The European Union has proposed changes to its renewable energy goals and solar stocks took the news harshly today. EU leaders have proposed ending a binding renewable energy target for each country in favor of a goal of reducing greenhouse gas emissions from 1990 levels by 40% by 2030 and a target of getting 27% of energy from renewables by the same year.
Negotiations are ongoing as I write, but it appears that high energy costs and a suffering economy will push the EU from stringent renewable goals. The question is whether it will matter for solar manufacturers and installers.
The EU's work is already done
If this move were made five years ago when Europe was one of the only big demand sources for solar modules, I might say reducing renewable standards might be a big issue, but today the impact on the industry will be muted. In places like Germany, solar power is already less costly than electricity from the grid and costs continue to fall. Most of the solar power installed in Europe today is because it's economically viable, not because subsidies or political agreements require it.
The companies that will be affected are also less reliant on Europe than they once were. SunPower (SPWR -0.89%) and First Solar (FSLR 1.21%) fell 4.4% and 3.7%, respectively, today but they're not all that reliant on Europe today. Most of their power plant installations are taking place in the U.S. and growth markets are in South America and the Middle East. SunPower maintains a module presence in Europe, but it's getting most of its module sales from Japan and the U.S. today.
Trina Solar (NYSE: TSL), Yingli Green Energy (NYSE: YGE), and JA Solar (NASDAQ: JASO) are also down at least 6% today. Each exports a significant number of modules to Europe, but like SunPower and First Solar their reliance on the continent is dwindling. Japan is where they're finding higher margins for panels and China is where the growth is for most Chinese manufacturers.
It's likely that China and Japan will be the two largest solar markets in 2014, so if sales fall to Europe it won't be the end of the world. The industry has been diversifying demand for years now so I see little impact from a changing renewables target.
The EU's talk doesn't matter to solar
Long term, I think even a reduced renewable goal in Europe is a non-issue for investors. The cost to building solar systems is coming down and efficiency is increasing. These factors will drive growth in the future instead of subsidies or installation requirements.
With solar power already past grid parity in locations around the world, it's a great time to be a solar investor, despite what stocks are doing today.
