Solar stocks are too cheap, and a correction is on the cards next year, according to banking group Jefferies.
“We have a view that this sector is oversold,” Bruce Huber, managing director and co-head of global clean-tech investment banking at Jefferies, told Environmental Finance. “We are in for what could be a fairly interesting four or five quarters’ run in the sector, because it needs to catch up.”
Bruce Huber: Solar stocks are oversold
“The stocks by and large are too cheap,” agreed Jefferies senior equity analyst Jesse Pichel, speaking on the sidelines of the bank’s 10th Global Clean Technology conference in London, which matchmakes between investors and companies in the clean-tech space.
Meanwhile, brighter times could also be ahead for the wind market, Jefferies foresees. “We think this is the bottom of the wind market,” added Pichel.
“The drivers for wind are not going away,” agreed clean-tech analyst Gerard Reid, although he acknowledged it has been a hard year for the sector, with low natural gas prices making wind less attractive, difficulties in finding finance and the financial crisis.
Solar, and other renewable power stocks, have been buffeted on the markets in recent months, as the hangover of the financial crisis combined with fears of oversupply.
From the beginning of January to mid-September, Jefferies calculates listed upstream solar firms, making solar wafers and polysilicon, were down 16%. Manufacturers of solar cells were down 18% and downstream solar firms, which install and integrate solar modules, were down 11%. Wind turbine and component manufacturers had an even worse year, down 39%.
Speaking at the conference, Ming Yang, vice-president of Chinese solar manufacturer JA Solar dismissed investor concerns about oversupply. “People always talk about oversupply in solar. [What] people underestimated consistently since 2004 is how strong that demand is.”
He noted that China’s next five year plan, covering 2011-15, foresees an increase in national solar installations from 2GW at present to 20GW by 2020, with indications this could be increased to 50GW if costs are driven down.
Jefferies agreed that “overcapacity is not an issue”. Some commentators are predicting the global solar industry will have capacity of 28GW in 2011, compared to Jefferies’ estimate of demand for 17GW of modules. But, in a note on the state of the solar market, the bank said that to reach 28GW would imply nearly a doubling of manufacturing capacity from current levels, which it does not expect to see.
Moreover, some commentators are “double counting” capacity, Jefferies said, because many European and Japanese solar suppliers are manufacturing their products in China and Taiwan.
By. Jess McCabe
Source: Environmental Finance