on buildings and ground units in an effort to increase the amount of England’s energy from renewable resources. Germany, heralded as the world’s largest solar market, plans to add about 4,500 MW of solar capacity in 2013, though the country has cut subsidies back to ease the burden on tax-payers. First Solar recently closed half of it operations in Germany, resulting in a loss of about 2,000 jobs between plant workers and contractors associated with the company. However, there may be interest in a First Solar facility in Frankfurt Oder by investors.
What’s Next?
First Solar has developed 600 MW of power projects across the world and is likely to seek additional projects outside formerly project-rich Europe. This year will likely see an increase in projects in places with plenty of sunlight, including the Middle East, India and South Africa. The Chile project has facilities in some of the most irradiated parts of the world. Dubai recently inked a deal that taps First Solar to build the country’s first solar farm. The $3.3 billion initiative will result in a 13-Megawatt facility. Other projects include supplying India with 20 percent of its panel market.
Impacts On Competitors
In terms of competition, SunPower Corporation (NASDAQ:SPWR) saw a drop in its revenues to $605 million in the third quarter of 2012 from $651 million in the same time a year ago. This drop was blamed on economic weakness in countries like Italy and Germany, SunPower’s largest clients. Chinese solar panel maker Trina Solar Limited (NYSE:TSL) cut its third quarter estimates of shipments after the United States approved duties for Chinese solar equipment. U.S. made the move following allegations that Chinese firms have been dumping solar cells and panels for unfairly cheap prices. Suntech Power Holdings Co. (NYSE:STP), another Chinese photovoltaic producer, reported a sharp drop in shares for the third quarter of 2013 as demand for their products dropped in Europe. They did report higher demand among its Asian clients including China and Thailand. Still, the company dropped its revenue forecast by 52 percent compared to the same time period last year. Canadian Solar Inc. (NASDAQ:CSIQ) reported a 35 percent drop in revenue for the third quarter as it felt the effects of cheaper panels. The U.S. duties move is likely to hit Canadian Solar, partially because many of its panels are produced in China.
Conclusion
The skies around the solar industry are pretty cloudy as of late. An investment in First Solar (FSLR), as a result, is not for the faint at heart. However, if you have a good idea of when the company’s stock has hit its low then picking up a few shares may be a good idea. Positive Industry news will likely drive the stock back up. It’s fair to say that First Solar’s valuation is predicated more on conditions in the industry than its actual fundamental position.
Disclosure: No Positions
