Europe dominated demand during the emergence of the solar industry during the 2000s. Feed-in tariffs in Germany, Spain, Italy, and other countries made solar energy an attractive investment and, as costs fell, the region installed dozens of GW of solar power.
But today, Germany's growth has stalled out and new regions have emerged as the keys to solar growth. China's plan to install 35 GW of solar by 2015 will generate huge demand there and Japan's high feed-in tariff rate has already been a boon to the industry. According to a new NPD Solarbuzz report, installations in China and Japan are expected to double from the first half of the year to the second half, reaching 9 GW.
Drivers of demand
Japan has put a $0.40 per kW-hr feed-in tariff in place, a lofty price compared to a feed-in tariff of less than $0.20 per kW-hr in Germany. Part of the high price is to compensate for the high costs of land and labor, but it's still creating a major bubble, which may pop like Italy, Spain, Greece, and others have seen in the past.
China has formed a state consortium to emphasize solar and set the 35 GW target. The country will use feed-in tariffs and other subsidies to advance solar, although it can be a boom-and-bust mentality there as well.
Who will benefit?
We've already seen a few of the winners in Japan begin to emerge. SunPower (NASDAQ: SPWR ) said 28% of panels went to Japan in the second quarter, and Canadian Solar (NASDAQ: CSIQ ) sold 36% of its panels there. These two were early movers and the Japanese market has helped drive margins higher and SunPower to a profit in the quarter.
Trina Solar (NYSE: TSL ) only shipped 6.1% of modules to Japan in Q2 but expects that to pick up after getting a late start. I would put these three companies among the top U.S. traded stocks when it comes to exposure to Japan, which should help drive earnings in the second half of the year.
A word of caution
The challenge with both Japan and China is that rules can change quickly, especially when you experience such explosive growth. If too much solar is installed, feed-in tariffs could be slashed, which wouldn't be good for anyone in the industry. So, don't expect high margins this quarter or in the second half of the year to continue into 2014 unless there are no policy changes. We've seen this show before and high margins don't usually last long in the solar industry.
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