It turns out when you sell products near cost to gain as much market share as possible, not only do you shut them down, but you will eventually get shut down. Who would have thought?
Given the massive government subsidies, they were probably selling below cost.
Hopefully the market recovers and we continue to see prices come down in double-digit percentages each year. With every price drop, the return on solar installations grows and the business model of companies like SolarCity grows more viable.
Amazon isn't in the same situation as solar companies though. Amazon has many other items they have a good margin on that helps them recoup their costs on the items they undercut on. Solar companies only have one item period.
It is a well understood tactic, sure, but I don't think my blame is misplaced. Companies who undercut everyone else normally either have other products that they aren't undercutting on that make up for the difference (see amazon), or they raise their prices back up a bit after they have gained market share.
Chinese solar companies didn't have/do either of these and in the end this is what will happen. The market was hugely flooded over the last year and as such most US solar manufacturers are gone and the Chinese ones will start consolidating, live off more subsidies, and hopefully they stop selling at such a low margin so they can actually survive and compete fairly.
Some of the reporting on Suntech by other news organizations is quite interesting. From "China’s Solar Billionaire Undone as Banks Push Suntech to Brink"
comes this striking summary of the market: "'Being in the solar manufacturing industry over the past eight years has been an excellent way to turn a big fortune into a small one,' said Jenny Chase, lead solar analyst at Bloomberg New Energy Finance in Zurich."
The Australian press has especially good reporting because of the connections between Suntech and Australia through Shi Zhengrong, the founder of Suntech who moved to Australia after completing higher education degrees in China. The story "Suntech's failure forces Beijing policy rethink" from the newspaper The Australian
"In substantial part, Suntech -- whose board first kicked Shi out of the chief executive's position last August, then a fortnight ago removed him as chairman -- is the victim of state industrial policy.
"As Carl Walter and Fraser Howie, American bankers with decades of experience living and working in China, point out in their important book Red Capitalism, China's party leaders have believed in recent years that 'they are better positioned than any market to value and price risk'."
The New York Times reports in "Chinese Solar Panel Maker Falters as Prices Plunge"
"Ocean Yuan, the president of Grape Solar, an importer of solar panels based in Eugene, Ore., said he foresaw a series of bankruptcies by big Chinese solar panel manufacturers, some of which, like Suntech, have very high debt. Chinese manufacturers lost as much as $1 for every $3 of sales last year as they struggled to keep factories open despite falling prices.
"'They are bleeding every day,' Mr. Yuan wrote in an e-mail. 'The more they sell, the more they lose money.'"
Looks like all that stolen technology can't save the company from making bad business decisions. Solar and other green tech intellectual property has been among the highest priorities for Chinese hackers in recent years.
Bad for the industry, but good for the customers (and the power grid). As Warren Buffett said multiple times, there are many industries that have the potential to change the world and benefit society tremendously, but that won't make anyone any money.
The airline industry is a good example. Since the Wright brothers, that industry has probably destroyed capital in the aggregate, yet it's changed the world and flying is incredibly cheap and convenient now.
Solar could be the same, and only solar installers like SolarCity and the owners of solar farms are likely to make money (they actually benefit from lower solar panel prices).
I've been looking into Solar for my house and it's hard to justify. A $15,000 installation pays back only $150 a month in electricity. This is little more than what I could get by putting that $15,000 into a mutual fund.
So - what you are suggesting, is that Solar Panels (installed) are still too expensive and/or electricity is too cheap for you to invest in solar panels for your house right now?
My understanding is that many people invest in solar panels because of additional government incentives.
The US introduced import tariffs of $0.18 to $1.60 per W for Chinese panels, which are produced for $0.63/W. Not entirely tethered to what the U.S. consumer sees...
AFAICT, that's why solar companies are shifting their business models to let the company pay the up-front installation cost and then pass some savings to the owner every month.
I know you were just making a rough comparison, but $150 is 1% of 15000. If you're saying you spend $150/month in electricity and that's barely more than you get from a mutual fund, are you saying you get on the order of 12% a year from your mutual funds, even today?
Per month? Quite consistently? I'm well outside my realm of expertise here so I'm honestly curious. It seems like if this were even semi-consistent people would be borrowing very heavily from banks and dropping it into these consistent stocks with something like 2-4x the interest.
> Plenty of dividend stocks give more than 1%, even.
1% a month, 12% a year on stock price? This is utterly impossible, the stock price would have risen. But if you can tell me where I can get 1% a month for some N$ investment, please share!
might be only $150 now but in 10-15 years when rates double then it turns into a lot more money. Most solar companies are pitching the protection of the power companies rate increases.
I suspect your numbers may be off. A $15 000 investment that produced $150 in nominal cash flows a month for 20 years (low end) would produce an internal rate of return of 9.1%.
Yet solar panels do not produce nominal cash flows, they make energy - a real good. Energy inflation for urban consumers in the U.S. has averaged, month-to-month annualised, 6.7% over the past 10 years. This raises your IRR to 16.3%. The closest maturity-matched non-callable bond is TXU's 2034 6.55 yielding 15.2% to maturity and rated CC by Fitch.
