Solar demand to rebound on Germany: Kleinwort
LONDON (Reuters) - Solar companies will perform better in the second half of the year as demand in the world's biggest market Germany should rebound, said a fund manager at the asset management arm of Dublin-based Kleinwort Benson.
Shipments of solar modules and wafers in the first quarter were hurt as uncertainty over subsidies in Europe stalled sales.
That drove up inventories of unsold products and triggered fears that prices and profit margins in the nascent industry would shrink in coming months, especially as producers rapidly increased manufacturing capacity.
"Solar demand should recover quite strongly in the second half, with over 70 percent of (modules being installed then)," Colm O'Connor, portfolio manager of Kleinwork Benson Investors' alternative energy fund, told the Reuters Global Energy and Climate Summit in London.
"This will be driven predominantly by rebounding German demand," he added, pointing to positive statements made by solar companies last week at Intersolar, the world's largest solar trade show.
The solar sector has returned to the public eye after Germany decided to drop nuclear power for good following Japan's plant meltdown, forcing governments to focus on alternative energy sources.
But firms have been grappling with government subsidy cuts in the two largest markets Germany and Italy, pressuring margins and prices in the aid-dependent industry.
Kleinwort Benson Investors' (KBI) 50 million euro ($71.87 million) alternative energy fund experienced a two percent decline to the end of May, driven by subsidy uncertainty and a sharp decline in module prices.
But even though it sees solar as the most expensive renewable technology, KBI still believes the industry can survive and grow while prices are falling.
"Solar companies should recover quite strongly in the third and fourth quarter, but visibility is low and investors are very reluctant to buy into the space until they see that price stabilization," O'Connor added.
Longer term, the fund sees China emerging as the biggest solar market in the next three years, followed by the United States.
Although China installed 500 megawatts of solar energy last year -- less than 0.1 percent of its overall energy mix -- KBI sees the country trebling its solar installations this year to 1 gigawatt (GW) and again next year to 3 GW.
"We see huge growth in China in solar energy over the next few years," O'Connor said. "Even if oil prices fall, they can't massively derail that."
"Over 70 percent of all modules made in the world come from China," he added. "That's going to increase to 80 or even 85 percent by year-end."
The United States will also have an attractive solar market.
"Solar import prices have fallen so much in states like Arizona, Nevada and California, which have adopted their own incentive schemes, the economics now makes sense and utilities are hugely encouraged to install new solar projects," he said.
U.S.-based MEMC Electronic Materials (WFR.N), which supplies the raw material for the solar and semiconductor industries and solar bellwether First Solar (FSLR.O) are the fund's two top holdings, even though shares in both companies are down more than 20 percent since the start of the year.
"We think there has been an indiscriminate selling of all solar stocks across the value chain regardless of what geography they are located in," O'Connor said.
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