Wednesday, January 9, 2013

Why Chinese Solar Purchases Won't Help Companies With Debt Maturities this Quarter ($STP)

The bullish thesis on solar right now is basically "China plans to add 10 gigawatts of solar power capacity this year." Wow, that sounds like a lot!

But 10 gigawatts is 10 billion watts and photovoltaic modules sell for about about 70 cents/watt, so that's under $7 billion in total revenue.

Most PV solars are running negative gross margins. At even a 5 percent gross margin, these Chinese purchases would only mean $350 million in additional gross profit, spread across the industry. These companies have billions of dollars of upcoming debt maturities.

Also, if it's a big deal for the Chinese government to buy an extra $7 billion in PV modules, for which they expect a positive IRR, why would you expect them to just throw away billions repaying holding company debts to western investors?

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