Even allowing you to capture only 1/2 of the energy inflation, your return is 12.7%. A whole point south of Venezuela. Then again, a warranty from a solar company may be worth as much as a dollar lent to Caracas...
PV is coming down in cost precipitously. Energy companies are buying huge PV farms. Their cost of energy will drop.
Utilities are regulated to limit their rates to guarantee minimum profitability, so their price must be correlated to their cost.
Ergo, electricity costs will drop. Your rooftop PV system is never going to be much cheaper, if ever cheaper at all, than the electricity that the utility will provide from utility scale PV that has been installed much more cheaply, and much more optimized than the arbitrary orientation of your roof.
Is that $150 a month in credit the electric company gives you to cover your bill or is that $150 straight up and no electric bill since the panels provide it?
If it's the former it's still a good investment. If it is the later it's a way better than any mutual fund in existence.
34 comments
[ 2.9 ms ] story [ 90.7 ms ] threadHopefully the market recovers and we continue to see prices come down in double-digit percentages each year. With every price drop, the return on solar installations grows and the business model of companies like SolarCity grows more viable.
Amazon.com?
Chinese solar companies didn't have/do either of these and in the end this is what will happen. The market was hugely flooded over the last year and as such most US solar manufacturers are gone and the Chinese ones will start consolidating, live off more subsidies, and hopefully they stop selling at such a low margin so they can actually survive and compete fairly.
http://www.bloomberg.com/news/2013-03-20/china-s-solar-billi...
comes this striking summary of the market: "'Being in the solar manufacturing industry over the past eight years has been an excellent way to turn a big fortune into a small one,' said Jenny Chase, lead solar analyst at Bloomberg New Energy Finance in Zurich."
The Australian press has especially good reporting because of the connections between Suntech and Australia through Shi Zhengrong, the founder of Suntech who moved to Australia after completing higher education degrees in China. The story "Suntech's failure forces Beijing policy rethink" from the newspaper The Australian
http://www.theaustralian.com.au/opinion/columnists/suntechs-...
reports,
"In substantial part, Suntech -- whose board first kicked Shi out of the chief executive's position last August, then a fortnight ago removed him as chairman -- is the victim of state industrial policy.
"As Carl Walter and Fraser Howie, American bankers with decades of experience living and working in China, point out in their important book Red Capitalism, China's party leaders have believed in recent years that 'they are better positioned than any market to value and price risk'."
The New York Times reports in "Chinese Solar Panel Maker Falters as Prices Plunge"
http://www.nytimes.com/2013/03/21/business/energy-environmen...
"Ocean Yuan, the president of Grape Solar, an importer of solar panels based in Eugene, Ore., said he foresaw a series of bankruptcies by big Chinese solar panel manufacturers, some of which, like Suntech, have very high debt. Chinese manufacturers lost as much as $1 for every $3 of sales last year as they struggled to keep factories open despite falling prices.
"'They are bleeding every day,' Mr. Yuan wrote in an e-mail. 'The more they sell, the more they lose money.'"
Here's one egregious example of China stealing clean technology from the US (sorry for the paywall, but it was the best source): http://online.wsj.com/article/SB1000142405311190337400457657...
There are a bunch of APT groups with tasking to steal IP related to clean tech, solar included.
The airline industry is a good example. Since the Wright brothers, that industry has probably destroyed capital in the aggregate, yet it's changed the world and flying is incredibly cheap and convenient now.
Solar could be the same, and only solar installers like SolarCity and the owners of solar farms are likely to make money (they actually benefit from lower solar panel prices).
My understanding is that many people invest in solar panels because of additional government incentives.
/s
I need different mutual funds.
Edit: I am not on the ball tonight
I guess I'm always suspicious of free money.
Oh, duh. My mistake. I can't even claim "it's late, I'm tired"
1% a month, 12% a year on stock price? This is utterly impossible, the stock price would have risen. But if you can tell me where I can get 1% a month for some N$ investment, please share!
I think your math is wrong somehow.
Yet solar panels do not produce nominal cash flows, they make energy - a real good. Energy inflation for urban consumers in the U.S. has averaged, month-to-month annualised, 6.7% over the past 10 years. This raises your IRR to 16.3%. The closest maturity-matched non-callable bond is TXU's 2034 6.55 yielding 15.2% to maturity and rated CC by Fitch.
Even allowing you to capture only 1/2 of the energy inflation, your return is 12.7%. A whole point south of Venezuela. Then again, a warranty from a solar company may be worth as much as a dollar lent to Caracas...
Utilities are regulated to limit their rates to guarantee minimum profitability, so their price must be correlated to their cost.
Ergo, electricity costs will drop. Your rooftop PV system is never going to be much cheaper, if ever cheaper at all, than the electricity that the utility will provide from utility scale PV that has been installed much more cheaply, and much more optimized than the arbitrary orientation of your roof.
If it's the former it's still a good investment. If it is the later it's a way better than any mutual fund in existence.