There were several significant government subsidy announcements, but the news was largely inline with investors’ expectations. The key variable in July was corporate earnings announcements. On average, the earnings reports were generally positive, but demand is showing weakness for western wind turbines and amorphous silicon solar modules.
Global demand for wind turbines continues to be skewed toward China where growth continues to be strong and western players are loosing market share to domestic players with lower cost structures. Spain’s turbine manufacturer Gamesa was down 8.7% for the month after reporting disappointing 2Q10 results, issuing a profit warning for 2010, and cutting its 2011 forecast. Spanish wind project developers also declined in July, though by less than Gamesa because the downstream business model is less sensitive to the current demand swings. EDP Renovaveis was down 7.8% while Iberdrola Renovables was down 2.7%. Vestas was an outlier among its peers, up 11.0% after announcing a substantial new supply contract. The wind sector is suffering from a dramatic decline in demand from the US. EDP Renovaveis stated in their 2Q10 results that the US remains a “buyers market” for electricity and they have not witnessed any material change in appetite for Power Purchase Agreements. Some investors were hoping a change would come from the federal government with the passage of a Renewable Portfolio Standard. However, the Senate failed to even introduce such a proposal and now the issue is likely dead till after the November elections.
China’s wind market continues to boom and favor domestic suppliers that are substantially underpricing their western competitors. Ardour Capital forecasts 16-18GW of China wind installation in 2010, up from 13.8GW in 2009. In July, China Longyuan Power Group was up 12.0%, China High Speed Transmission Equipment Group was up 7.2%, and American Superconductor up 3.7%. American Superconductor derives the overwhelming majority of its revenues from China wind leader Sinovel.
Solar companies also reported mixed results. Suntech Power led the declines at 19.1% due to a disappointing 2Q10 preannouncement. The Company expects substantial writedowns related to their amorphous silicon (a-si) module production and an investment in polysilicon startup Shunda. Recent growth of a-si modules has lagged traditional crystalline silicon and thinfilm alternatives due competitive advances including conversion efficiency improvements. Suntech has canceled plans to fully ramp their a-si lines and capital equipment leader Applied Materials announced it is exiting the space entirely. European solar leaders Q-Cells and SMA Solar Technologies were down 4.1% and 6.1%, respectively, despite indications for strong 2H10 demand in key european marekts. SolarWorld was down 9.4%. Outperfoming the peer group were Trina Solar (up 10.5%) and Renewable Energy Corp (up 6.2%).
Battery and biofuel stocks outperformed most electcity generation companies. Industrial battery leader Enersys was up 8.4% as leading global demand indicators point to healthy growth for the next several quarters. Cozan, the largest pureplay biofuel producer was up 7.6% after on indications of strong demand and pricing for Brazilian ethanol.
Robert Lahey, Ardour Capital Investments, LLC.
