Last Week in Solar

Another solar company bit the dust last week. It wasn't unexpected, but it confirms that the shakeout going on in the industry isn't over and there's likely a long way to go. But before I get to the details of the bankruptcy there is other big news going on in solar.

Germany makes more cuts
We knew cuts were coming to Germany's feed-in tariff rates and they appear to be here. According to GTM Research, the rates look like this:

Source: GTM Research.

The small systems will still be favored and, according to GTM Research, systems under 40 kW accounted for 36% of demand in the first four months of this year. That percentage may rise, helping high-efficiency manufacturers like SunPower (Nasdaq: SPWR), Canadian Solar, and Trina Solar (NYSE: TSL) in the German market.

Bad signs for thin film
For over a year now there have been whispers that thin-film solar may soon be on its last leg. As the financial performance of First Solar (Nasdaq: FSLR) deteriorated and the cost of crystalline-silicon-based modules fell throughout 2011 those whispers turned into very real concern and now there may be panic in the streets. Abound Solar, another CdTe module manufacturer, shut its doors last week, not able to compete with a 10.5% efficient module.

Abound ran into the same problem other thin-film manufacturers did, efficiency just wasn't high enough to justify the cost of their modules. This raises even more questions for First Solar and even General Electric (NYSE: GE), for that matter, in their efforts to make thin-film solar a viable long-term product.

The government learns a lesson
This could have been another Solyndra, and to many in the media it probably will be. But the Abound Solar bankruptcy won't cost the full $400 million DOE loan guarantee amount because the government says it has protected more than 80% of that amount. Only $70 million has been drawn down and some of that may be recoverable.

In fact, by the sound of it, it was inaction by the government that pushed the company to bankruptcy. Investors wanted DOE money to be added to their own and when the DOE balked, the funding dried up. It's better than throwing good money after bad.

This is by no means a positive for the DOE, but it's not Solyndra, and hopefully it doesn't put another black eye on solar.

Looking forward to the second half of 2012
Friday marked the end of the first half of 2012 and the second quarter for most solar companies. The first half of 2012 has been filled with losses and uncertainty for solar, but the second half shows some hope.

China, India, the U.S., Japan and even Saudi Arabia are the next growth targets for solar, but the ramp-up in demand will have a greater impact on the second half of this year than the first. Japan's feed-in tariff rate will make for an explosion in installations and may make it the second-largest solar installer in the world. U.S. demand is also expected to be strong as costs fall and the financials behind solar become more profitable.

On the manufacturer side, First Solar is expected to return to profitability and SunPower may join it in the second half if analyst predictions are right. If SunPower does return to profitability the sky is the limit because trends are moving toward its efficient products and costs are falling at a rapid rate.

In China, analysts aren't expecting losses to turn into profits yet but the second half should provide improvement for leaders Trina Solar, Suntech Power, and Yingli Green Energy. Further down the food chain I have to wonder whether LDK Solar will survive the year and if Renesola will fail with it.

Another important development to watch will be GT Advanced Technologies' (Nasdaq: GTAT) performance. In my conversation with the CEO, which is covered extensively here, he said that new equipment will drive costs lower and drive older competitors from the market (think LDK Solar). If that is true, and the company's new equipment for more efficient cells lives up to expectations, the second half of 2012 could be the next step change improvement in cost and efficiency.

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