The Largest Threat To The Solar Industry

1. Gabon Coup Roils West African Markets, Avoiding Disruptions So Far

- The second coup in Africa in a month, the military takeover in Gabon that ended the Bongo family’s 56-year rule in the country, has for the first time impacted an OPEC producer.

- According to sources on the ground, the new leadership under Gen Brice Oligui Nguema is not touching Gabonese production and does not want to disrupt exports, yet stocks of producers such as Maurel & Prom (EPA:MAU) or BW Energy (OSL:BWE) all fell this week.

- Oil exports from Gabon have soared to 3-year highs in July and August, trending above production figures at 280,000 b/d, and loadings continue at Cap Lopez and Etame.

- Metals might see a much bigger impact as France’s Eramet (EPA:ERA) announced it halted all manganese production in Gabon, the world’s second-largest producer of the industrial metal.

2. Overcapacity Becomes Largest Threat of Solar Industry

- Fears of margin pressure stemming from recessionary trends and Chinese production overcapacity are looming large over the solar industry, despite 2023 becoming a bumper year in solar installation growth, expected to come in at 56%.

- Shares in the world’s biggest solar panel producer Longi Green Energy Technology slumped by 36% this year, even though the company reported a 42% jump in net income for H1 2023 and ramped up production above expectations.

- Feedstock prices for solar producers have collapsed as polysilicon prices in China are a mere $10 per kg, a third of what they used to be in early 2023, prompting top Chinese firms such as Jinko Solar or Tongwei to continue their capacity expansions.

- Longi’s chairman already warned the industry that such an unabated buildout will lead up to half of the country’s solar manufacturers bankrupting themselves in the next 2-3 years.

3. US Shale Reinvestment Bounces Up, Even If Briefly

- The reinvestment rate of US shale producers has soared to its highest since Q2 2020, reaching 72% in Q2 and adding 14 p.p. compared to Q1 readings, suggesting US producers are investing more in day-to-day operations.

- However, the reinvestment rate hike mostly comes from lower oil revenues in general and still-high capital expenditure costs as high inflation lifts prices of drilling and oil services, with CAPEX among the peer group selected by Rystad Energy rising for 10 straight quarters to $9.7 billion in Q2 2023.

- As most US shale companies have used more than 50% of their annual CAPEX budgets in the first half of 2023 already, expenditures will slow down just as oil prices seem to be edging higher, suggesting the reinvestment rate is set for declines from now on.

- Despite falling dividends, their ratio to capital spending remains historically elevated at 28% in Q2, with oil companies paying out $2.7 billion in dividend payments – quite the feat considering they have never paid more than $1 billion in total quarterly dividends prior to Q3 2021.

4. Australia Faces Acute Power Shortage as Coal Plants Are Shut

- Australia’s grid operator AEMO warned of risks of electricity shortfalls from 2025 onwards as the nation is set to retire 62% of its coal-fuelled power plants over the next decade, with no adequate replacement.

- Under pressure from shareholders to speed up energy transition, Australia is rushing to close most of its 18 large-scale coal plants to fulfill its pledge of becoming net zero by 2050.

- The closure of the 2,880 MW Eraring coal plant in New South Wales is expected to jeopardize power supply in the country, representing 14% of total coal capacity and 5% of the country’s overall electricity output.

- Simultaneously, Australia is ramping up investments into solar and wind projects with 2022 recording a record $5.9 billion spent on approximately 5 GW of new capacity, but intermittency might lead to future problems.

5. Venezuela to Resume Bond Payouts Soon

- Six years after Venezuela’s national oil company PDVSA stopped paying creditors, rumors on the market suggest Caracas might return to payouts as its notes due in 2020 have soared 160% in 2023 to date.

- Venezuela is prompted to pay creditors by the looming Citgo hearings in the United States, as Caracas offered a 50.1% stake in Citgo as collateral when paying out debt.

- According to media reports, US officials are drafting a proposal that would ease sanctions on Venezuela if it holds free elections, potentially allowing more countries and more companies to buy from PDVSA.

- Venezuela’s crude production has been hovering around 860,000 b/d recently, with oil minister Pedro Tellechea announcing that he expects output to remain at the same level in the remaining months of 2023.

6. Beyond Wildfires, Widespread Drought Sours Canada’s Wheat Outlook

- Just as El Nino is drying up Australia’s harvest and the Russia-Ukraine war keeps on limiting supply from that part of the world, Canada is facing increasing headwinds with its 2023-2024 wheat outlook.

- Canada was widely expected to greatly profit from wheat market disruptions and the country’s farmers planted the widest wheat area since 1997, at 10.7 million hectares for the ongoing marketing years.

- Despite the ambition, Canada is now expecting total wheat output to come in at 33.2 million tonnes, 2% lower year-on-year and 2 million tonnes lower than its previous 2023-2024, largely a result of ongoing droughts and poor soil moisture.

- Market liquidity in Canadian wheat remains muted, whilst prices have been in a freefall after their annual peak in mid-July, coming on the back of the Black Sea grain deal collapse, with traders offloading wheat stock before this autumn season’s harvest starts.

7. US Carbon Prices Outperform Peers Globally

- US regional carbon markets have outperformed their peers in Europe and New Zealand as the West Coast squeeze on carbon emissions continues, whilst prices in other regions mostly trend sideways.

- Carbon prices in the state of Washington rallied 74% this year to an all-time high of $73 per metric tonne last week, whilst California gained 25% in 2023 to date, currently priced at $37/mt.

- With New York soon launching its own carbon pricing, too, US coastal states have been at the forefront of carbon abatement with carbon prices poised to prompt companies to abate and earn extra cash by selling surplus allowances.

- Despite substantial increases in US carbon prices, the European Union still leads the pack in absolute terms as its ETS trends around €86 per mtCO2 ($93/mt).